For Chinese businessman Han Changming, disruptions to Red Sea freight are threatening the survival of his trading company in the eastern province of Fujian.
Han, who exports Chinese-made cars to Africa and imports
off-road vehicles from Europe, told Reuters the cost of shipping a container to
Europe had surged to roughly $7,000 from $3,000 in December, when Yemen's
Iran-aligned Houthi movement escalated attacks on shipping.
"The disruptions have wiped out our already thin
profits," said Han, adding that higher shipping-insurance premiums are
also taking a toll on Fuzhou Han Changming International Trade Co Ltd, the
company he founded in 2016.
The rupture of one of the world's busiest shipping routes
has exposed the vulnerability of China's export-reliant economy to supply
snarls and external demand shocks. In a speech at the World Economic Forum in
Davos on Tuesday, Premier Li Qiang emphasised the need to keep global supply
chains "stable and smooth", without referring specifically to the Red
Sea.
Some companies, such as U.S.-based BDI Furniture, have said
they are relying more on factories in places such as Turkey and Vietnam to
mitigate the impact of the disruptions, adding to recent moves by Western
countries to reduce dependence on China amid geopolitical tensions.
At stake for China now is the danger that other firms will
follow suit and reassess their de-risking strategy, opting potentially to shift
production closer to home, an approach known as "near-shoring".
"If it's permanent, and it could be permanent, then the
whole mechanism will be readjusted," said Marco Castelli, founder of IC
Trade, which exports Chinese-made mechanical components to Europe. "Some
(companies) may also consider moving more production to India, which is one
week closer to Europe. Companies need to reevaluate everything."
Further Red Sea disruptions would pile pressure on a
struggling Chinese economy already contending with a property crisis, weak
consumer demand, a shrinking population and sluggish global growth.
With Europe and Africa trade accounting for 40% of Han's
overall business, he said he had been pleading with suppliers and customers to
shoulder some of the additional costs to keep his company afloat. Shipping
times for some orders were delayed by up to several weeks, he said.
Compounding the pain for some firms, the disruptions come as
many are navigating a logistics challenge ahead of Lunar New Year in February,
when some 300 million migrant workers go on leave and almost all factories in
China shut, creating a scramble in the preceding weeks to get goods shipped.
Mike Sagan, the Shenzhen-based vice president for supply
chains and operations at KidKraft, a maker of outdoor play equipment and wooden
toys, said many European customers are slamming on the brakes, saying:
"Don't ship anything, hold it".
"A lot of suppliers, they're screaming about money
today," said Sagan, whose company supplies retailers including Walmart and
Target.
A worry for larger manufacturers, he said, is the snowball
effect on smaller suppliers with tight margins, as they would be among the last
to receive payments but are critical to the supply chain.
Attacks by Yemen's Houthi militants on ships in the Red Sea
are disrupting maritime trade through the Suez Canal, with some vessels
re-routing to a much longer East-West route via the southern tip of Africa.
Rerouting vessels from the Red Sea - the shortest route from
Asia to Europe via the Suez Canal - around the Cape of Good Hope can add two
weeks to shipping schedules, reducing global container capacity and cleaving
supply chains as it takes longer for vessels to return to ports to reload.
That probably means delays for goods scheduled to arrive on
Western shelves in April or May. Some logistics companies are already reporting
a container shortage at Ningbo-Zhoushan port in China, one of the world's
busiest by cargo tonnage, according to BMI, an industry research firm.
The Suez Canal is a primary route for China's westward
shipments of goods, including around 60% of its exports to Europe, according to
the Middle East Institute, a Washington-based think tank.
'HUGE' IMPACT
Yang Bingben, whose company makes industrial-use valves in
eastern China's manufacturing hub of Wenzhou, said a client in Shanghai this
week slashed an order for 75 valves - intended for assembly into large
machinery for shipment overseas - to 15 amid soaring freight costs.
"The impact is huge," said Yang, adding that he
had prepared raw materials that could not be returned because they had been
processed. "It's like I received an order that makes me lose money."
Yang is now rethinking his staffing needs for this year,
saying he can't guarantee salaries as his workers are paid based on the amount
of work they do.
"If I don't have enough work to give them, I'm afraid
they won't be able to make a living."
In southern China, Wei Qiongfang, a freight forwarder based
in Guangzhou, said some suppliers were delaying shipments of lower-value goods,
pressuring manufacturers' stockpiles.
As once-predictable trade conditions become increasingly
uncertain, the impact is especially acute for companies that rely on
just-in-time deliveries or that need to change their stock regularly.
Another issue, said Castelli, is that factories do not get
paid until goods arrive at their destination.
"So if their payment is delayed, they can't pay their
suppliers, they can't pay their workers," he said. "China is so
successful in the global market because they work with tiny margins: when you
have volume, the money rolls in; when the money stops coming, you have a big
problem."
In the Pearl River Delta city of Dongguan, Gerhard Flatz,
managing director of premium sportswear manufacturer KTC, is concerned that
some companies grappling with shrinking margins will go under.
"So, they are struggling, and now there is another
logistics crisis. You know, at some point many will have to shut down,"
said Flatz.
-Reuters
0 comments:
Post a Comment