Transportation and logistics companies should benefit enormously from the opening of China’s market following the vote in the U. S. House of Representatives to grant Beijing permanent normal trade relations status.
The market opening is expected to result in large increases in two-way trade, meaning more cargo for both ship lines and air cargo carriers serving China.
Even more important, the agreement between U. S. and Chinese negotiators on the terms of China’s entry into the World Trade Organization will lead to an opening of its distribution channels.
“As wiser heads than I have pointed out, dropping your goods on the dock in Shanghai is very nice, but moving them where they need to go and servicing them after you’ve sold them are prime prerequisites in China,” said Robert Kapp, president of the Washington-based U. S. -China Business Council.
Liberalization of the distribution and services sector may have greater overall benefit for U. S. business than any other aspect of the WTO agreement, Kapp said.
Opening of the distribution sector should benefit ship lines such as APL, Maersk Sealand and OOCL, all of which have established intermodal units within China. Logistics providers such as Circle International, Danzas-AEI and air-cargo carriers, including Federal Express and DHL, will also be able to operate more easily within China.
John Holden, president of the National Committee on U. S. -China Relations, notes that China’s global trade is expected to grow from $324 billion in 1998 to $600 billion by 2005.
“There’s no question that China will play an increasingly important role in global trade,” he said.
U. S. farm products and high-technology goods should enjoy big gains in China as Beijing opens its markets to foreign goods.
“This agreement will result in significant structural changes to Chinese agriculture and will create significant opportunities for U. S. exports of grain, meat, citrus, dairy products and cotton,” said Holden, a former top executive in China for Cargill, the big U. S. -based grain company.
Increased agricultural exports would be a boon to ocean carriers, while shipments of computers, cell phones, pagers and other high-tech equipment would lead to more traffic for air carriers.
Jim Kelly, chairman and chief executive of United Parcel Service, said the vote underlines its case for direct UPS flights to China.
“In today’s Internet economy, guaranteed, just-in-time express service can provide a significant competitive advantage to U. S. companies and workers, but right now there is not enough service to meet the demand PNTR will create,” he said.
UPS is vying with American Airlines, Delta Air Lines and Polar Air Cargo for the right to begin direct service to China by April 1,2001. In addition, the three carriers that currently have direct service to China – Federal Express, Northwest Airlines and United Airlines – are seeking the right to offer additional flights. The U. S. Department of Transportation is expected to rule on those requests this summer.
“It is crystal clear that additional express service to China is going to be very important as trade grows,” said Tad Segal, a UPS spokesman.
China’s entry into the World Trade Organization was virtually assured even if the United States does not grant if permanent-normal-trade relations status. However, failure to pass the measure would entitle China to restrict the benefits available to U. S. companies, allowing European, Japanese and other foreign companies to gain an edge.
The farm lobby and the high-tech sector were among the leaders in pressuring undecided congressmen to vote in favor of the measure, which still must be approved by the Senate. Senate approval is expected, although Senator Jesse Helms, R-N. C. , chairman of the Senate Foreign Relations Committee and an outspoken foe of China, may attempt to block it. The Senate could pass amendments that would require a second vote in the House. By joining the WTO, China’s economy will become more closely integrated into the global economy, said Jess Bunn, a spokesman for FedEx.
“For U. S. ports and trans-Pacific carriers, this would mean improved two-way traffic across the Pacific. China is already one of the largest sources of cargo because of the huge volume of imports. China’s entry into the WTO would help balance the trade by making it easier for U. S. producers to export to China,” Bunn said.
“We believe this is a positive step,” said Gary Frantz, a spokesman for Circle International, a San Francisco-based logistics provider. “Companies like Circle with strong networks and infrastructure in both countries are well-positioned to benefit.”
Frantz added that the reaction from Circle’s customers has also been positive. “They think it will be easier for them to take advantge of opportunities in China. How and when will only become clearer in time.” John Turner, senior vice president for sales and marketing at BAX Global, said China’s entry into the WTO and the House vote on trade relations will inspire companies that aren’t already in China to start doing business there. “This will probably move faster than Nafta,” he said, referring to the North American Free Trade Agreement.
Grove Conrad, president of China Shipping North America, said China has gradually been opening distribution channels and avenues for Western logistics companies all along. “Admission into the WTO will really accelerate that,” said Conrad, whose company is a joint venture between China Shipping Group and Norton Lilly International.
Jim Friedel, vice president of cargo at Northwest Airlines, said the House vote was a good step forward. Pending approval by the Senate, permanent normal trade should help Northwest and all other carriers. “It’s relatively easy to fill planes out of China, but it’s tough the other. WTO entry should remove barriers to U. S. exports. We expect things like telecommunications equipment, computing equipment and consumer goods to flow better than they do today,” he said.
China’s entry into the WTO, likely to take place later this year, will almost certainly be followed by Taiwan’s admission. That should lead to more direct trade between the two sides, benefiting ocean carriers such as China Shipping and its prime rival, China Ocean Shipping Co. , as well as Taiwanese carriers like Evergreen and Yangming. Air carriers, including FedEx and UPS, will also benefit.
Increased direct trade with China could, however, hurt Hong Kong, which has been a primary conduit for China trade ever since the Chinese communists took control of the mainland in 1949. The key for Hong Kong companies will be to hone their skills as service providers.
