Covid-19 shipping problems hurt Chinese exporters

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

A 40-foot container that arrived in Charleston, SC, in December, cost Yang about $ 7,500, up from $ 2,700 in April, he said. He also needs to reserve space on the vessel at least 20 days in advance, more than twice the normal time.

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

The problem was exacerbated by an increasing imbalance in global trade. In November, China posted a record $ 75 billion trade surplus, fueled by strong consumer demand from Western countries before the holiday season, from electronic devices to furniture and bicycles.

Major US ports imported 2.21 million 20-foot containers in October, an increase of 17.6% over the previous year and setting a record since the National Retail Federation began tracking imports in 2002. Rates of container freight from Asia to the US rose to a record high in September and rates from Asia to Europe reached the highest increase in ten years in December.

Pandemic-related security measures have reduced efficiency at ports, leading to delays in deliveries and trapped containers worldwide. In November, only half of the global operators were able to meet the schedule, compared with 80% a year ago, according to a Sea-Intelligence service reliability index.

The average return time for containers returning to China was up to 100 days in December, out of the 60 most common days, according to the China Container Industry Association.

“The impasse is completely unprecedented, both in terms of the scale of the increase and the duration,” said Tan Hua Joo, a consultant at Liner Research Services in Singapore.

Although economists say that transportation problems have not yet harmed China’s solid recovery, they pose a challenge to sustain the growth in exports that drove it.

China’s official index of manufacturing purchasing managers, an indicator of China’s manufacturing activity, suggested that growth slowed in December. The sub-index of new export orders fell from 51.3% in relation to the previous month, although still in expansion territory.

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

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

“This will certainly hurt the cash flow of some smaller exporters, especially those who sell low margin products,” said Pang. Many manufacturers are reluctant to expand capacity and are cautious about accepting 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 told him to suspend delivery, because high logistics costs have eroded his profit margins.

“It has been very frustrating,” he said, adding that he has stopped 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 promised to increase container production to lessen supply shortages, as well as to monitor the transport market more closely to stabilize costs.

But solving 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 full by the end of March. More than 95% of shipping containers are built in China.

Producing more container boxes may lead to overpayment in the future, but some say this is the only viable option for reducing shortages now.

“You are doomed if you do that and you are doomed if you do not,” said Charles Du Cane, commercial director for Seastar Maritime Ltd., which operates bulk ships. “The real solution to all this is to deal with the pandemic and the global logistics system.”

Logistical challenges are also leading some exporters to rethink their supply chains. Shenzhen Xuewu Technology Co., an electronic cigarette producer based in the southern city of Shenzhen, sells mainly to consumers abroad. While 90% of its vaporization products are shipped by air, these rates increased by about 30% in December compared to the previous year, with container shortages forcing more exporters to ship their goods by air, said Fiona Fu, which leads the company’s logistics abroad. Logistics costs now represent about 5% of the company’s overall costs, an increase of 1% to 2% before the pandemic, she said.

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

“We want to be closer to our consumers, as well as being subject to less pressure on logistics,” said Mr. Li, “We are not going to let the pandemic stop us from expanding.”

Write to Stella Yifan Xie at [email protected]