International Shipping Freight Spikes Dramatically on Geopolitics and COVID

China Container Port

The international freight market experienced a cold winter in April and May. Freight rates have returned strongly now, and the freight rates of all routes are at their peak. The freight rates of major trades between the East and the West remain at a high level. According to the Shanghai Export Container Freight Index (SCFI), the spot price on the West Coast of Asia to America last week increased by 184% over the same period last year. The spot price on the East Coast of Asia to America is almost twice that of last year. The Shanghai-Northern Europe spot freight rate increased by 85% year-on-year, and the Shanghai-Mediterranean route freight rate increased by 77.6%. The reasons for the price increase are as follows.

Overhead View of Qingdao Port. Source: HBIS56

Overhead View of Qingdao Port. Source: HBIS56

1)Increased trade volume between China and the world

The backlog of international demand due to the epidemic began to be released. In response to the development of the epidemic, countries such as Europe and the United States have adopted a series of measures to stimulate the economy and consumption, which has increased global import demand, especially the United States. At the same time, China’s production is on track, which can fill the gap in consumption and production demand in other countries and regions. The amount of imports and export increased significantly.
According to previous statistics from the General Administration of Customs, China’s foreign trade exports in July increased by 10.4% over the same period last year, and in August it increased by 11.6%. At the same time, September has always been the traditional peak season for American routes, and the purchase of supplies for Thanksgiving and Christmas from abroad brings a large number of orders.

CAMAL’s cargo of dump trucks being loaded in China’s northern port of Qingdao. The cargo is loaded directly onto the ships for transport to our clients worldwide

CAMAL’s cargo of dump trucks being loaded in China’s northern port of Qingdao. The cargo is loaded directly onto the ships for transport to our clients worldwide

2)Insufficient capacity and poor container turnover

The number of Chinese export orders has surged, and the demand for containers has continued to increase. China’s container shipments in September were 230,000, a year-on-year increase of 43.75%. At the same time, as the overseas epidemic has not been effectively controlled, the speed of container turnover has decreased. A large number of containers are exported overseas, but it is difficult to return to the country in a short time. The short-term mismatch of imports and exports has further exacerbated the short supply. In September 2020, the average price of China’s container exports was 3,803.75 US dollars per unit, an increase of more than 400 US dollars from March. It is expected that it will take several months to achieve normal container turnover.

CAMAL staff and third party inspector from SGS inspect and load cargo in China’s Jiangsu province. We assist clients source from China and ensure smooth end to end procurement

3)Congestion of international waterways causes a decrease in punctuality and an increase in new fees

In some countries, the capacity has not been restored in time because the epidemic has not been effectively controlled. Insufficient international transport capacity, which in turn caused international freight rates to rise.
The Panamanian Ministry of Health has restricted the number of workers on the canal, and has imposed stricter inspections and additional procedures on transit vessels, resulting in an extension of the vessel’s voyage. The Panama Canal is currently experiencing serious congestion and delays. Ships carrying cargo from all over the world have to wait a few days before passing through the Panama Canal. Some shipping companies impose congestion surcharges, loss of cabin fees, and high container surcharges on specific ports.

Cargo being transported through the Panama Canal. Source: CATO TW

So, what happened to China’s exports during COVID?

During the spike of COVID, China’s exports surged by 9.9%, and imports grew by 13.2%. At the start of the pandemic, there was a reduction of imports and exports however China recovered very quickly and bounced back in July. This recovery was caused by the increase in demand for products from China and consumers buying the products from around the world. The most popular items that were exported from China during COVID were: pharmaceutical products, special yarns, and medical equipment.

China’s imports were expected to increase by 0.4% but instead they have increased by 13.2% and are continuing to rise, the main causes for the rise comes from meats 40.5%^, grains 35%^ and soybeans 17.6%^.
Other materials that caused China’s imports to rise are petroleum, vehicles and machinery. These are expected to stay on an upwards trend for the foreseeable future.

The recent news indicates China’s new trade deal will resume logistic services in the US and Europe, this has significantly contributed to the success of China’s import strengths.

