Cutting production ties with China is impossible

In response to COVID developments and rising geopolitical tensions, companies may be re-shoring, or near-shoring production out of China, but the country’s dominance in world trade makes cutting it out of global supply chains impossible, say leaders of two of the world’s most important companies.

Europe is trying to reduce its dependency on China as the COVID-19 pandemic, coupled with the ongoing war in Ukraine, has highlighted reliance on dominant suppliers and the fragility of supply chains, but Mercedes-Benz CEO Ola Källenius, said that decoupling from China is unthinkable.

The major players in the global economy, Europe, the U.S. and China, are so closely intertwined that decoupling from China makes no sense to Mercedes-Benz.

Two of the company’s top shareholders are Chinese, and China made up 18% of revenues and 37% of car sales for Mercedes-Benz in 2022, with more business expected to come out of China in 2023. 

Michael Fitzgerald, deputy finance chief of Orient Overseas Container Line, acknowledged the trend to move production away from China, but pointed out that the absolute scale of production in China is huge. So huge, that even if Vietnam and India are growing their production by a bigger percentage than China, the relative scale means that there is still a huge proportion of the global supply chain reliant on China.

While Fitzgerald acknowledged that companies including Apple, Samsung, Sony and Adidas have shifted some production out of China he contends this represents an incremental shift and that they are simply not going to pack up and go. “It’s just not possible,” he said. “How would you want to shift that much production?”

The shape of US trade is definitely evolving, with container import volumes from China dropping 10% in just a year, while the share of imports from India and Thailand rose 5% and 4%, over the same period.

We continue to monitor the diversifying growth in production around south-east Asian countries including Vietnam and the growth in emerging markets, including Africa and Latin America, to support our customers’ diversification and sourcing strategies, but China is still a huge market serving all sorts of different products.

We have fixed price and long-term capacity agreements in place with sea and air carrier partners, to support trade with China, India and South East Asia, with resilient, consistent and reliable supply chain solutions.

Our cloud-based supply chain management platform, MVT, simplifies global sourcing, by making every milestone and participant in the supply chain transparent and controllable, down to individual SKU level.

EMAIL Elliot Carlile to review our current freight profile movements to and from China and Asia.