This year, shipping took a course that nobody expected – especially when trading with China. The challenges brought by COVID-19 and new tariffs on Australian goods forced many Australian importers and exporters to rapidly adapt to the new environment.
Despite these obstacles, China remains Australia’s strongest trading partner, with two-way trade worth approximately $194.6 billion annually. Our northern neighbour continues to be our largest export market, our primary source of international students, Australia’s predominant market for tourism and agriculture, as well as a huge source of investment.
With 2021 just around the corner, what can importers and exporters expect for the new year when trading with China and how can they prepare? Below, we’ll recap what we’ve experienced and what trading internationally could look like with China in 2021.
Recap: what have we experienced in Q4, 2020?
Q4, 2020 has been a busy and chaotic period for shipments. Generally, February marks the end of shipping peak season. But this is a year like no other.
Congestion at main ports
In the fourth quarter of 2020, shipping lines have reported heavy congestion coupled with tight schedules, causing delays lasting up to a week and great amounts of cargo being rolled (i.e. cargo simply not being loaded onto a vessel because that vessel ran out of room).
In September 2020, it was reported that a third to a fifth of cargo was rolled at most of the world’s largest transhipment hubs.
Data from Ocean Insights found that 30.2% of cargo was rolled in the Port of Singapore (with 33.3% of cargo being rolled in August) – the largest shipping port in the world. Things weren’t much better at the Port of Shanghai (another one of the world’s largest), with rollovers amounting to 25.5% in September. Although we’re seeing some improvement, importers and exporters should factor in this uncertainty brought on by congestion into Q4.
Sydney port industrial action causing shipping lines to cancel services into Australia
Contributing to the congestion at Australian ports has been waves of industrial action. The Maritime Union of Australia (MUA) have been negotiating with major employers including DP World, Patricks and Hutchinson for some time now – the sticking points have been wage rises in proposed new enterprise agreements. Discussions continue to break down, with subsequent industrial action including work stoppages, overtime bans and delayed start times.
Industrial disputes were suspended in Sydney, with the union pledging to withdraw industrial action for a month. Patricks had offered a 1.5% percent pay rise, an offer to employ 50 new workers to assist clear cargo backlogs and a promise that there would be no forced redundancies. The MUA have insisted on a 2.5% rise and have accused the company of “trading off wages for security of employment”. There is a further review meeting scheduled for 26 November.
Should discussions continue to break down, another strike could push the industry to a tipping point. Major shipping lines have already suspended services to and from Australia (including Maersk – which we discuss below). Should more follow, importers and exporters will be the ones who will bear this burden.
Maersk suspends service until the end of 2020
Maersk announced that to “remove uncertainty for our customers’ supply chain and to assist handling of our vessels calling Sydney, Maersk is taking the difficult decision to temporarily stop acceptance of all new bookings from Asia, Europe, Middle East, Africa and India sub-continent to Sydney, effective immediately”.
Maersk, the world’s largest container shipping company, announced this quarter that they’d refuse to take any more bookings for the port of Sydney. Whilst bookings have now resumed, a Sydney Congestion Surcharge has been applied from 1 October. A number of other carriers have followed suit, including Mediterranean Shipping Company (MSC), CMA CGM, ANL, Ocean Network Express (ONE), Pacific International Lines (PIL) and Hapag-Lloyd.
Although industrial action has stopped for now at the port of Botany, delays and congestion are expected to continue. This is because negotiations between major shipping companies (namely, DP World) and the MUA are ongoing over a new enterprise agreement. The union therefore still has the option to resume work stoppages in Q4.
Zim introduces new service to combat congestion
Despite industrial action and heavy levels of congestion, the Israeli carrier Zim announced that they would go ahead with Asian-Australian trading operations. They announced that in October, they would launch a China Australia Express (CAX) service with an 11-day transit from the south of China to Sydney.
The carrier has adopted an approach they believe will counter the trends of congestion. The rotation will go from Ningbo to Shanghai to Yantian to Sydney, before travelling to Melbourne, then Brisbane and then back to Ningbo. The operation will see a deployment of six 2,500 TEU vessels with what Zim say will have “extensive capacity and plugs for refrigerated cargo”. Reefers will be constantly monitored through a “ZIMonitor system”.
It’s hoped that the new service will provide a faster solution for importers and exporters seeking to trade with China.
What’s in store for trading with China for 2021?
It’s impossible to predict what will happen in 2021 amidst so much uncertainty. Global economic recovery will significantly depend on whether an effective COVID-19 vaccine is developed.
Rocky trading relationship with China
2020 has seen a rocky diplomatic relationship between Australia and China.
