China has the worlds largest infrastructure to accommodate manufacturing supply chains. It is also the dominant market for shipping port TEUs (twenty foot equivalent units). Other Asian nations only operate a fraction of China’s TEU capacity. This situation is the same regarding air freight.
Alternative locations to China such as South East Asia, India, Mexico currently have relatively small port throughput and are likely to struggle to replace China’s lion’s share of port throughput. Europe accounts for only a small portion of throughput compared to China-alternates in South East Asia.
The other concern is capital flows continue to leave Europe, at least for the time being, thus having some impact on costly oversight need for inbound Europe infrastructure.*
2017 Throughput twenty foot equivalent units
Key air freight hubs worldwide are in China, US and UAE. Combined these hubs dominate tonnage handled according to Morgan Stanley Research. The challenges in selecting global manufacturing locations where China is not point of consumption surface when manufacturers realize alternative countries in South East Asia and other regions are currently unable to handle significant volume shifts away from current major transportation lanes.
Vietnam and Mexico have both benefitted from interest as a result of US-China tariff discussions.
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But both alternate destinations carry benefits, and challenges. While Mexico is closer to US proximity than China, Vietnam’s labor, while relatively cheaper than China’s, is mainly comprised of lower labor skills if high-end manufacturing is required.
Additionally, Vietnam infrastructure is under-developed even though Vietnam has robust infrastructure spending ~6.3% of GDP (on average) over the past 5 years, which is more than twice the average in ASEAN region.
Air freight ton kilometers by nation 2017
China, US & UAE are easily the dominant hubs for air freight. Decision for electronics OEMs seeking alternatives to China and the US-China tariff talks sometimes can hinge on the manufacturing product’s point of consumption.
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*Add to transportation capital infrastructure and maintenance costs, capital costs for nations and corporation borrowing are also set to rise. Morgan Stanely writes in their report “this will take a considerable time to flow into corporate P&L (especially in Europe) nevertheless it’s another negative change at the margin.”
Asia manufacturing sourcing
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