Regionalisation of Supply Chains and Impact on Singapore’s Trade and Logistics Sector

8 Mr Desmond Choo asked the Minister for Trade and Industry (a) whether the Ministry expects a greater regionalisation of supply chains; (b) what is the expected near and longer term impact on Singapore's trade and logistics sector; and (c) how will the Ministry prepare companies and workers for this challenge.

The Minister for Trade and Industry (Mr Chan Chun Sing): Mr Speaker, Sir, the COVID-19 pandemic will accelerate shifts in global supply chains that were already underway before the pandemic struck, arising from global trade tensions, the need for resilience and the impact of technological change.

There is no telling how supply chains will eventually be reconfigured, but it is likely that supply chains will be relocated nearer to the final demand markets, so as to strengthen resilience against future supply disruptions.

In the near term, there will be a severe impact on the global economy and Singapore. Earlier today, MTI announced a downgrade of Singapore’s GDP growth forecast for this year from -4% to -1%, to the new range of -7% to -4%. The outlook for outward-oriented sectors, such as manufacturing and those related to trade and logistics, remain weak, adversely affected by the sharp slowdown in many of Singapore’s key markets.

However, as we adjust to the new environment, there will also be opportunities to fill new and unmet demands and to participate in the new supply chains that are formed. As companies consider shifting production lines to the region, Singapore and Southeast Asian countries can facilitate these new investments by matching overseas interest to suppliers and global distributors. Our posture, therefore, must be to foster greater regional integration and global interdependence rather than to try and maximise domestic production which may not be the most efficient nor sustainable.

We are helping our companies and workers to take advantage of these shifts.

First, we will continue to boost our connectivity to the region and uphold our status as a financial and logistics hub. The network of Digital Economy Agreements we have started to build with partners, such as Australia, New Zealand and Chile, will augment our extensive network of Free Trade Agreements to ensure that our companies have access to the opportunities in the digital economy.

Amidst the pandemic, Singapore has been working closely with other like-minded countries on various initiatives to ensure supply chain connectivity. We issued a Joint Ministerial Statement with 10 other countries to affirm our commitment to ensure supply chain connectivity and to refrain from imposing export restrictions on essential goods. As a concrete follow-up of this initiative, we have signed a declaration with New Zealand to eliminate customs duties, not restrict exports of essential medical products, as well as expedite clearances of these goods through sea and air ports.

We are similarly working with our fellow ASEAN countries to ensure the continued supply of essential goods, and remain fully committed to signing the Regional Comprehensive Economic Partnership (RCEP) this year. Doing so amidst the pandemic would also send a strong signal of our continued commitment to free and open trade, as well as unlock further economic opportunities.

Second, we are helping our companies take advantage of these shifts. For example, under the Research, Innovation and Enterprise plan, we are deepening our companies’ R&D capabilities in Industry 4.0 supply chains to address industries’ needs in optimising and ensuring supply chain resilience. We are helping businesses leverage digital platforms to grow their international reach. Earlier this year, we introduced Grow Digital under the SMEs Go Digital Programme to help SMEs seize business opportunities in overseas markets through e-commerce platforms, without having a physical presence overseas.

Third, we have also introduced enhanced training and re-skilling programmes to prepare our workers and companies such that they can capitalise on the upswing when the economy recovers. In March 2020, Workforce Singapore (WSG) launched a new Redeployment Programme for Supply Chain and Logistics Coordinators to help firms reskill and redeploy existing rank-and-file workers to take on new or redesigned job roles as companies digitise or transform their business processes.

Mr Speaker, Sir, we will continue to do our utmost to help companies and workers adjust to these changing supply chains. While some concern amidst this flux is understandable, we should not despair. Such shifts are not a zero-sum game. Even as countries like the US and Japan diversify their production from China, so, too, are Chinese companies going international and moving more production to Southeast Asia. This will present new opportunities for regional economies like ours which will, in turn, deepen the economic links between Southeast Asia and these countries.

