The Daily View: Adapting to the new world order

THE big is beautiful mantra that produced a generation of box behemoths designed to capitalise on economies of scale, fell out of vogue a while ago.

Flexibility in the face of changing trade dynamics is where the smart money goes these days, and the shift towards smaller tonnage offers an instructive view of the new world order of trade.

The transhipment recalibration in response to geopolitical tensions and tariff disruptions inevitably saw trade reroute in response. But that was temporary and transitional.

That is now giving way to a genuine shift in production, and shipping is quickly having to adapt.

To avoid higher costs, manufacturers are incentivised to shift production to lower-tariff economies rather than trying to sneak around tariffs.

The Trump effect is certainly catalysing that trend, but much of that shift had already been underway.

For more than a decade, many firms that once sourced mainly from China have quietly opened factories or sought suppliers in other countries. As the economist Marc Levinson recently pointed out, that approach, known as “China plus one”, may no longer be sufficient.

With the United States now sanctioning numerous trading partners as it sees fit, managing value-chain risk may require multiple options in case a second-choice supplier country falls from Washington’s good graces.

“China plus two or three” is likely to be an expensive strategy, making it harder to gain economies of scale, but it may be wiser than assuming that US trade agreements will be adhered to.

But China itself is also driving much of this shift, moving low-value manufacturing offshore and relocating assembly and basic processing to emerging Asian economies.

Tariffs are accelerating this trend, but China has been systematically shifting from consumer goods towards intermediate goods for years.

Intermediate goods represented 40% of China’s exports in 2024 — up from 27% in 2010.

When Oxford Economics convened a confab of macro economists in London this week, one of the most startling figures was the forecast that the share of intermediate goods in China’s exports will rise to 45% by 2035, while the share of consumer goods will contract from 27% to 24%.

Those intermediate goods are substantially more sophisticated than the low-value assembly China is shedding.

China is set to dominate the fastest-growing trade routes over the next five years, largely driven by increased shipments of intermediate goods. This includes shipments to Taiwan, Vietnam, the Philippines, India and Saudi Arabia — all poised to take a share of China’s shrinking final production

So when Chinese domestic ship operators start placing orders for small boxships, this is partly about the orderbook and the opportunity, but the more important signal to the rest of the world is that this is a long-term bet on the recalibration of trade lanes.

This is no longer a temporary rerouting of Chinese goods through lower-tariff economies — this is a pivot towards international trade routes along Belt-and-Road corridors, as Chinese manufacturing supply chains extend overseas.

Richard Meade
Editor-in-chief, Lloyd’s List

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