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New Q-Series Report from UBS on Industrial Transport
Outsourcing continues unabated but global consumption does not, according to a new "Q-Series" (TM) report released by UBS today.The report, entitled "Industrial Transport," (Raymond Maguire, Global Head of Transport Research), examines the outsourcing of manufacturing using a proprietary database that analyzes freight flows by air and sea. The UBS analysis shows that while Asian outsourcing continues to grow, especially on the Chinese trade lines, total export growth to the U.S. and Europe is now slowing from the exceptional levels of the past two years, with the exception of clothing. China continues to gain market share across all product areas translating to robust freight flows, albeit at a slowing rate. At the same time, outsourcing to Asia is having a detrimental effect on non-Chinese exporting.
The key question examined in the "Q-Series" TM report is whether this slowdown is due to a softening economic environment, whether outsourcing to China/Asia has slowed, or whether China's gain in manufacturing has been detrimental to other exporting countries, in effect, offering a zero-sum game. Evidence points to a combination of all three factors:
· Low-value outsourcing in industries such as footwear, toys and furniture has reached maturity. (Up to 87% of US imports of these goods already emanate from China.)
· China, with aggressive market share gains, is cannibalizing the growth from other exporting countries, negatively impacting non- China trade lines.
· There is a softening economic environment, especially in housing- related good such as furniture.
While growth is slowing, four key trends continue to drive outsourcing growth:
· Competitive outsourcing. Wal-Mart, for example, commands some 3.7 percent of the entire U.S. containerized import market (up from 2.2 percent in 2002). The company imported some 62 percent more seafreight in 2003, but this has slowed to 22 percent in 2004 and UBS predicts 15 percent in 2005. There has also been a slowdown in sourcing from the number two and three importers, Home Depot and Target. Although the slowdown has been somewhat offset by growth from competitors, the rate of imports to the top 50 U.S. retailers has slowed from +26 percent in 2003 to +14 percent in 2004 and UBS estimates a slowdown to 10 percent in 2005.
· China is moving up the value chain by producing higher-value, more sophisticated products. This trend is expected to continue and is an important factor in the transportation growth story as the outsourcing of lower value goods reaches maturity.
· The end of the clothing and textile quota system in January 2005 resulted in a boom in clothing exports to Europe and the U.S. from China (China has gained significant 16 percentage points of market share of the U.S. import clothing market by sea and 20 percent gain in air from 2002 to first half 2005). · European outsourcing is growing.
Seafreight continues above trend while airfreight does not. However, air exports from China have accelerated up from an average of +23 percent from 2002-4 to +39 percent year-over-year in the first half of 2005. Outsourcing to China/Asia was initially exclusive to low-value goods such as furniture, which primarily were transported by sea, but as China produces more sophisticated high-value products, more of these goods will go by air.
The report covers other reasons for seafreight and airfreight trends, , including that up to 40 percent of airfreight is typically technology related, and as much as 80 percent on some routes. Slowing airfreight growth may be a reflection of a softening technology market.
UBS is one of the world's leading financial firms, serving a discerning global client base. As an organization, it combines financial strength with an international culture that embraces change. As an integrated firm, UBS creates added value for clients by drawing on the combined resources and expertise of all its businesses.
UBS is the world's largest wealth manager, a top tier investment banking and securities firm, and one of the largest global asset managers. In Switzerland, UBS is the market leader in retail and commercial banking.
For copies of the Q-SeriesTM report "Industrial Transport," please contact :
Christine Anderson at 212-882-6019.
New York, September 20, 2005