Covid-19 shipping problems are squeezing exporters from China

Chen Yang, who heads a textile trade unit at a state-owned company in the southern city of Hefei, said the business, which exports mainly to the United States, has withstood the pandemic and trade war between China and the United States. The United States, however, expects to lose money this year in part due to a sharp rise in shipping costs.

A 40-foot container arriving at the port of Charleston, South Carolina, in December cost Mr. Yang about $ 7,500, up from $ 2,700 in April, he said. You must also reserve space on the boat at least 20 days in advance, more than twice the usual time.

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

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

Major U.S. ports imported 2.21 million 20-foot containers in October, up 17.6% from the previous year, and set a record since the National Retail Federation began to track imports in 2002. Container transport rates from Asia to the United States rose to record Asian rates in Europe reached a ten-year high in December.

Pandemic-related security measures have reduced efficiency at ports, leading to delays in the delivery and blocking of containers around the world. In November, only half of the world’s airlines managed to stay on schedule, compared to 80% a year ago, according to a reliability index of the Sea-Intelligence service.

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

“The logjam is unprecedented, both in terms of the scale of the climb and the duration,” said Tan Hua Joo, a Singapore-based Liner Research Services consultant.

While economists say shipping problems have not yet derailed China’s solid recovery, they pose a challenge to maintaining the growth in exports that has driven it.

China’s official index of manufacturing purchasing managers, an indicator of Chinese factory activity, suggested that growth slowed in December. A subscript for new export orders fell from 51.3% in the previous month, although it is still in expansion territory.

China’s fastest-growing currency, the yuan, which has risen more than 8 percent against the U.S. dollar in the past six months, is also eroding the profit margins of Chinese traders, most of whom still accept payments. in US dollars.

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

“It will certainly strain the cash flow of some smaller exporters, especially those operating in low-margin goods,” Pang said. Many manufacturers have been reluctant to expand capacity and are cautious when taking new orders, he added.

Tony Chen, a toy exporter in the Chinese city of Shantou in southern China, said many of his customers in the U.S. and Europe told him to stop delivery because heavy logistics costs have eroded their margins. benefits.

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

In early December, China’s trade ministry pledged to increase container production to alleviate supply shortages, as well as to monitor the maritime 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 are fully booked by the end of March. More than 95% of shipping containers are manufactured in China.

Generating more container boxes could cause dirt on the road, but some say this is the only viable option to alleviate the shortage now.

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

Logistical challenges also cause some exporters to rethink their supply chains. Shenzhen Xuewu Technology Co., a producer of electronic cigarettes based in Shenzhen City, southern China, mainly sells to overseas consumers. Although 90% of its vaping products are shipped by air, these rates had increased by around 30% in December compared to a year earlier, with the shortage of shipping containers forcing more exporters to ship their goods by air, said Fiona Fu, who leads the company’s overseas logistics. Logistics costs now account for about 5% of the company’s overall costs, from 1% to 2% before the pandemic, he said.

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

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

Write to Stella Yifan Xie to [email protected]