Cargo being transported through the Panama Canal. Source: CATO TW

One of CAMAL’s equipment suppliers outside of Shandong conducts temperature check on employees

Why is there a shipping container shortage?

The global container shortage has been caused by the increase of consumers buying products from China particularly in Europe and the US. The containers have had a significant impact on China’s imports and exports. These are:

  • The unexpected demand for importing from China
  • The increased demand for products from China
  • China importing more goods
  • China exporting goods worldwide

CAMAL prepares cargo for its client. CAMAL sources from China for its clients worldwide and has felt impact of rising logistics prices

The increased imports and exports have caused the shipping containers to become vacant for longer and taking longer to return back to China. This is causing a delay on China’s ability to export goods out of the country to other parts of the world.

Ways that China can improve the efficiency of their imports and exports and recover the logistics sector

  • Invest in more freight forwarders
  • Lowering consumption tariffs
  • Remove the import barriers facing advanced commodities
  • Transporting empty containers back to China at low cost and with high efficiency in order to alleviate the shortage of containers in China
  • Develop new technologies to be utilized by logistics companies to create a. ore efficient process.

If you are looking for an efficient China sourcing agent or need assistance finding sourcing agents in China, please do contact us and we may be able to help you or point you in the right direction.

CAMAL’s Managing Director reviews the achievements of FOCAC2015

 

China- Africa cooperation has been going on for some time now. CAMAL’s Managing Director Mr. Walter Ruigu was spent some time to review the progress of FOCAC2015 which was held in South Africa. The theme was how to facilitate the movement or transfer of the industrial knowledge from China to Africa.

  1. From the macroeconomic perspective, the conference was successful because China stepped up the pledges from $20 billion to $60 billion which will be in different forms, they will increase financial funding to develop the SMEs
  2. China will offer more training support to African Students who will learn more about technology.
  3. From a company level FOCAC2015 could have done more as the attendance was mainly done by the Government state owned companies instead of firms from Africa. Africa should have more of these forums so that we can they can be a step in the same direction with China.
  4. China’s economy has been slowing down in that China has moved from economy that was based on investment and to fixed asset to domestic consumption. This means that Africa being a large trader in Commodity trading, the continent has been suffering from the economic fluctuation of the prices of these commodities.
  5. The Chinese manufacturing sector has been operating in over capacity i.e. the steel industry; this means there is need to move some of these industries in Africa. However, there is a lot of information which would help the industries in China to move to Africa. Many small medium enterprises are closing down because they do not know how to move to Africa because they do not have the regulations of the country they would want to move to.
  6. The companies in Africa need to engage with China at a macroeconomic level for them to benefit. Once the African companies engage with the big companies in China, definitely the issues of infrastructure will be addressed. China is able to integrate many companies to come up with one common industry.
  7. The market in china cannot be gauged by looking at the population, this is because of the difference in the consumption pattern and the marketing plans. African countries have to research more on Chinese market. Africa should focus on value addition so that export can be increase to China.

Comparing this with FOCAC2018, there has been an improvement as many companies came on board and attended the forum. Unlike in 2015, more countries are sending companies in china to carryout market research, procurement purposes and to get investors. CAMAL continues to be on the forefront to see that clients from African Continent get the best from china. CAMAL also continues to link more industries from China to the African market making it easy for entrepreneurs to source from China. The theme of these forums has been to see to it that Africa has achieved economic growth through these relations in the long-run.

Attached is a file with an audio where CAMAL’s Managing Director Mr. Walter sheds more light on what Africa needs to do for a smooth cooperation with China.

 

CAMAL attended F0CAC2018 in Beijing.

 

Forum on China-Africa Cooperation 2018 was held in Beijing where various Heads of State from Africa represented their countries in this forum. Chinese President Xi Jingping opened the forum on 3rd of September 2018. Most Africans were eager to know how their countries would benefit from these relations.  CAMAL attended the opening ceremony where Xi Jingping delivered a keynote speech at the opening ceremony of the 2018 Beijing Summit of the Forum on China-Africa Cooperation.

