How important is shipping to China's economy?
As the world's largest exporter and producer of manufactured 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 inevitably relies on transportation. Among various modes of transport, maritime shipping is the most important for China. According to Clarksons Research, shipping is also closely tied to the global economy, as over 85% of goods in international trade are transported by sea.
According to official Chinese data and World Trade Organization figures, in 2020 China imported and exported goods worth $2.5 trillion via shipping, accounting for 53% of China's total trade that year—more than air, rail, and road transport combined.
What is China's role in the global shipping network?
According to UNCTAD data, in terms of cargo capacity in maritime trade, China ranks third globally with 6,896 vessels and a total deadweight tonnage (DWT) of 128,892,849, after 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 vessels with a total capacity of 113.7 million DWT.
The company is also the world's largest terminal operator, with annual throughput at its container terminals reaching 129.4 million twenty-foot equivalent units—the standard measure of volume for a 20-foot-long container.
With more than 400 ports distributed along inland waterways and coastlines, China is home to four of the world's top five container ports and seven of the top ten. The Port of Shanghai is the world's largest container port by throughput, and Ningbo-Zhoushan Port is the world's largest port by cargo tonnage.
Does the shipping industry need ships and containers made in China?
China is the world's leading shipbuilder. According to the China Association of the National Shipbuilding Industry, in the first three quarters of this year, China delivered new ships totaling 30.34 million DWT, accounting for 45.6% of global deliveries.
Despite China's dominance in the industry, most ships built in China, including bulk carriers, are of low added value and low technological level compared with vessels produced by South Korea and Japan, the two top shipbuilders.
In the "Made in China 2025" initiative launched in 2015, shipbuilding was identified as one of 10 key sectors aimed at advancing high-end shipbuilding.
Meanwhile, China also monopolizes global container production. Thanks to government support for the industry, low labor costs, and huge local demand, nearly all maritime containers in the world are built in China.
According to UK 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 recovered quickly from the pandemic while its main competitors in Southeast Asia still faced surging case numbers, it became almost the best option for global importers and consumers to get the products they needed. Economic stimulus measures in the US and Europe also helped unleash pent-up demand caused by the pandemic.
With strong export demand, cargo and container throughput at China's major ports surged this year. According to the Ministry of Transport, in the first nine months, Chinese ports handled 3.5 billion tons of foreign trade cargo, up about 5.2% year on year.
The unbalanced global trade pattern also disrupted the country's container supply. As fewer export products were produced in North America and Europe, empty containers piled up at ports, delaying their return to Asia and causing shortages in China.
To address this, Chinese authorities have coordinated with domestic container manufacturers to increase output, but industry insiders worry about a container oversupply after the pandemic ends.
More disruptions have occurred since mid-year due to sporadic outbreaks among port workers at major Chinese ports. In May, 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 global logistics networks.
Even without port closures, Chinese authorities imposed strict disease prevention and quarantine measures on port workers and seafarers, but these measures undermined operational efficiency and exacerbated port congestion.
Most importantly, all the disruptions sent shipping costs out of control. According to the Shanghai Containerized Freight Index, freight rates have risen more than 400% from last year's low.
According to ManSys, a software company specializing in global trade management, depending on the port, 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). By comparison, the average cost of exporting the same container from Shanghai was £855 in 2020 and only £592 in 2019.
Data from Freightos, an international digital booking platform for shipping, shows that container shipping costs on China-US routes are about four times higher than a year ago and more than ten times higher than before the pandemic.
The cost of buying or renting containers has also skyrocketed. Chinese exporters say they need to pay 8 to 10 times more than pre-pandemic costs to secure a container during this year's Christmas shipping season.
Surging freight costs have cast a shadow over the outlook for China's exports, especially low-value and labor-intensive products that rely heavily on shipping.
In September, the new orders and new export orders sub-indexes of China's official manufacturing PMI fell to 49.3 and 46.2, respectively. This indicates 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 until next year.
