Global trade patterns may be changing as businesses increasingly avoid trouble hotspots in a “friendshoring” trend, preferring to conduct trade with friendly nations in a bid to cut their exposure to geopolitical tensions, according to the ocean and air freight market intelligence firm Xeneta.
Companies have followed “offshoring” and “nearshoring” trends in recent years as a strategy to trim costs. But the new approach shows that unrest is a more acute business threat than higher costs.
“In the aftermath of the US-China trade war, the global pandemic and the invasion of Ukraine, amongst other on-going factors, there’s been renewed focus on supply chain security. There’s a new appreciation of how easily everyday operations can be disrupted, and the growing geopolitical uncertainty is only exacerbating that,” Emily Stausbøll, market analyst at Xeneta, said in a release.
“As a result, we’re seeing more signs of friendshoring, whereby investment, manufacturing links and facilities are moved to countries that are deemed to be ‘friendly’ – essentially sharing the same values or geopolitical outlooks. This is a gradual process, but we can already see some significant changes in the flow of containerized ocean freight and a real sea change in streams of foreign investment. The impact of this should not be underestimated.”
Xeneta cited U.S. import statistics to illustrate the shift. The last five years have seen a rise of 26% in containerized imports to the U.S. from the Far East, but of the 12 major economies in the region, China tied with Singapore in recording the lowest growth in these exports, with a 7% increase (Hong Kong was the only one of the economies not to grow volume). That sits in marked contrast to “the more friendly” Vietnam, which saw a growth rate of 156% of containerized trade into the U.S. between 2017 and 2022, Xeneta said.
The profile held true in a breakdown of imports per country, as well. In 2022, 56% of all containerized imports into the U.S. from the Far East came from China. But that large share has actually fallen by 10 percentage points from 2017, while Vietnam has almost doubled its share over the same period, from 6% in 2017 to 11% in 2022, the Xeneta report found.
Xeneta also found evidence of friendshoring in an analysis of foreign direct investment (FDI)—which is investments by foreign companies into each nation—conducted by the International Monetary Fund (IMF).
That study showed that investments by foreign companies into China fell to their lowest level in close to two decades in the second half of 2022. They collapsed by 73% year-on-year, down to $42.5 billion. In contrast, Vietnam has seen FDIs grow by 61.2% year-on-year across the first three months of 2023, including a 62.1% increase in the number of new foreign-invested projects. The processing and manufacturing sectors attracted the most investment here, accounting for around 75% of the total.
“It takes time to build new production bases and make port infrastructure investments, as we’re seeing in, for example, Vietnam, Cambodia, and Singapore, so the impact of investments today won’t be fully appreciated until tomorrow. This implies that the changing trade patterns we’re seeing now could just be the beginning of a far greater realignment,” Stausbøll said.
“Moving forwards, the evidence suggests we’ll see more trade and investment decisions based on geopolitics rather than, say, availability or price. How this progresses, and the speed of change, will be dependent on a range of uncertain factors – not least the escalating tension around Taiwan. So far, Europe has maintained its share of imports from China, with key leaders taking a more conciliatory approach than the U.S., but another major geopolitical ‘event’ could transform that. The only sure thing is change, and friendshoring is bound to influence how that unfolds.”