Africa Heads of states during FOCAC2018 in Beijing China

Chinese President Xi Jinping pledged $60 billion in financing for projects in Africa in the form of assistance, investment and loans, as China furthers efforts to link the continent’s economic prospects to its own. Some of what $60 billion will do can be broken down to:-

  • Xi said the figure includes $15 billion in grants, interest-free loans and concessional loans, $20 billion in credit lines, $10 billion for “development financing” and $5 billion to buy imports from Africa.
  • He added that he will encourage companies to invest at least $10 billion in Africa over the next three years.
  • Xi said China was planning initiatives in eight areas, including providing $147 million in emergency food aid, sending 500 agricultural experts to Africa, and providing scholarships, vocational training and trade promotion opportunities.
  • President Xi Jingping promoted Beijing’s initiative to build ports and other infrastructure as a tool for “common prosperity” in a world facing challenges from trade protectionism.
  • China will implement 50 agricultural assistance programmes, provide 1 billion of emergency humanitarian food assistance to African countries affected by natural disasters, send 500 senior agriculture experts to Africa, and train entrepreneurs in Agri-business.
  • China pledged it will implement 50 trade facilitation programmes for Africa, as well as undertake 50 projects for green development and ecological and environmental protection.
  • Tailor-made programmes to train 1,000 high-calibre Africans will also be put in place. 50,000 government scholarships and 50,000 training opportunities for seminars and workshops will be offered.
  • On the other hand, 50 medical and health aid programmes for Africa will be upgraded.
  • Xi said that we should build a China-Africa community with a shared future that promotes harmony between man and nature. The Earth is the only place which we mankind call home. China will work with Africa to pursue green, low-carbon, circular and sustainable development and protect our lush mountains and lucid waters and all living beings on our planet.

China has continued to push for cooperation with Africa to help the African states achieve economic independence in the long-run.This initiative has been achieved by financing projects in Africa. A good example is the infrastructure development where china has continued to bring modern technology in this sector. The presidents in attendance were positive that Africa was taking off towards a better future of economic growth.

CAMAL Group has been doing business in China for more than 8 years and has seen China’s economy grow overtime. FOCAC2018 has opened many opportunities where people from Africa will be  allowed to do business in China. CAMAL has helped some of it’s clients  get foreign investment from china hence creating a positive economic impact.

CAMAL will continue to bring serious investors to Africa and also help the African produce get market overseas. As Xi jingping finished his speech he  insisted by saying that there is need for China and Africa to work together in order to conserve the environment, CAMAL continues to push for environmental hygiene by organising trips where African countries can come to China and benchmark on environmental conservation and how china manufactures the waste treatment plants. With the growing African population, there is need to take care of the environment at all costs.

As the bond between China and Africa becomes stronger, there is need to evaluate  the economy and check the available opportunities in the market because Africa has untapped potential. There are many benefits which can be reaped by business firms, investors and organisations that are in their take-off stage matching towards economic independence. This phase will spearhead development in countries which will channel the loans for development purposes. We just hope that the loans will bring productivity because it is a debt which will be paid later even though president Xi Jingping said that China will write-off some loans for some countries depending on how the economy is doing.

 

CAMAL makes its entry into Ethiopian market

 

CAMAL’s MD, Walter Ruigu interviewed by Ethiopian Broadcasting Corporation on opportunities for Ethiopian companies in/with China

 

CAMAL saw a lot of opportunity in Ethiopia especially from the industrialisation drive from government.

China Trade Week Vice President Sean Xiao and CAMAL MD and Sales Manager at CAMAL’s booth. CAMAL sees Ethiopia as a key regional market

CAMAL looks forward to working in Ethiopia.

For any inquiries, please email: info@camaltd.com

CAMAL participated in China Trade Week Kenya

The CAMAL team participated in the annual China Trade Week Kenya 2017.

CAMAL Booth

There was a large interest by Kenyan firms in finding Chinese partners and China procurement.

CAMAL’s MD, Walter Ruigu gave a presentation on China’s macroeconomy and changing procurement trends especially their impact on African countries

CAMAL acquired new procurement and advisory clients at the event and we plan to participate every year.