This relationship hit Australian exporters when China announced an investigation into Australian wine export subsidies, imposed a massive tariff on Australian barley and suspended beef exports from a number of Australian abattoirs. Most recently, China has suspended Australian wine imports, ordered a halt on importing Australian coal and a potential 40% tariff on Australian cotton.
Such unexpected manoeuvres may continue to eventuate in 2021 given the negative tensions currently subsisting. The Australian Financial Review vividly commented that “Australian exports are now at ever-increasing risk from Beijing’s threats”.
Unfortunately, this future is completely outside importers’ and exporters’ control. The course of the Australia-China trade relationship is wholly dependent on high politics, and all we can do is react.
A very slow “slow season”
In shipping, we often see the peak season followed by the slow season. The peak season being the busiest time of the year as everybody competes for container space before Christmas. The slow season being the period that comes right after – a “lull” where businesses focus on reviewing, reflecting and preparing for the next peak season.
In 2021, the slow season may be even slower. Market research institute GfK predicted that in the new year, consumer confidence will dip.
It’s difficult to conclude whether this will be the case in China. The period around Chinese New Year (12 February 2021) will likely cause a slowdown (as it does every year), with families gathering and markets closing.
But some economists suggest that China is recovering well from the pandemic, with consumer confidence on the rise. It’s been reported that the Chinese population “are confident enough the virus has been vanquished to go shopping, dine and spend with gusto”. Economist Nicolas Lardy highlighted some positive statistics, stating that the Chinese economy in 2021 “is going to be 10% bigger than it was in 2019, [but] every other major economy is going to be smaller”.
Slow season – at least from the Chinese perspective – could potentially then be busier than we initially suspected.
A travel bubble
The market for air freight in 2021 will be very much dependent on a travel bubble with China being introduced, given that 80% of cargo travels via passenger aircraft.
A one-way travel bubble has already opened with New Zealand, and now Qantas is looking to place Korea and Taiwan in a potential travel bubble. There’s also discussions between Hong Kong and Singapore, Thailand and China, and Hong Kong and China, about re-opening borders and creating respective travel bubbles.
If things progress well, there may even be a travel bubble between China and other countries, which we hope will include Australia. Hong Kong has already placed Australia on a travel bubble “shortlist”, with COVID-19 tests to occur at the beginning and end of each flight.
Should a travel bubble be introduced, we predict that the inflated costs of air freight will reduce, as cargo capacity in passenger aircraft increases. This will certainly assist importers and exporters on top of the Federal Government’s International Freight Assistance Mechanism (IFAM), which provides financial relief for exporters trading overseas.
Consolidated shipping lines
The impact of COVID-19 may lead to more shipping line consolidations in 2021 (i.e. shipping lines grouping together into alliances). Market consolidation in the mid-to-late 2010s saw many mergers and acquisitions between container shipping lines, alliance building (and shuffling) as well as shipping companies growing into the market of port operations.
More consolidation in 2021 could be an important step to improving the overall strength of the sector. The presence of only 7-8 international carriers as well as the three alliances formed in 2017 (2M, THE Alliance and Ocean Alliance) has assisted carriers control their capacity through the pandemic, according to one CEO.
The largest shipping companies reduced capacity by over 13% during Q2 to meet a 11% fall in demand. This then led freight rates to rise in June and August, keeping up with an increase in demand. This rise has now contributed to carriers’ improved financial performance.
As carriers realise the benefits of alliances, we may see a trend in further consolidation in the new year. The risk for importers and exporters alike, is that stronger alliances could lead to anti-competitive behaviour where prices are open to manipulation.
How can importers and exporters prepare for 2021?
There are three things we recommend importers and exporters can do right now to prepare for trading with China in the new year:
- Forecasting – factor in the above into your planning for the new year. Develop a forecast based on current market trends and the prevailing economic environment;
- Placing orders early – the earlier you place in orders for your imports, the higher the likelihood of securing space in cargo vessels. It’s also an effective way to manage the disruption we’re seeing in 2020; and
- Using air-sea solutions – In 2021, look at sea freight as a cost-effective alternative to air freight, but also look at combination service options. Our tailored air-sea solutions are a highly cost-efficient way to transport your goods using both aircraft and ocean vessels.
If you’ve got any questions about trading with China in 2021, what importers and exporters can expect and how you can better prepare, please don’t hesitate to contact our expert freight forwarders at International Cargo Express.
Our team of friendly professionals will be more than happy to help you streamline your shipping process so you can focus on growing your business. You can call us, shoot us an email or leave a comment below.
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