Friendshoring is an option, but can’t diminish China’s supply chain … – Project Cargo Journal Feedzy

 

Amidst mounting geopolitical pressure on global supply chains, political leaders are actively seeking alternative strategies to mitigate risks posed by conflicts such as the war in Ukraine or the dispute between China and Taiwan. In recent years, the concept of friendshoring has emerged as a popular solution.

Brought up at the Atlantic Council over a year ago by the US Secretary of the Treasury, Janet Yellen, friendshoring was a new approach to organising global supply chains in order to “achieve free but secure trade” by favouring trusted countries. At the time, Yellen emphasised the need to turn away from China and move supply chains to US partners such as Taiwan, India, Vietnam, and Mexico.

But did this shift really work? According to Andreas Menzel, Managing Director (Germany) and Group Sales Director at Trans Global Projects, it is not an option to leave China’s manufacturing power out of the project plans. Menzel may present a European perspective to the question/answer, but according to a recent review by the Atlantic Council, supply chains don’t change overnight and this uncoupling of the US economy from China is not going as smoothly as planned. In some cases, such as those involving large-capacity batteries, or critical minerals, to name a few, US dependence is even higher.

Menzel notes that this can be explained by two factors – cost competitiveness, and availability of critical goods that are not being produced elsewhere, at least not at a price-competitive level.

Even other developing countries, according to Menzel, are becoming more confident in what they are doing and they are turning to China and even Russia for technology and products due to the said competitiveness. Europe especially has no influence on the development of these markets.

Concentrating on Europe

Europe is currently in a peculiar position. Speaking during the recently held Project Cargo Summit, Maarten Sickler, Technical Director of the Maritime Division at Conoship International, said that Europe had forgotten to manufacture a while ago.

And while steps are being taken in that direction, to move the manufacturing facilities closer to Europe, or where the projects are being developed the capacity is still lagging well behind the demand.

While some companies are able to offer solutions already, larger companies are taking time due to the scale of their manufacturing processes, Amanda Bouin, Global Senior Director for Energy and Marine Logistics, told Project Cargo Journal in an interview.

“We see that there is quite some manufacturing taking place in Europe and cargoes being shipped to the US. But we are also seeing something else, the United States are looking to reduce importing project cargo from China, look for alternatives, but also build up its manufacturing capacity again,” Menzel adds.

However, there is again a question of high salary levels and subsequently production costs. Is it a price worth paying?

Shipbuilding is the best European example

Towards the end of last year, it was noted that European shipowners are highly dependent on Chinese capacity. Head of Research at Toepfer Transport, Yorck Niclas Prehm said that within the MPP sector, only five per cent of vessels ordered by European market players are being manufactured within the European Union.

Despite many EU nations, such as Germany, Spain, Portugal, Croatia, and Italy, having shipbuilding capacities, most focus on smaller vessels, specialised tonnage, navy vessels, and cruise vessels, according to Yorck Niclas Prehm.

The need for fleet renewal in the multipurpose vessels sector is a story of its own, but in light of Chinese dominance in the sector, it has to be highlighted that out of 34 ships on order or under construction as of July, 32 are being contracted in China. It is a significant risk, especially keeping in mind the geopolitical conundrum surrounding China and Taiwan and the involvement of the United States and the EU. A non-delivery of the vessels in case of future potential conflict is a worst-case scenario, but not a far-fetched one.

In conclusion, the concept of friendshoring may have sounded promising, but it is clear that the shift away from China is not going as smoothly as planned, and may be completely impossible in some cases. The high cost of production and lack of availability of critical goods elsewhere make it challenging to completely decouple from China.

It remains to be seen whether friendshoring will ultimately be successful, or if the world will need to find a different solution to mitigate risks in global supply chains.