If your operations involve shipping goods from China or Asia, you’ve likely been affected. Costs and delays are the most noticeable consequences. “In general, ocean freight rates from the Far East to Europe have increased by approximately 250-300% from December,” said Steven Jou, project manager at Charles Kendall Freight Ltd.

Yet, there are other critical factors to consider. From our perspective in China, here are the top considerations for companies in Europe or the U.K. importing from China and Asia.

Plan Shipping Weeks in Advance

Most companies’ goods are now being rerouted around the Cape of Good Hope, adding approximately 10 days to transit times. However, the additional wait for containers to arrive is not the only issue.

The most significant challenge we’re seeing is a container shortage. Ships heading back to China need an extra 10 days too, causing a shortage at Chinese ports and driving up costs.

For businesses with production in China or Asia, waiting to book shipping until your goods are ready doesn’t work anymore. What used to take days to ship now takes weeks. This means logistics and shipping need more planning and coordination than ever.

The role of a demand planner, especially one based in China, is particularly valuable right now. Companies must now anticipate weeks in advance when their goods will be ready, coordinating with upstream suppliers to ensure goods are prepared for pre-booked shipments well in advance.

Suggestion: Pre-book your containers and, if possible, engage a demand planner based in China.

Alternatives to the Cape of Good Hope

Companies are finding new ways to ship goods, like avoiding the Red Sea and instead offloading in Dubai to air freight to Europe. While more expensive, it’s certainly faster. However, the process is more complex than merely looking at a map and choosing a new route. Choosing a new route, especially through different countries or using air freight, means you have to really understand local rules and paperwork.

Take the UAE, for instance. Its location near the Red Sea makes it a popular spot for companies to switch from sea to air freight for Europe-bound goods. But doing this in Dubai means you’ve got extra forms to fill out and strict rules to follow, especially for electronics or anything with batteries. Air shipping has tight regulations that require prior approval.

So, changing your shipping route isn’t just about the direction your goods take. It’s about navigating through a sea of regulations and ensuring all your paperwork is in order. This background work is key to keeping your shipping smooth and within the law.

Rail

For some goods and industries, the China-Europe freight train services might come in handy.

“Rail services might be a good alternative for certain clients, especially for exporters in Western China who are located close to major rail stations like Chongqing, Xi’an, etc., and importers in Eastern Europe, such as Poland, Hungary, the Czech Republic, and CIS countries,” suggested Jou.

However, most suppliers are based on China’s east coast, so taking the longer route via the Cape of Good Hope is still going to come out top for most.

Suggestion: If your supply chain is rooted in Western China, rail freight could be a smart move. While air freight might work for some, sea transport remains the most effective option for the majority.

Chinese Vessels

The Houthis have announced that Chinese and Russian vessels will have safe passage through the Red Sea, making Chinese shipping companies some of the few active in the area.

“As far as I know, some Chinese-flagged ships are still transiting the Red Sea under the protection of the Chinese Navy. However, this only applies to some ships and cannot be generalized for all,” said Jou.

As such, insurers are still covering Chinese vessels, though at increased rates. Yet, given the unpredictability of the situation and the risk of misidentification, it’s unclear if this situation will continue.

For example, a Marshall Islands-flagged tanker carrying Russian oil was hit by a Houthi missile and caught fire on Jan. 27. As such, tankers carrying Russian fuel are now avoiding the Red Sea.

Suggestion: Despite Chinese shippers operating in the Red Sea under naval protection, the volatile security environment introduces substantial risks and uncertainties.

Is It Time to Consider Nearshoring?

Disruptions highlight the growing trend among companies to diversify or nearshore their supply chains as a long-term resilience strategy. However, even for those who have diversified away from China, the impact of such situations is inevitable.

For instance, shifting to Southeast Asia doesn’t solve the current situation. Goods destined for Europe still have to navigate across Eurasia, presenting the same logistical challenges to those faced when shipping directly from China.

