Shipping industry steers container production away from China

The delivery trade is stepping up efforts to construct metal containers outdoors China, lining up the spare capability wanted to protect a key part of world commerce from provide chain pressures and geopolitical rifts.

Producers and authorities our bodies are creating factories throughout Asia and the US to mitigate an over-reliance on China that some blame for commerce disruption through the coronavirus pandemic.

Homeowners of recent factories in Vietnam mentioned they may finally construct round a sixth of the metal containers usually produced in a yr, whereas sizeable capability can be anticipated to be added in India.

At current, greater than 95 per cent of containers are made on the earth’s second-largest economic system, in accordance with maritime consultancy Drewry, with the market dominated by three state-owned enterprises.

The plans come as corporations and policymakers reconsider their dependence on Chinese manufacturers extra broadly amid diplomatic tensions and the nation’s growing threats in the direction of Taiwan. 

Carl Bentzel, one among 5 commissioners who head the Federal Maritime Fee, the unbiased US regulator of the delivery trade, informed the Monetary Occasions that China’s dominance of container manufacturing was a “monopoly” of “a necessary product”.

His report, printed final yr, discovered that Chinese language companies had been gradual to extend manufacturing through the pandemic. That exacerbated a scarcity of containers when many had been trapped on ships and at congested ports, disrupting commerce and driving up prices.

Whereas the trade now has an oversupply of containers on account of falling demand for exports, companies and officers are eager to make sure that they’re higher protected towards future geopolitical or commerce disruptions.

Transport “is out of sight, out of thoughts for probably the most half”, Bentzel mentioned. “[But] if there are growing tensions in Taiwan, individuals will begin to have a look at that provide chain.”

John Fossey, head of container gear and leasing analysis at Drewry, mentioned demand would almost definitely circulation to Vietnam. Like China, the south-east Asian economic system is a low-cost manufacturing hub. Lately it has been growing volumes of exports to countries like the US as multinationals relocate manufacturing away from China.

In August, Vietnamese metal group Hoa Phat introduced the primary supply of containers from its new manufacturing plant within the south of the nation. It mentioned the 3tn dong ($122mn) facility can manufacture about 200,000 20-foot equal models a yr. It should finally have the ability to produce 500,000 TEUs a yr, Hoa Phat mentioned.

Producers produced a median of about 3.2mn TEUs of recent containers every year within the decade as much as 2020, in accordance with freight reserving platform Freightos. In 2021, with so many containers trapped in ships and ports, international container manufacturing elevated to 7.1mn TEUs, earlier than dropping to about 3.8mn TEU in 2022, Drewry mentioned.

The worldwide pool of containers is about 50mn TEUs, Freightos added.

The launch of Hoa Phat’s manufacturing unit adopted plans introduced by South Korea’s state-owned Korea Ocean Enterprise Company to spice up manufacturing at one other container manufacturing unit in Vietnam, which opened final yr. KOBC mentioned the location would produce as much as 100,000 TEUs a yr.

In a press release to the FT, KOBC accused Chinese language producers of “utilizing their dominant market place” to “collude on costs and output”, including it “felt the necessity to diversify our provide sources” through the pandemic.

Past Vietnam, container producers had additionally not too long ago been organising in India, mentioned Joyce Tai, Asia Pacific managing director at Freightos.

In the meantime within the US, the federal government is searching for to help the event of higher-margin “sensible containers”, that are fitted with monitoring know-how.

“The subsequent points will probably be in sensible containers [and] the power to watch [trade]. You will notice nationwide safety considerations as a result of the Chinese language are additionally taking a look at this market,” mentioned Bentzel. 

He pointed to progress made by Maine-based enterprise World Safe Transport, which in September broke floor on a 15,000-square-foot manufacturing unit to provide traceable containers, developed with funding from the US division of homeland safety.

Washington has additionally wielded its regulatory powers in a bid to cease China strengthening its grip on container manufacturing.

Final yr Danish group AP Møller-Maersk mentioned the $987mn acquisition of its refrigerated container enterprise by state-owned China Worldwide Marine Containers (CIMC) had been scrapped. After a probe into the deal, the US justice division mentioned it could have consolidated management of greater than 90 per cent of world insulated and refrigerated container manufacturing in Chinese language state entities.

Nevertheless, some within the delivery trade are sceptical as to how a lot capability will shift to other markets.

Tai mentioned any market might compete with China “if their metal and labour prices had been decrease than China’s, in the event that they acquired extra authorities help and subsidies . . . and if their [production rates] had been sooner than China’s”.

However she added: “On a sensible stage, which means no market can beat China.”

Inside China, CIMC had a 52 per cent share in container manufacturing as of June this yr, Dong Fang Worldwide Containers 11 per cent and CXIC Group Containers 7 per cent, in accordance with Drewry.

State-backed COSCO Transport Improvement, which controls DFIC, acknowledged that manufacturing was spreading overseas however brushed apart considerations over the nation’s command of container manufacturing.

“The market will develop into extra aggressive to some extent given the rising manufacturing capability from Vietnam amongst different areas,” a spokesperson mentioned. “Chinese language container producers will face international competitors in accordance with market guidelines.”