Made in Vietnam: Emerging logistics giant isn’t slowing down post-TPP

In their own back yard

While the European connection looks to remain a vital aspect of Vietnam’s growth in the airfreight sector, the country also benefits greatly from being in the Southeast Asian corner of the world. As labor costs keep rising in China, many Chinese manufacturers are looking elsewhere for less-expensive workers.

“Free trade cuts both ways,” said Zvi Schreiber, CEO of online forwarding firm Freightos. On the one hand, with the TPP out of the running, Vietnam forfeits “an extra competitive boost, from freer trade with the U.S., that would have given them an additional edge over China,” he said. But he also pointed out that “China is becoming richer and more expensive, and that benefits the less sophisticated manufacturing countries.”

So, while China’s exporters stand to benefit from the demise of the TPP, that’s not all bad news for Vietnamese exporters, since rising wages are sure to drive up demand from middle-class Chinese consumers for Vietnamese-made goods. Meanwhile, as the sophistication of manufacturing in Vietnam increases, more expensive goods will be loaded into the bellyhold of jets bound for China.

Schreiber also noted that it would be tough to compete with South China because the entire ecosystem was in place for complex manufacturing there. “In Shenzhen, you drive up and down the street and there are people making every possible component in electronics, so the fact that the labor was cheaper in Vietnam was irrelevant to us because none of the sub-contractors, none of the parts were available at the same expense,” he said.

China took a page out of the U.S. playbook and, along with 15 other countries, including Vietnam, has been negotiating a region-wide trade deal since early 2013, covering around 30 percent of global GDP. The Regional Comprehensive Economic Partnership (RCEP), while a less comprehensive treaty than the TPP, has finished its 15th round of negotiations, and other countries are watching with interest.