Shifting to suppliers in countries like Turkey offer alternatives. However, it’s crucial to remember that many raw materials still originate from or are processed in East Asia. And Turkey’s main trade route with East Asia runs through the Red Sea.

Suggestion: While nearshoring and diversifying supply chains offer potential benefits for resilience, they do not eliminate vulnerability in this particular situation.

Need Help?

For guidance on navigating supply chain complexities in China and Asia, consider reaching out to us.

The post Red Sea Crisis: Foreign Supply Chain Company’s Perspective from China appeared first on Kinyu.

Here, we unpack key takeaways and discussion topics from the visit, its reception in China, and the implications of trade tensions for businesses operating in China.

China Positively Receives Biden-Xi Summit Meeting

The reception of the Biden-Xi summit has been generally positive in China. Business communities and outward-looking individuals agree that no country can prosper when the drawbridge is up. After three years of isolation, a struggling economy, and no major rebound post-COVID, building connections with the world’s major economies appears to be a national priority.

This was reinforced by the new visa-free policy issued to six countries, five of which are in Western Europe.

In October, the Canton Fair saw record attendance from emerging economies participating in the Belt and Road initiative, yet the quality of deals was notably lower. The re-engagement with major Western economies signals a clear pivot towards genuinely improving economic relations. This goes beyond mere lip service.

Where were the wolf warriors? Following the summit, China’s national papers, such as the Global Times, echoed a more measured tone, indicative of a consensus geared towards rebuilding international relationships.

No Major Improvements to the Business Environment

The Biden-Xi summit provided a welcome shift in the rhetoric towards China, a departure from antagonism that has become familiar. China has also made efforts to attract foreign business back, but significant changes in foreign investment policies or improvements for foreign businesses are yet to be seen.

The term “competitor” was used extensively during the summit. While this marks a positive shift from being labeled an “adversary,” the business environment in China still heavily favors state-supported domestic companies, particularly in the electric vehicle industry, which is at the forefront of the debate.

Security Remains Priority Over Economic Growth

China’s national security measures have significantly impacted tech companies, both foreign and domestic. Increasing compliance and anti-monopoly regulations have resulted in the sidelining of tech leaders. They have also led to the departure of major companies, such as LinkedIn. In its latest position paper, the European Union Chamber of Commerce in China highlighted a “slew of national security-focused legislation, which has deepened uncertainty and … has sent mixed messages to the business community, leaving many companies questioning what kind of relationship China wants to have with them.”

Easing Tensions to Decelerate, Not Halt, Supply Chain Diversification

On the topic of diversifying both investments and supply chains, the die is well and truly cast. The geopolitical tensions affecting supply chains heavily integrated with China have prompted an irreversible shift. As a result, parts of production are moving to Southeast Asia, India, and Mexico.

However, many businesses recognize that relocating assembly out of China represents just a fraction of the challenge, primarily driven by the 25% import tariffs imposed by former U.S. President Donald Trump and continued under Biden. For a wide range of product categories, from clothing to electronics, the materials and components are also sourced from China. These parts constitute a major portion of the value of finished products.

Supply chain and manufacturing experts recognize the depth and interconnectedness of China in the upstream supply chain. This makes it a more formidable challenge to relocate, with Apple’s production shift to India being a high-profile example.

The thawing of relations may reduce some of the urgency in completely overhauling entire supply chains. This could slow the risk mitigation process in practical terms. But those hoping for a reversal are likely to be disappointed.

No Return to the Good Old Days Despite Biden-Xi Summit

The sentiment on the ground in China amongst the international community has improved regarding mobility and the promotion of international trade. However, no one is under any illusion that foreign buyers and investors will return in droves, as they did in the 2000s and 2010s. Most businesses here have already adapted to this new reality and have pivoted their strategies accordingly.

What actions have you taken in your business in response to the divergence of the world’s largest economies? At Kinyu, we are keen to hear from you. Get in touch to learn more about how The China Desk can assist you in adapting to the tectonic shift in supply chains.

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