The skyrocketing cost of global shipping has choked Zhejiang’s foreign trade companies.
Since the second half of 2020, international shipping costs have continued to rise. The freight rates on some routes have increased by as much as 10 times, and foreign trade companies have said that they “cannot afford the shipment.” Not only that, since October last year, the problem of “hard to find a container” has become more prominent, leaving companies unable to ship goods and leaving a large amount of inventory stagnant.
The problem of skyrocketing logistics has attracted the attention of all parties. The Provincial Department of Commerce, the Provincial Department of Economics and Information Technology, and the Ningbo Municipal Government have also taken relevant response measures. However, industry insiders generally believe that high shipping prices may continue until June this year or even longer. This is undoubtedly a difficult test for a large number of foreign trade companies that receive orders at a loss.
It is said that foreign trade companies will not panic as long as they have orders in hand. But now, how should foreign trade companies that are not short of orders and “empty boxes” cope with the new test?
Profits are “eaten” by logistics costs
” Last year, our foreign trade orders increased by more than 30% compared with the previous year!” At Quzhou Zhejiang Yonglida CNC Technology Co., Ltd., Chairman Chen Sheng has just received the company’s 2020 statistics. This is the company’s fastest growing business in recent years. But Chen Sheng was a little unhappy: although there were many orders, he was not making money.
Since the second half of last year, international shipping costs have begun to rise: in the past, the freight price of a container to North America was about one or two thousand US dollars, but it has risen to four or five thousand US dollars in just a few months. Dollar. At that time, Chen Sheng was still thinking: Wait a minute, maybe logistics costs will gradually come down.
I never thought that the price of shipping would be like a rocket, rising all the way – by late January this year, the cost of shipping a container to the United States was 10,000 The number of U.S. dollars is almost 10 times that before the epidemic.
Fortunately, like most foreign trade companies in Zhejiang, most of the contracts signed by “Yonglida CNC” with customers are FOB prices, that is, products are calculated based on FOB prices. In other words, international logistics costs are borne by merchants.
In the face of skyrocketing shipping costs, many foreign customers have also made new demands on Chen Sheng: either not to bear part of the shipping costs or to lower product prices.
Chen Sheng said helplessly: “Our profits are not high. We can reduce prices by 5% at most, but compared with the rising logistics costs, this seems to be a drop in the bucket.”
Compared to Chen Sheng, Chen Shuirong, chairman of Changxing County Hailian Textile Co., Ltd., may have a more difficult life. The order he signed with a large customer in Mexico was priced at CIF (including insurance and shipping). “According to the contract, we have to bear the logistics costs.” Chen Shuirong calculated that to complete the orders in hand, they would have to lose at least 10 million yuan.
Chen Shuirong told Yongjinjun that it used to cost US$2,600 to ship one of their containers to Mexico, but now it has risen to US$9,500. Chen Shuirong said that the value of a container of textiles they exported was only US$40,000, and the rising logistics costs had already covered the company’s original profits.
In the factory area in Huaxi Street, Changxing, Chen Shuirong looked out from his office and could see goods stacked in the open everywhere. Stacks of white cloth were piled high, as high as two people. Due to the inventory explosion and slowdown in capital turnover, Chen Shuirong was under double pressure. He gritted his teeth and said: If you lose, just lose. Send the goods out early. At least it can reduce some financial pressure.
Not only the American routes, but also the costs of almost all international routes are soaring due to the epidemic. Zang Shanshan, general manager of Changxing Shengyue Textile Technology Co., Ltd., told reporters that shipping costs for ships bound for his main markets, India, Pakistan, Africa and other places, have also increased four to five times. For example, shipping costs to Pakistan have increased from US$550 per container before the epidemic to US$3,800.
Fortunately, Zang Shanshan, who had been doing CIF orders before, changed all new orders to FOB mode starting in March last year. “Because our market is relatively segmented and our products are relatively competitive, international merchants have to bear all logistics costs.” In his view, the rise in logistics costs during the epidemic is a market behavior and is understandable. “Of course, shipping companies may also take advantage of this opportunity to make a lot of money.”
