 |
Chinese exporters are being hurt by sky-high freight costs and rising raw material prices rather than falling demand for goods from developed countries, manufacturers say. Freight prices have jumped more than 400 per cent from their lowest point last year, causing importers to question the economic viability of buying from China. Freight costs as a proportion of total export expenses are no longer trending down, as they were before the Coronavirus pandemic began. It should be pointed out that the impact of rising freight costs on exports of various industries is not balanced. Goods with high unit value and small volume are less sensitive to rising freight costs, while goods with low unit value but are large in volume are more sensitive to rising freight costs.
One of the reasons labour-intensive products such as toys and other Christmas goods from China are so price competitive is because they are sent by the cheapest mode of transport – ocean shipping. But, as sea freight prices have surged in the past 18 months, some importers have started to scale back their buying. Many have cancelled orders over the past two months after producers raised prices on the back of surging raw material and freight costs. Christmas orders from the United States and Australia declined this year compared to 2020, when the pandemic was far from under control. Typically, May to October are very busy months for Chinese exporters, however, many have not experienced any peak season this year.
The pandemic has not only hurt shipping capacity around the world, but it has taken a heavy toll on supply chains, with some Chinese manufacturers saying it is becoming too expensive to source the materials they need to make the goods they sell. To cope, many producers of low-value goods have started cutting back on production and turning away orders to preserve their margins.
In the process, the high freight costs have changed the make-up of goods exported from China. During the pandemic, exports of goods with higher unit value and smaller volume performed better than those with lower unit value and larger volume. The most typical example is the rapid growth of exports from the computer communications industry and pandemic-related pharmaceutical industry, while the growth with lower added value but large volume has been sluggish.
While the total value of Chinese exports rose 25.6 per cent in August to US $294.32 billion from a year earlier, the export volume of various products – ranging from bicycles to home appliances – declined over the same period. The rising prices for products concealed the declining export volumes and the trend is likely to continue unless current freight costs are addressed. This year’s Christmas orders have also been stretched out over a few months, causing a ‘smoothing’ effect on China’s monthly export data. Buyers anticipated the higher freight costs and the congestion problems, so many placed orders in advance.
There are more signs Chinese exports might have peaked, too. The new order and new export order sub-indices of China’s official manufacturing purchasing managers index fell to 49.3 and 46.2 respectively in September, indicating overseas demand for Chinese products has weakened, particularly as other economies slowly return to normal. The two sub-indices have declined for three and six months consecutively to September.
For more information, contact David Lychek, Director – Ocean & Air Services.
 |
<
