The bustling activity through this crucial trading route is emblematic of the growth of Asian economies, which are increasingly trading with each other.
Countries like Vietnam and Indonesia are experiencing significant economic growth, with expanding domestic markets and a growing focus on high-tech industries, already seen in countries like Taiwan, South Korea, and India (Chart 1). This diversification within Asia is creating a more robust and interconnected regional economy.
Chart 1. Asian companies becoming global leaders in technology
Developing Asia & shipping
Shipping is the lifeblood of Asian economies. Container shipping is the primary mode of cargo transportation between countries separated by wide bodies of water.
It’s no surprise that, until the 18th century, Asia was the center of world trade. Several factors, including an increasing number of free-trade agreements, regional integration, and the rise of the Asian consumer, have driven the resurgence of Intra-Asian trade.
Developing Asia economies handle 62% of the world’s port container traffic.[1]
Today, Developing Asia economies handle 62% of the world’s port container traffic, and these links continue to expand.1 According to the International Monetary Fund, Intra-Asian trade will constitute approximately 40% of global trade by 2030.2
The rise of Intra-Asian shipping
The surge in intra-Asian trade necessitates a robust and efficient shipping industry. Here's how this sector is adapting:
- Growth of regional shipping hubsPorts in Singapore, Shanghai, and Hong Kong have traditionally dominated Asian shipping. However, ports in Vietnam, Thailand, and Indonesia are experiencing significant growth, catering to intra-regional trade routes.
- Investment in shipping infrastructureGovernments and private companies are investing heavily in expanding port capacity, improving logistics networks, and developing new shipping routes within Asia.
- Technological advancementsAutomation and data analytics are being implemented to optimize shipping operations, making them more efficient and cost-effective.
A green shipping revolution
The global shipping industry is responsible for as much as 3% of the world’s carbon dioxide (CO2) emissions. In July 2023, the International Maritime Organization’s Marine Environment Protection Committee announced the industry’s ambition to achieve net zero emissions by 2050.3 This bold goal will drive demand for new ships powered by cleaner, less carbon-intensive fuel.
We believe this presents an exciting opportunity for investors as we enter a new multi-year upcycle for shipbuilding.
We believe this presents an exciting opportunity for investors as we enter a new multi-year upcycle for shipbuilding. Korean firms, especially the world’s largest shipbuilding company by capacity headquartered in Seoul, are at the forefront of developing vessels that run on alternative fuels.
The shift towards greener vessels will necessitate more complex engineering. We believe this will play into Korean firms’ scale and technological advantage (Chart 2). While investors have historically viewed the industry with skepticism, considering it is value-destroying, the emergence of these innovative vessels heralds a positive shift in margin outlooks.
Chart 2. Korean shipbuilders are well-placed for alternative fuel vessels
Final thoughts
The Asian economic landscape is undergoing a significant shift. While traditional East-West trade remains essential, we believe the rise of Intra-Asian trade presents a compelling opportunity for investors.
And the future of Asia is intertwined with the growth of Intra-Asian trade and shipping.
Investors in emerging market equities can capitalize on this trend by focusing on companies that cater to this booming intra-regional exchange, from exporters to logistics players, investors can capture the long-term potential of Asian economies.
1 Fact sheet #15: Maritime transport indicators. United Nations Conference on Trade and Development. UNCTAD Handbook of Statistics 2022 - Maritime transport, November 2022. https://unctad.org/system/files/official-document/tdstat47_FS15_en.pdf.
2 Review of Maritime Transport 2023: Facts and Figures on Asia. United Nations Conference on Trade and Development. Review of Maritime Transport 2023: Facts and Figures on Asia, September 2023. https://unctad.org/press-material/review-maritime-transport-2023-facts-and-figures-asia.
3 "Why shipping faces a showdown over greenhouse gas." BBC News, July 2023. https://www.bbc.com/news/science-environment-66064838.
Important information
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed, and actual events or results may differ materially.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.
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