For any inquiries, please email: info@camaltd.com

Made in China: Still a Complex Scenario

I have just finished reading an article in a local paper that said “Made in China” no longer means what it did in the past, that is, cheap, low-quality products. The article argued that as China’s middle class has expanded and wages have risen, cheap products – in terms of costs and quality – are becoming scarce. Whereas the article is correct in that the quality of products from China has continually improved, the issue of “Made in China” is an intricate and complicated picture. There is a Chinese saying, yi fen qian, yi fen huo, i.e., the more you pay, the better quality you will get. This month, we outline a few procurement issues to be aware of.

Complexity in the categories of items to be procured:  Although China is known as the “factory of the world,” not every factory/company can produce an unlimited set of products. This means if one is purchasing a gamut of products or product series, one may have to deal with multiple manufacturers. Depending on the type of item to be procured, the manufacturers may vary in size, capacity, geographic location, level of internationalization etc., which adds to the complexity of procurement.

CAMAL recently worked on a project to procure different types of steel casings. The client’s requirements were so diverse that it was practically impossible to find one manufacturing plant that produced all items. The result was that we chose to work with the largest plant, which in turn subcontracted other parts to other plants. We negotiated for a contract where all the quality assurance work was to be done at the large plant (along with an international third-party testing agency) with the final responsibility for quality issues being the main supplier’s.

This type of procurement where one supplier plays the lead role can reduce complexity and costs/time in due diligence work and consolidate risk and responsibility. The downside is that the final invoice price may be higher than the individual suppliers’, but this may be outweighed by reduction of transaction costs.

Specialization of suppliers:  Specialization in China attains levels that would make Adam Smith, the Scottish economist who regarded increasing division of labor as the key to prosperity and proud. There are factories, companies and even towns dedicated to producing a single component that may end up being used in only one product in one industry in one sub-sector. This is a double-edged sword for procurement. If one is to procure the single component, identifying the right partner may ensure unlimited access to the component and ensure attractive cost savings. On the other hand, it also increases the complexity, particularly if one is not present in China and not an expert in the local industry, as finding the right factory requires a lot of research and ground work.

Number of suppliers:  Given the massive size of the “world’s factory,” suppliers of a given product are in the range of hundreds to thousands, which increases the complexity of narrowing down a legitimate and reputable supplier.

A client recently wanted to procure a crushing machine for mineral processing. Our initial research indicated there were over 2,500 companies that could produce the product and these were spread over at least six key manufacturing bases. Also, the 2,500 included traders, manufacturers, assemblers and briefcase companies. With the aid of desk research, supplier visits and primary research by industry experts, we were able to narrow down the key companies to about 10. It is still a very high figure, once again underscoring China’s specialization in manufacturing

Finally, one key issue to consider when procuring from China is whether or not to use trading companies. Traders are essentially a black box linking the manufacturer and the buyer, and at times, there could be multiple parties in between a transaction. Once again, the appropriateness will depend on the type of procurement required, time constraints and budget allocations. A trader can be an effective solution in reducing the complexity, especially in dealing with all the sub-contractors. However, traders’ markups can be extremely high; and even then, some traders may be unwilling to carry the manufacturing risk on their books. So in China, finding the right trader may entail some research. But they can be a beneficial partner down the line.

If you are looking for an efficient China sourcing agent or need help finding sourcing agents in China, please contact us and we may be able to help you or point you in the right direction.

This article originally appeared in the Chinafrica Magazine, Made in China: Still a Complex Scenario

Standard Bank Yiwu Trade Visit by CAMAL

CAMAL cooperated with the largest bank in Africa, Standard Bank to organise a tour of Yiwu district in Zhejiang province of China for various African traders. The sourcing trip included procurement of various products such as equipment, electronics, furniture and many more. CAMAL  also conducted factory visits in Wangbin Co. Ltd, which manufactures furniture and Sumsoar which handles logistics for various local exporters. The main agenda  of this particular trip was to have clients introduce clients to sourcing from China through actual engagement with the local factories.

