Angle: Red Sea logistics disruption directly affects China’s export industry due to rising costs and shipping delays | Reuters

On January 19, Han Changming, who runs a trading company in China’s Fujian province, is at risk of not surviving due to logistical disruption in the Red Sea following an attack on a commercial vessel by Yemen’s pro-Iranian Houthi group . The photo shows containers being loaded at the Yangshan Deep Water Port in Shanghai. Photographed in January 2022 (2024 Reuters/Aly Song)

[上海/北京 １９日 ロイター] – Han Changming, who runs a trading company in China’s Fujian province, is at risk of not surviving due to logistical disruption in the Red Sea caused by attacks on commercial ships by Yemen’s pro-Iranian Houthi group.

Han, which exports Chinese-made cars to Africa and imports off-road vehicles from Europe, told Reuters the cost of shipping a single container to Europe would be from December 2023, when the Houthi offensive began. It used to cost $3,000. but now it has jumped to around $7,000.

“The logistics disruption has completely wiped out our originally extremely thin profit margins,” he said, adding that rising export insurance premiums have also become a burden.

The unrest in the Red Sea, one of the world’s busiest shipping lanes, highlights the vulnerability of China’s export-dependent economy to supply disruptions and external demand shocks.

Companies with manufacturing bases in China have recently moved away from China due to geopolitical tensions, and the Red Sea issue has further accelerated this trend. The US company BDI Furniture, for example, is taking steps to increase its reliance on factories in Turkey and Vietnam.

The danger China now faces is that more and more companies will follow this policy, reconsider their China risk reduction strategy, and each company may choose “near-shoring” to move production sites closer to their bases. .

Marco Castelli, founder of IC Trade, which exports Chinese-made mechanical components to Europe, said: “If this situation actually becomes permanent, or has the potential to become permanent, the entire system will be repurposed.” companies are moving more production to India, where shipping times to Europe are a week shorter.

China’s economy, which is already struggling due to a domestic housing crisis, weak consumption, declining population and sluggish global economic growth, will come under even greater pressure if the Red Sea logistical disruption worsens.

Mr Han says 40% of his business goes to Europe and Africa and is asking suppliers and customers to keep their heads down and cover some of the additional costs to stay afloat. The shipment of some orders was delayed by up to several weeks.

The disruption to Red Sea logistics is doubly painful for some companies, as it comes at a time when China is already rushing to do business ahead of the Lunar New Year, when all factories will be closed.

Attacks by Yemen’s Houthi militants on shipping in the Red Sea are disrupting maritime trade through the Suez Canal, with some ships being redirected on a much longer east-west route through the southern tip of Africa.

The Red Sea is the shortest sea route connecting Asia and Europe via the Suez Canal. If a cargo ship were to detour off South Africa’s Cape of Good Hope, it would add two weeks to transit time and increase the time it takes to load another cargo, reducing global container capacity and reducing supply. the chain (supply chain).

If that happens, the arrival of goods in the West, originally scheduled for April or May, will likely be delayed. According to research firm BMI, several logistics companies have already reported a container shortage at China’s Ningbo Zhoushan port, one of the world’s busiest ports.

According to an analysis by a US think tank, around 60% of products exported from China to Europe pass through the Suez Canal.

Yang Bingbeng, owner of a company in Wenzhou that makes industrial valves, said a customer in Shanghai recently reduced his order of valves from 75 to 15. These valves are used in large machinery exported abroad, and the the reason for this appears to be the increase in transport rates.

“The impact is huge,” Yang said, adding that raw materials that have already been prepared and processed cannot be returned to their original state, so “it’s like receiving an order that will create a loss.”

Because employees are paid piecemeal, they can no longer guarantee payment and are reviewing the number of people they need this year. “If we can’t provide them with enough work, we won’t be able to make a living.”” They are also worried that this is not possible.

One of Guangzhou’s transporters pointed out that some suppliers were delaying shipments of low-value-added products, putting pressure on inventories in the manufacturing sector.

The previously predictable business environment has become increasingly uncertain, and the impact has been particularly acute on companies that relied on just-in-time and periodic inventory changes.

Another problem, Castelli said, is that factories don’t receive payment until the products arrive at their trading partners.

“If payments are delayed, they will not be able to pay their suppliers or employees. China has been successful in the global market because it has been able to take on jobs with low profit margins. “If the movement of money becomes stop, be a big deal.”

An executive at a high-end sportswear manufacturer in Dongguan fears that many companies already hit by shrinking profit margins will be forced to go out of business at some point during the logistics crisis.

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Casey has reported on Chinese consumer culture from his base in Shanghai for more than a decade, covering what Chinese consumers are buying and the broader social and economic trends that drive those consumption trends. The Australian journalist has lived in China since 2007.

2024-01-22 05:37:02
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