Will Indonesia Benefit from China-US Tension?

A report carried this week by Forwarder Magazine and Hellenic Shipping News suggests that Indonesia – along with India and Vietnam – is set to benefit as China-US tensions escalate and trade flows are reshaped. The idea is based on an episode of The Freight Buyers’ Club podcast, produced with the support of the Dimerco Express Group, in which Neil Johnson said his company was receiving enquiries every day from clients “looking to diversify the geography of their supply locations.”

Johnson is Co-Founder of customs firm TNETS which processes some $200bn of trade each year. He says that shifting geopolitical and demographic landscapes, not least uncertainty about China’s role as a reliable long-term manufacturer as tensions with the US escalate, will reshape trade and shipping flows over the rest of this decade. This will create new opportunities for countries and companies in Asia – including Indonesia.

At the same time, container lines, airlines and logistics providers were already preparing for this sourcing transformation by investing heavily across Asia. “The carriers are coming,” he said. “We are seeing more investment in freight services and more investment in airlines around the region. I think, the physical part [of this procurement shift] is probably the easier part to deal with.”

“In Indonesia the middle class is going to be huge, and they are going to have tremendous spending power,” added Johnson. “Indonesia is definitely going to benefit from China plus one, or plus two, or plus 12, strategies.

“But Indonesia needs additional investment in logistics. That has been forthcoming, but it has been forthcoming very, very slowly.

“There are new ports being built, airports are getting some investment, but it’s still not going to be sufficient to meet the needs of that growing middle class.

“Indonesia is the largest economy in Southeast Asia and it’s going to benefit from decoupling [of manufacturing from China but] it needs more infrastructure and that’s right across the archipelago.”

The burgeoning middle classes emerging in countries with younger demographics than China are creating new markets as well as providing ready flows of labour. Johnson said Bangladesh and Vietnam in Asia, and Mexico in the Americas, would also be beneficiaries of the shift of manufacturing from China. But all require improvements in their trade and customs processes, and logistics, shipping and air freight infrastructure.

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