CAMAL team and guests during a meeting at one of the suppliers near Yiwu

CAMAL has  always aimed to consistently add value to our clients and for this reason,  the firm  co-operated with Standard Bank visit various districts of their interest. The key reasons of visiting various districts were;

  • To identify the prevailing opportunities in China
  • To understand the terms of business in China
  • To vet the quality and prices of the products.
  • To get a diverse investment plan

CAMAL continues to organize these trips for associations and companies who wants to meet the original suppliers. This is one among many successful trips which CAMAL has been part of. CAMAL has also done successful trips for the following fields,

  • Construction materials i.e. tiles
  • Capital machines i.e. wheel loaders, dump trucks
  • Industrial Chemicals
  • steel
CAMAL -supplier visit

The advantages of using CAMAL for such trips include

  • CAMAL understands China and the  economy well so the firm will advice on the best quality and original product.
  • CAMAL has done many trips  successfully  for many associations and companies, it will only get  better for you.
  • CAMAL’s China office will do the negotiation for you with the Chinese manufacturers because. The team speaks Chinese fluent so language barrier will not be a problem to CAMAL’s client during trip.
  • CAMAL has does due diligence for the companies the client wants to visit, this ensures the client’s expectations are met by linking them with the best suppliers in China.

Looking for an efficient China sourcing agent or need help finding sourcing agents in China, please contact us and we may be able to help you or point you in the right direction.

Meet Kenyan entrepreneur at the forefront of China-Africa relations

When Kenyan entrepreneur Walter Ruigu embarked on his journey to China in 2009, he had no clue this would be the place he’d spot so many business opportunities for a budding African entrepreneur.

Today CAMAL prides itself in successfully assisting companies to leverage China as a source of supplies, capital & technical expertise.

This week he speaks with Nillah Nyakoa about what it takes to find success in China and above all the good business lessons he has grasped over time, working with clients from both China and Africa, and how those lessons have helped steer his company in the right direction.

Listen to the rest on China Radio International Website:

 

China’s Environmental Regulations are Crippling its Steel Sector and Severely Wounding Manufacturing

I have just returned from a sourcing trip in Tangshan and I was marked by the blue sky and white clouds. In all my years in China, I have never seen Tangshan like this, let alone during winter. I have witnessed the same scene in the last week in Dingzhou, Anping, Shijiazhuang and other steel producing cities of China.

Downtown Tangshan (One of the key steel producing cities of China) – Nov 22, 2017

Clean Air at a Cost

New regulations in China have mandated anti-pollution measures / equipment / quotas / shutdowns etc. which have all led to increased costs amongst restricted supply. In Tangshan for instance, coal power is no longer permitted as a source of power for producing steel. The alternative, natural gas, is a cleaner energy source, but one that has lead to an increase of USD 10-15 per ton of steel.

With coal no longer a permissible source of (cheap) power, most coal processing machines lay ideal in most steel mills

Although most people appreciate the breathable air, there are hundreds of mills and processing plants that have been shutdown leading to lost income, unemployment and rising prices. Where shutdowns have not been mandated, increased costs have rendered many firms noncompetitive (locally and internationally) leading to bankruptcies and closures.

With the new regulations, electric furnaces have been targeted due to their typically high pollution and often smaller size in comparison to blast furnaces. The result has been extremely tight supply of steel especially billets that are necessary for downstream production, and which once constituted a major portion of China’s steel exports.

Not everyone is Upset with New Regulations

The biggest beneficiaries of the strict regulations have been blast furnace suppliers of steel billets. They have seen profits sour with figures of over USD 150 per ton. With some factories producing thousands of tons per week, business has been booming as artificially high profit margins continue.

On the other hand, downstream industries have been forced to buy raw materials at these elevated prices and ultimately the costs are being passed on to consumers. With fewer producers, elimination of the (Cheaper) electric furnace producers and new quotas, billet manufacturers have ripped immense profits during this period.

End of Cheap China?

Those who have paid close attention to the steel industry can only reminisce when steel prices were sub USD 150 compared to USD 600 per ton today. It is highly unlikely that the price will ever return to these figures.