However, the profitability of shipping companies in this wave of market conditions still exceeds Zang Shanshan’s prediction. According to the third quarter financial report of 2020 released by “Evergreen Shipping”, one of the top ten international shipping companies, “Evergreen Shipping”‘s net profit after tax in the third quarter reached NT$8.185 billion, a year-on-year increase of more than 59 times. In one quarter, it earned more than the past three years. The total annual profit.
You have to rely on “scalpers” to grab empty boxes
January 26, Zhejiang Huanfeng Pan Qi, the business manager of a textile company, spent 1,500 yuan to “grab” a “cattle cabinet.” Not only Pan Qi, many heads of foreign trade companies said in interviews that they had more or less ordered some “scalper cabinets”.
What is a “scalper cabinet”? Pan Qi explains.��There is a lot of cash buried in the goods. Nowadays, the overall efficiency of international logistics has declined, merchants are obviously less enthusiastic about receiving goods, and the financial pressure on enterprises has increased significantly.
“Our company is relatively large and the situation is relatively good.” In Zheng Yuye’s view, some small businesses may find it difficult to endure due to long-term inventory stagnation and longer payment collection cycles. Through the first half of 2021.
Indeed, this may be a test of life and death. The person in charge of a textile company in Changxing told Yongjinjun that he currently has dozens of containers of goods piled in the warehouse. Because the goods are sold at CIF prices, the high logistics costs prevent him from delivering goods.
“Now, I am faced with a ‘dilemma’ choice – shipping, which means huge losses; not shipping, the financial pressure and costs caused by stagnant inventory , It’s like boiling a frog in warm water.”
Industry insiders generally believe that international logistics costs will remain high before June this year. In this regard, Zhang Te, business manager of Zhejiang Wotanke Plumbing Equipment Co., Ltd., believes that based on this judgment, even in the face of high logistics costs, they should ship goods as early as possible to reduce inventory pressure.
In 2020, Zhejiang Wotanke Plumbing Equipment Co., Ltd.’s orders increased by about a quarter year-on-year, and the company’s annual export volume reached 800 million yuan. Zhang Te said that due to stable production, the company’s inventory is currently in a state of exhaustion, with more than 50 containers of goods waiting to be shipped, with a value of more than 15 million US dollars.
Two days ago, some industry insiders told Zhu Yeding, director of Hangzhou Sanhua Intelligent Control Logistics Department, a piece of news: American lines may face a third wave of substantial price increases. The price of a container will also increase by US$1,000.
He told reporters that European and American countries have just celebrated Christmas, and some buyers will begin to stock up on large quantities. Therefore, there will be a new round of peak shipments in some industries in February, and companies need to prepare in advance.
Sanhua has made a lot of preparations to deal with the possible new round of logistics surge. Zhu Ye said that in the past year, “Sanhua” has actively sought strategic cooperation with top-ranked freight forwarding companies in the industry to ensure that under the same conditions, priority is given to the containers needed by “Sanhua”.
At the same time, “Sanhua” strengthens the company’s internal logistics team building, for example, collects relevant information about major domestic ports every three days, and timely grasps specific data such as spaces to be released at each port. In addition, we collected information on several major ports in the United States a week in advance to predict congestion at each port and adjust our logistics plan in a timely manner.
“Enterprises can only do their work ahead of time and reduce losses as much as possible.” Zhu Yeding said that in the past year, their company has made enough progress in logistics management, all of which Orders are delivered smoothly and on time, and unnecessary extra costs are avoided as much as possible.
In his view, this logistics test will continue for a long time, and enterprises and relevant departments must still be prepared to fight a “protracted war.”
For more small and medium-sized enterprises, more winter funds may be needed to cope with this “cold winter”. In interviews, many foreign trade companies said that they had just increased the loan amount. However, some small and micro enterprises expressed that they lacked channels to further expand financing.
They all called for the government to increase special loans for foreign trade enterprises such as “order loans” to help enterprises cope with the capital turnover pressure caused by rising logistics costs. </p
