Covid-19 Shipping Issues Express China’s Exporters

Chen Yang, who runs a textile trading unit at a state-owned company in the southern city of Hefei, said the company, which mostly exports to the US, had endured the pandemic and trade war between China and the United States, but he expected to to lose money in part this year due to a sharp rise in shipping costs.

A 40-foot container arriving at the port of Charleston, SC in December, Mr. Yang cost about $ 7,500, up from $ 2,700 in April, he said. He must also book space on the vessel at least 20 days in advance, more than double the normal time.

“I have never seen anything like it in my 18 years of experience as an exporter,” he said. Yang said. “We have been working at a loss since August.”

The problem is exacerbated by the growing imbalance in world trade. In November, China recorded a $ 75 billion trade surplus, fueled by strong consumer demand from Western countries ahead of the holiday season for everything from electronic devices to furniture and bicycles.

Major U.S. ports imported 2.21 million 20-foot cargo containers in October, 17.6% higher than a year earlier, setting a record since the national retail federation began importing in 2002. Freight rates for cargo containers from Asia to the US rose to a record in September fares from Asia to Europe peaked in December in ten years.

Pandemic-related safety measures have reduced port efficiencies, leading to delays in deliveries and containers around the world. In November, only half of global service providers managed to stay on schedule, up from 80% a year ago, according to a Sea-Intelligence service reliability index.

According to the China Container Industry Association, the average turnaround time for containers returning to China in December was up to 100 days compared to the more typical 60 days.

“The logjam is completely unprecedented in terms of the extent of the boom and the duration,” said Tan Hua Joo, a consultant at Liner Research Services in Singapore.

Although economists say the shipping problems have not yet derailed China’s solid recovery, it is a challenge to maintain the export growth that has driven it.

According to the official China Manufacturing Purchases Index, a measure of manufacturing activity in China, growth slowed in December. A sub-index for new export orders declined from the previous month to 51.3%, although it is still in the expansion area.

The rapidly appreciating yuan of China, which has risen by more than 8% against the US dollar over the past six months, is also weakening profit margins for Chinese traders, most of whom still accept payments in US dollars.

Bruce Pang, head of macro and strategy research at China Renaissance Securities, said high shipping costs are likely to remain a major headache for most Chinese exporters until the New Year holiday in February, when most factories will close for at least two weeks.

“This will definitely hurt cash flow for some smaller exporters, especially those who trade in low-margin goods,” he said. Pang said. Many manufacturers have been reluctant to expand their capacity and are wary of taking new orders, he added.

Tony Chen, a toy exporter in the southern Chinese city of Shantou, said many of his customers in the US and Europe had told him to stop delivery because the hefty logistics costs had eroded their profit margins.

“It was very frustrating,” he said, adding that he had stopped accepting new customer orders in recent weeks because he could not guarantee when he would be able to deliver.

In early December, the Chinese Ministry of Commerce promised to increase the production of containers to alleviate the supply shortage, as well as to monitor the shipping market more closely to stabilize costs.

But solving the problems will not be easy. China International Marine Containers (Group) Co., the world’s largest container producer, told investors in November that its factories were fully booked until the end of March. More than 95% of shipping containers are built in China.

Carrying out more cargo containers could take an abundance off the road, but some believe it is the only viable option to alleviate the shortage now.

“You’re doomed if you do, and you’m doomed not to do so,” said Charles Du Cane, commercial director of Seastar Maritime Ltd., which operates dry bulk vessels. “The real solution to all of this is to deal with the pandemic and the global logistics system.”

The logistical challenges also cause some exporters to reconsider their supply chains. Shenzhen Xuewu Technology Co., a manufacturer of e-cigarettes in the city of Shenzhen in southern China, sells mostly to consumers abroad. While 90% of the vaping products are transported by air, tariffs rose by about 30% in December compared to a year earlier, with the shortage of shipping containers forcing more exporters to send their goods by air, Fiona Fu said. the leader, said the company’s overseas logistics. Logistics costs now account for about 5% of the company’s total costs, up from 1% to 2% before the pandemic, she said.

According to Derek Li, co-founder of Shenzhen Xuewu, demand in existing markets such as Canada and Southeast Asia increased during the pandemic as more people spent time indoors. This accelerated the company’s plan to procure more products locally to reduce dependence on exports from China.

“We want to be closer to our consumers and also subject to less pressure on logistics,” Mr Li said, “we will not allow the pandemic to prevent us from expanding.”

Write to Stella Yifan Xie by [email protected]