Transport problems with Covid-19 weigh on Chinese exporters

Chen Yang, who runs a textile trading unit at a state-owned company in the southern city of Hefei, said the company, which exports mainly to the US, has weathered the pandemic and trade war between China and the US, but he expects to lose. money this year partly due to the sharp increase in shipping costs.

A 40-foot container that arrived at Charleston, SC Harbor in December, took Mr. Yang about $ 7,500, compared to $ 2,700 in April, he said. He must also book space on the ship at least 20 days in advance, more than double the usual time.

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

The problem is exacerbated by a growing imbalance in world trade. In November, China posted a record $ 75 billion trade surplus, fueled by strong pre-holiday consumer demand from Western countries for everything from electronic gadgets to furniture and bicycles.

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

Pandemic security measures have lowered port efficiency, leading to delays in delivery and container jamming around the world. In November, only half of global airlines managed to stay on track, compared to 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 100 days, compared to the more typical 60 days.

“The logjam is completely unprecedented in both the size of the wave and the duration,” said Tan Hua Joo, a Singapore-based consultant at Liner Research Services.

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

China’s official manufacturing purchasing managers index, a gauge of China’s factory activity, suggested growth slowed in December. A sub-index for new export orders fell slightly from the previous month to 51.3%, although still in expansion territory.

China’s fast-rising currency, the yuan, which has gained more than 8% against the US dollar in the past six months, is also hurting profit margins for Chinese merchants, most of whom still accept payments in US dollars.

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

“It will certainly put pressure on the cash flow of some smaller exporters, especially those dealing in low margin goods,” said Mr. Bang. Many manufacturers have been reluctant to expand capacity and are reluctant to take new orders, he added.

Tony Chen, a toy exporter in the southern China city of Shantou, said many of his customers in the US and Europe have told him to stop shipping because high logistics costs have eroded their profit margins.

“It was very frustrating,” he said, adding that he has not been accepting new orders from customers in recent weeks because he cannot guarantee when he will be able to deliver.

In early December, China’s Ministry of Commerce pledged to increase container production to reduce supply shortages and better monitor the shipping market to stabilize costs.

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

Producing more container boxes could lead to a glut on the road, but some say it is the only viable option to reduce the deficit now.

“You are doomed if you do and you are doomed if you don’t,” said Charles Du Cane, commercial director at 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.”

The logistical challenges are also prompting some exporters to rethink their supply chains. Shenzhen Xuewu Technology Co., an e-cigarette manufacturer located in the South China city of Shenzhen, mainly sells to consumers abroad. Although 90% of its vaping products are shipped by air, those rates were up about 30% in December from a year earlier, with the shortage of shipping containers forcing more exporters to ship their goods by air, said Fiona Fu, who leads overseas. logistics of the company. Logistics costs now account for about 5% of the company’s total costs, 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. That has sped up the company’s plan to source more products locally to reduce its reliance on exports from China.

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

Write to Stella Yifan Xie at [email protected]