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FedEx expands in the Philippines to cut dependence on China.

Courier giant to construct terminal at former US base as trade war bites

FedEx targets Clark Air Base in the Philippines as the primary location for their new regional cargo terminal as the grinding U.S .- China trade war forces the company to rely less on its Guangzhou hub.

The construction of the new and more significant gateway, which started late last year, will be completed by the end of 2020 and will house FedEx’s expanded Philippine operations, reported by government and company officials.

“Everybody is very excited,” Secretary Vince Dizon, President Duterte’s flagship projects advisor who also heads the state agency responsible for redeveloping former military bases, told the Nikkei Asian Review. “FedEx is one of the most significant locators the Duterte administration has been able to attract.”

FedEx’s decision to push ahead with plans to construct a terminal at Clark, a former U.S. military base, is also a vote of confidence in the Philippines, despite the renewed antagonism between President Rodrigo Duterte and the U.S.

Dizon said that the facility at Clark Internation Airport, spanning 2 to 3 hectares will be expanded in phases and could be substantially larger than their previous facility at Subic Bay.

In 2009, FedEx moved its regional hub to Guangzhou from Subic, a former U.S. naval base turned industrial zone, which had served as its hub since 1995, three years after the U.S. withdrew their troops from the Philippines. This was seen as a major blow to the Philippines’ reputation for retaining big foreign investments.

Dizon said in a recent interview, “This move is very symbolic because they left for China and now they are back,”

FedEx has said its Asia Pacific hub in Guangzhou is being retained. The company have confirmed a Clark gateway will be completed within the year but they have not elaborated on the scale of its investment.

“This facility is the latest in a series of strategic investments that FedEx has made in the Philippines and across Asia-Pacific to enhance coverage and improve service levels in this important region,” John Peterson, managing director at FedEx Philippines, told Nikkei in an email.

Peterson said The Clark Gateway will increase FedEx’s sorting capability in the Philippines to 9,000 documents and parcels per hour. “This expansion brings small- and medium-sized businesses enhanced connectivity to the global market,” he said.

Deborah Elms, executive director at the Asian Trade Center in Singapore, said FedEx’s Philippine expansion is part of trend among companies seeking to minimize their dependence on China in the midst of stinging trade war with the U.S.

Elms said last year FedEx’s ability to operate in China came under scrutiny after it misrouted a U.S. shipment by Chinese communications giant Huawei.

Combined with the Beijing-Washington trade war, which has dramatically altered US-China trade flows, Elms said the incident “has driven management to diversify resources.”

“FedEx is not alone in this situation,” said Elms. “Other firms, including logistics providers of various types, are rethinking their previous overreliance on a China-only footprint.”

Despite strained ties between Manila and Washington, FedEx is charging into the Philippines.

Dizon said FedEx had also been drawn by the infrastructure buildup in Clark.

“It’s a former U.S. base, they feel very comfortable there,” said Dizon, who personally visited the FedEx headquarters in Memphis, Tennessee, in April after discovering the company was looking at Clark as part of an expansion into the Philippines. “Being a private company, their decisions are primarily driven by profit and commercial reasons,” he added.

Dizon said FedEx’s investment in Clark would spark renewed interest in the former U.S. base from other U.S. companies.

Elms, however, said that nontariff obstacles, high operating costs and underdeveloped Philippine infrastructure could make investors think twice. “It’s a market that is very promising, but also tricky for companies to navigate,” Elms said.

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