Excessive steel billet (such as above) prices have caused a knock-on effect on downstream industries and manufacturing

Given that profits of the billets are abnormally high, it is possible that new regulations targeting certain enterprises will tame these margins therefore resulting in knock on effect for downstream industries, but its clear China has turned a chapter of cheap steel at all costs.

‘New Normal’ and the Changing China Opportunity

So what does all this mean for international firms looking to China for procurement or investment? Next week, I shall examine implications of this new normal.

 (Walter Ruigu is managing director of CAMAL Group, a trade and investment advisory firm based in Beijing, Nairobi and Lusaka and can be reached at wruigu@camaltd.com)

Why China Remains a Major Sourcing Destination

There have been countless articles and books about China’s reign as the factory of the world coming to an end. While it is true that wage increases are making some of China’s lower-end industries, such as textiles, less competitive vis-à-vis other low-cost countries such as Viet Nam, Cambodia and Bangladesh, China remains one of the top procurement sources for mid- to high-tier products. For instance, heavy equipment exports from China experienced a growth rate of about 30 percent in the last decade alone. Even as some of the lower-end industries move out, there is more to a country’s competitive supply chain than labor costs. China maintains a set of key factors that will continue to make it a competitive exporter even as the economic landscape shifts. These include:

  • High-quality infrastructure (especially export-related infrastructure): China’s rail and road infrastructure, particularly along the coastal cities, are among the most developed globally. With a history of double-digit investment in infrastructure, China’s ports complement the rail/road infrastructure. Shanghai long surpassed Singapore as the world’s busiest port and it will be a while before key competing countries can match China’s current (and continuously developing) infrastructure.
  • Increasing qualified labor force: China produces hundreds of thousands of graduate engineers and scientists each year to be absorbed into the local industries. Moreover, China now has the world’s largest student population studying overseas with a sizeable number returning upon completion of their studies. Although there has been renewed attention to quality rather than quantity in the number of graduates, the increasing education level will boost China’s competitiveness vis-à-vis some of the other low-cost sourcing destinations.
  • Growing research and development expenditure leading to higher innovation capacity: Despite the reputation for copying, China’s innovation has continued to pick up pace. A report by McKinsey & Company (Greater China) highlights innovation in areas such as renewable energy, consumer electronics, instant messaging and mobile technology. As internal and external competition increases, China is also focusing on price reduction, adaptation of business models and supply chain development. This will lead to the elimination of less efficient firms, both domestically and those focused on the export market.
  • Lower costs relative to industrialized countries: Despite double-digit growth in both wages and currency appreciation during the past decade, China’s minimum wage still stands far below that of industrialized countries. Rising wages are correlated with increasing productivity. Therefore countries competing with China for lower costs will have to also compete with increased productivity and vice versa.
  • Specialization, not only at sector level, but also at product level: China’s specialization in various products remains unparalleled globally. There are entire towns dedicated to producing a single product. For instance, Shenyang, a city in northeast Liaoning Province, has developed a reputation for its heavy industry, particularly in the manufacture of automobile and light machinery. The Pearl River Delta is known for textiles/electronics industries, whereas Shenzhen has become the IT hub of China. Moreover, the product range available in these agglomerations is diverse, catering for low- to high-end products, resulting in differentiation as a key competitive factor.
  • Pro-export policies: It is true that the Chinese authorities have decided to alter the export-led growth model to one focused on domestic consumption. However, the country’s “going out” policy combined with an increasing saturated domestic market, especially in sectors related to fixed assets investment such as steel, cement and heavy equipment, continues to have explicit support (via export rebates or subsidies) or tacit support (high barriers to entry, licensing requirements), especially at local level. This support will continue to boost Chinese exports’ competitiveness – at least in the short term.

A shift inland: As the coastal areas become expensive, investment in areas such as Chengdu and Chongqing, which are a distance from the coast, continues to see increasing direct investment from both local and foreign firms. This is not to say that the inland does not pose its own problems, but over time it may prove easier to shift inland than abroad.

This article originally appeared in the Chinafrica Magazine, Why China Remains a Major Sourcing Destination