Covid-19 shipping issues weigh on Chinese exporters

Chen Yang, who heads a textile trade unit at a state-owned company in the southern city of Hefei, said the company, which exports primarily to the United States, has weathered the pandemic and the Sino-trade war. American, but expects to lose money this year in part because of a steep rise in shipping costs.

A 40-foot container arriving at the port of Charleston, South Carolina, in December cost Yang about $ 7,500, up from $ 2,700 in April, he said. He must also reserve a place on the ship at least 20 days in advance, which is more than double the usual time.

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

The problem has been compounded by the worsening imbalance in world trade. In November, China posted a record trade surplus of $ 75 billion, fueled by strong consumer demand in Western countries ahead of the holiday season for everything from electronic gadgets to furniture and bikes.

Major US ports imported 2.21 million 20-foot containers in October, up 17.6% from the previous year and setting a record since the National Retail Federation began tracking imports in 2002 Container freight rates from Asia to the United States hit a record in September, and rates from Asia to Europe hit a 10-year high in December.

Security measures linked to the pandemic have reduced the efficiency of ports, leading to delivery delays and the blockage of containers around the world. In November, only half of global carriers managed to meet their schedules, up from 80% a year ago, according to a reliability index from the Sea-Intelligence service.

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

“The blockage is completely unprecedented, both in terms of the magnitude of the surge and the duration,” said Tan Hua Joo, Singapore-based consultant at Liner Research Services.

Although economists say transportation issues have yet to derail China’s strong recovery, they pose a challenge to sustaining the export growth that drove it.

China’s official purchasing managers index, a measure of Chinese factory activity, suggested that growth slowed in December. A new export orders sub-index edged down from the previous month to 51.3%, although still expanding.

China’s rapidly appreciating currency the yuan, which has risen more than 8% against the US dollar in the past six months, is also eroding the profit margins of Chinese traders, most of whom still accept payments in dollars. Americans.

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

“This will certainly strain the cash flow of some smaller exporters, especially those that sell low margin products,” Pang said. Many manufacturers have been reluctant to increase capacity and are reluctant to take new orders, he added.

Tony Chen, a toy exporter in the southern Chinese city of Shantou, said many of his customers in the United States and Europe have told him to stop delivery as high logistics costs eroded their profit margins.

“It has been very frustrating,” he said, adding that he had stopped accepting new orders from customers in recent weeks because he couldn’t guarantee when he will be able to deliver.

In early December, China’s Ministry of Commerce promised to increase container production to ease 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 full until the end of March. Over 95% of shipping containers are built in China.

Producing more containers could lead to a glut on the road, but some say it’s the only viable option to alleviate the shortage now.

“You are damned if you do and you are damned if you don’t,” 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.”

Logistics challenges are also pushing some exporters to rethink their supply chains. Shenzhen Xuewu Technology Co., an electronic cigarette manufacturer based in Shenzhen City, South China, mainly sells to overseas consumers. While 90% of its vaping products are shipped by air, those rates rose about 30% in December from a year earlier, with the shortage of shipping containers forcing more exporters to ship their goods by plane, said Fiona Fu, who heads the company’s overseas logistics. Logistics costs now account for around 5% of the company’s overall 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 has increased during the pandemic as more people spend time indoors. This accelerated the company’s plan to source more products locally in order to reduce its dependence on Chinese exports.

“We want to be closer to our consumers and be under less pressure in logistics,” said Mr. Li, “We will not let the pandemic stop us from developing.

Write to Stella Yifan Xie at [email protected]