How important is shipping to China's economy?
As the world's largest exporter and producer of industrial goods, China's exports contributed 39.18% to its GDP in 2020, and it is also the world's second-largest importer after the United States.
Foreign trade necessarily relies on transportation. Among various modes of transport, shipping, or maritime transport, is the most important for China. According to data from Clarksons Research, shipping is also closely related to the global economy because in international trade, more than 85% of goods are transported by sea.
According to Chinese official data and World Trade Organization data, the value of goods China imported and exported by shipping in 2020 was US$2.5 trillion, accounting for 53% of China's total trade that year, higher than air, rail, and road transportation combined.
What is China's role in the global shipping network?
According to data from the United Nations Conference on Trade and Development, in terms of cargo-carrying capacity in maritime trade, China ranks third globally with 6,896 vessels and a total deadweight tonnage (DWT) of 128,892,849, behind Greece and Japan.
China's major shipping companies include state-owned COSCO Shipping and China Merchants Group. COSCO Shipping, the world's largest shipping company, said that as of August, it had a fleet of 1,371 ships with a total capacity of 113.7 million deadweight tons.
The company is also the world's largest terminal operator, with its container terminals handling an annual throughput of 129.4 million 20-foot equivalent units — the standard for measuring the volume of 20-foot-long container units.
More than 400 ports are distributed along inland rivers and coastlines. China accounts for four of the world's top five container ports and seven of the top ten. Shanghai Port is the world's largest port by container throughput, and Ningbo-Zhoushan Port is the world's largest port by cargo tonnage.
Does the shipping industry need Chinese-made ships and containers?
China is the world's leading shipbuilder. According to data from the China Association of the National Shipbuilding Industry, in the first three quarters of this year, China delivered new ships worth 30.34 million deadweight tons, accounting for 45.6% of the world's total deliveries.
Despite China's dominance in the industry, compared with ships produced by the other two top shipbuilders, South Korea and Japan, most ships made in China, including bulk carriers, are of low added value and low technical level.
In the 'Made in China 2025' initiative launched by China in 2015, the shipbuilding industry was identified as one of 10 key areas, aiming to promote the development of high-end shipbuilding.
At the same time, China also monopolizes global container production. Thanks to government support for the industry, low labor costs, and huge local demand, almost all maritime containers in the world are built in China.
According to the British maritime consultancy Drewry, China produces more than 96% of the world's dry cargo containers and 100% of temperature-controlled (or 'reefer') containers.
How has the Covid-19 pandemic affected China's shipping industry?
As China's manufacturing sector rapidly recovers from the impact of the pandemic, while its main competitors in Southeast Asia still face surging case numbers, it has almost become the best choice for global importers and consumers to obtain the products they need.Economic stimulus measures in the United States and Europe have also helped release the pent-up demand caused by the pandemic.
Amid strong export demand, cargo and container throughput at China's major ports has surged this year. According to data from the Ministry of Transport, in the first nine months, Chinese ports handled 3.5 billion tons of foreign trade cargo, an increase of about 5.2% compared with the same period last year.
The unbalanced global trade pattern has also disrupted the country's container supply. Because exports produced in North America and Europe have decreased, empty containers have piled up at ports, delaying their return to Asia and causing shortages in China.
To address this issue, Chinese authorities have coordinated with domestic container manufacturers to increase production, but industry insiders have expressed concerns about a container oversupply after the pandemic ends.
Due to sporadic outbreaks among port workers at China's major ports, more disruptions have occurred since the middle of this year. In May, the Yantian port in Guangdong Province was closed for several weeks, followed by the closure of the Meishan terminal at Ningbo port in August. Both shutdowns caused unprecedented congestion and further severely disrupted the global logistics network.
Even without port closures, Chinese authorities have imposed strict disease prevention and quarantine measures on port workers and seafarers, but these measures have undermined operational efficiency and exacerbated port congestion.
Most importantly, all disruptions have caused shipping costs to spiral out of control. According to the Shanghai Containerized Freight Index, freight rates have risen more than 400% from their lows last year.
According to ManSys, a software company specializing in global trade management, the cost of shipping a 20-foot container from Shanghai to Europe has soared to between £5,736 ($6,640) and £9,112 ($10,550), depending on the port. By comparison, the average cost of exporting the same container from Shanghai in 2020 was £855, while in 2019 it was only £592.
Data from Freightos, an international shipping digital booking platform, shows that container shipping costs on China-US routes are about four times higher than the same period last year, and more than ten times higher than before the pandemic.
The price of buying or leasing containers has also skyrocketed. Chinese exporters say that compared with pre-pandemic costs, they need to pay 8 to 10 times more to secure a container during this year's Christmas shipping season.
The soaring freight costs have cast a shadow over the prospects of Chinese exports, especially low-value and labor-intensive products that rely heavily on shipping.
In September, the sub-indexes for new orders and new export orders of China's official manufacturing purchasing managers' index fell to 49.3 and 46.2 respectively. This shows that overseas demand for Chinese products has weakened.
There are signs that spot rates for purchasing, leasing, and transporting containers have been declining since late September, but most experts expect global shipping disruptions to last at least into next year.