To harness these opportunities, we will work with companies and workers to invest in building new capabilities, and as One Singapore, to emerge stronger from these challenges.

Mr Speaker: Mr Desmond Choo.

Mr Desmond Choo (Tampines): I would like to thank the Minister for his clarification. I have two points for clarification for the Minister.

The first is that the COVID-19 situation has clearly shown that long and complex supply chains are a weakness for many countries. The situation will likely evolve into shorter, fragmented and more automated supply chains, including goods that might not pass from China vis-a-vis Singapore to the US. So, how would the US-China tensions disrupt our supply chain and our viability as a trade hub going forward?

With shorter and more regional supply chains, how would it affect us as a port? We clearly see that TEUs have dropped significantly over the COVID-19 period. Are we expected to rise to a level that will allow us to compete as a trade hub going forward?

Third, how would developments like COVID-19 fundamentally change our longer term investments, for example, in Tuas Mega Port?

Mr Chan Chun Sing: Mr Speaker, Sir, let me make a few points to respond to Mr Desmond Choo's questions. I will answer the questions in reverse order.

Let us look at the volume of the port at this point in time. There are short-term and long-term forces. The short-term forces that see a drop in the port volume in the recent weeks can be attributed to the global fall in demand. So, this is overall. This has to do with the short-term forces because of the lockdowns and supply chain disruptions in various countries.

Mr Desmond Choo also touched on the longer term issues which have to do with how the reconfiguration of the supply chains towards a more regional base would affect our port operations. From a longer term perspective – ceteris paribus or all else being equal – if the demand remains at the same level, a more regional supply chain network actually can work to Singapore's advantage because we are a trade hub and a trade port, as Mr Desmond Choo said. The connectivity within ASEAN, within this region, will provide greater impetus for our port operations when things stabilise, all else being equal. So, our investment in the Tuas port over the long term, we are optimistic that we will continue to play a significant role in the regional logistics chain and also as part of the global logistics chain.

I now come to the second point of Mr Desmond Choo's first question. Yes, indeed, technological changes have given many companies the opportunities to shorten and diversify their supply chain to make it much more resilient. But this does not mean that Singapore will be bypassed. In fact, as I have mentioned during my reply, I said that even if the US, Japan and some countries decide to relocate part of their supply chain out of China, it is not a zero-sum game.

When the US, Japan and other countries relocate part of their supply chain out of China, it does not mean that they no longer trade with China or no longer deal with China. What it means is that they have diversified part of the operations away from China, but there will also be part of their operations that will still be in China.

The second effect of this shift, is that the connectivity between China and Singapore, China and the Southeast Asian region, will also strengthen as a process. So, it is not a binary choice whereby it is China or not China, ASEAN or not ASEAN. In fact, the entire global supply chain network will become much more resilient because of the diversification.

The third aspect of this that we should remember is that even prior to this, China had been trying to diversify its own production based, seeking other low-cost production opportunities around the world. And this is why we have worked with the Chinese to explore third countries' market opportunities such as by building industrial parks in other countries. And we will continue to explore working with the Chinese companies as they continue to venture out.

So, while the overall global supply chain network will shift towards a much more resilient one, I think it is not a zero-sum game and there are certainly opportunities for Singapore.

The last point I want to make is this. In the past, while people had just considered efficiency as the primary consideration for designing their supply chain, many more companies and many more countries are now beginning to appreciate the need to balance efficiency with resilience. When they look at resilience, they are looking at not just the lowest cost competitor, but they are also looking for places where they can put their operations, where their intellectual property (IP) can be protected, their talent can come together, and perform product design and services; they are looking at trusted hubs whereby their exports will not be restricted because of policy-induced choices.

These are all opportunities that play to Singapore's strength as a trusted hub, as a safe harbour for talent and IP. So, as people diversify their supply chains and look for such trusted hub and safe harbours, I think there are many opportunities for Singapore to play to our strengths and to continue to strengthen our role in the global supply chain.