Cambodia Investment Review
The International Business Chamber of Cambodia recently organized a panel discussion at Hotel Raffles Le Royal to explore the impact of changes in international trade on businesses in Cambodia.
The event brought together key stakeholders to share insights on the latest trends affecting their sectors. As exports play a critical role in driving the Cambodian economy, it is essential to have effective logistics solutions and efficient supply chain management to maintain long-term economic competitiveness.
The panel discussion focused on various aspects of trade, including Cambodia’s current level of trade openness, shipping costs, sustainability issues, and opportunities for logistics and transparency enhancements.
The panel discussion featured keynote speakers:
- Mike Duggan – Managing Director – Maersk
- Jason Broome – Managing Director – HGB GROUP
- Kaing Monika – Deputy Secretary General – Textile, Apparel, Footwear & Travel Goods Association in Cambodia TAFTAC (Formerly GMAC)
- Stephen Higgins – Founder and Managing Partner of Mekong Strategic Capital (MSC)
Stephen Higgins shared that Cambodia’s trade openness, measured by a country’s exports and imports as a percentage of its GDP, is currently around 130%. This is higher than Thailand’s 120%, Australia’s 45%, and China’s 35%.
However, due to an expected 30% upwards revision in Cambodia’s GDP in the coming months, Cambodia’s trade to GDP is projected to decrease to about 100%, putting it well below Vietnam at over 180%.
When asked for unique insights on international trade in Cambodia, Mike Duggan commented on the shipping industry’s significant growth during the COVID-19 pandemic, though it has leveled off in Q4 2022. Jason Broome noted the direction of the automotive industry’s is to shift towards printing parts in country instead of importing pre-manufactured parts , reducing logistics cost and lowering their carbon footprint.
Kaing Monika stated that while the garment, footwear, and travel bag industries have traditionally represented about 80% of Cambodia’s exports, other commodities are now rising, bringing the percentage down to approximately 60%.
Cost of shipping drops
Mike Duggan noted that the cost of shipping containers is currently similar to pre-pandemic rates for core long term clients, but noted a decrease in spot rates from the peak of $15,000 to around $5,000 for shipping from Cambodia to Europe. Shipping out of Cambodia is more expensive due to most vessels coming into Asia being less utilised hence exporters contributing to the return trip.
Jason Broome stated that most cars in Cambodia are imported through Sihanoukville International Port and have taxes based on their engine size. Kaing Monika mentioned that Phnom Penh port and Sihanoukville Port are primary and typically cheapest routes taking about 90% of our total exports, while about 8% by land-sea through VN and Thailand and about 2% by air.
Mike Duggan stressed the need for Cambodia to improve its rail lines and increase capacity for more efficient container transport such as allowing double stacking.
The new expressway from Phnom Penh to Sihanoukville was trialed for deliveries but became unviable once the toll was introduced, with National Road 4 remaining the best option for logistics. Kaing Monika highlighted while trucking cost is quite reasonable, the unreasonably high cost is on documentation and facilitation costs such as for clearance and certificate of origin.
A strong workforce for manufacturing
Kaing Monika stated that Cambodia still has a strong young workforce, with about 200,000 people entering the labor force each year, which should suffice for the next decade. However, he expressed concern that the government’s talk of diversification has yielded little action thus far.
Mike Duggan emphasized the industry’s push for sustainability and the move towards shareholder value over just financial cost. With the impending arrival of luxury EVs in Cambodia Jason Broome addressed the topic of electric vehicles, highlighting their companies efforts to meet sustainability criteria and how most owners will charge their EV’s at home overnight rather than require public charging.
Kaing Monika stressed the importance of aligning Cambodia’s policies with international market standards to retain brands like Adidas, or they will shift their manufacturing to countries like Vietnam and Bangladesh.