While the US-China trade war has fuelled substantial talk of companies moving their manufacturing out of China to neighbouring Southeast Asian countries like Vietnam or Thailand, FedEx Corp CEO Fred Smith says it is something, ‘easier said than done’.
Speaking yesterday in Singapore about the ongoing trade dispute, Smith, in an interview with Bloomberg Television said: “I would say there’s a lot of adjustment going on out in the Pacific. A lot of our customers are telling us that they’re looking to shift some of their supply chains to Vietnam, Thailand, away from China.
“There’s a lot of talk about it, but it’s a lot easier to talk about it then to do it. The infrastructure been built up over years and Vietnam, despite the fact the wage advantage is almost 1/4th compared to China, you can’t just move the factory to Vietnam.
I would say there’s a lot of adjustment going on out in the Pacific. A lot of our customers are telling us that they’re looking to shift some of their supply chains to Vietnam, Thailand, away from China.” – Fred Smith, CEO FedEx Corp.
“So I think at the moment there’s more talk about it an advanced planning and everyone is hoping the tariff dispute will get resolved,” Smith said in the Bloomberg interview. Much of the adjustment came with early shipping in advance of the peak season to avoid possible tariffs, with some of the cargo going by ocean instead of air, Smith added. It was a case more of front loading than actual structural changes to supply chains, he said.
But the real question, “is what happens to orders after the first of the year?” He added that the whole trade dispute is “a lot more complex than people like to think it is. And action begets reaction, but the world will survive,” he added.
Smith also said the impact on FedEx was limited to about 2.4 per cent of its revenues, because the products carried by the global express and logistics giant falls outside of most of the hardest hit commodities.
And he highlighted that being a global company, FedEx flies everywhere. “We serve all the countries we just talked about and China is a huge and important market for us… but we do a lot of different things, so Asia and China is just part of it.”
When asked by Bloomberg if the US company was planning any acquisitions in Asia, Smith said “there is no acquisition that we feel we need to make”, but hinted of another major acquisition somewhere in the world to come. “TNT was a very important acquisition for us, but quite frankly there’s another one on the horizon quite like that,” he said without getting into specifics.
When asked about the potential impact from Amazon.com extending its own ground delivery network, Smith said Amazon’s ground expansion, “does not have any impact that we can see,” but highlighted it was the US Postal Service (USPS) that would be hardest hit.
“Amazon is delivering things from their fulfilment centre to customers. We are transporting and delivering things from every person and business to every other business and person. The biggest single provider of delivery services to the Amazon fulfilment centre is the US Postal Service and they’re the ones that Amazon’s proprietary, or indigenous delivery system takes the most value from,” he said.
“Amazon is a good customer and we think they’ll be a bigger customer in the years to come if they continue to grow and they should. But they’re going to do some of their deliveries themselves for many reasons,” he added.