China’s export advantage is being squeezed by soaring sea freight prices and rising raw material costs
- Many Chinese manufacturers are being forced to pass on surging shipping costs and rising commodity prices to importers
- But some manufacturers of low-value goods have started cutting back on production and turning away orders to preserve margins
Chinese exporters are being hurt by sky-high freight costs and rising raw material prices, rather than falling demand for goods from developed countries that are ready to reopen their factories, manufacturers say.
Freight prices have jumped more than 400 per cent from their lowest point last year, according to the Shanghai Containerised Freight Index, causing importers to question the economic viability of buying from China.
Lu Zhengwei, chief economist at China Industrial Bank, said freight costs as a proportion of total export expenses were no longer trending down, as they were before the coronavirus pandemic began.
“It should be pointed out that the impact of rising freight costs on exports of various industries is not balanced,” Lu said in a note last month.
“Goods with high unit value and small volume are less sensitive to rising freight costs, while goods with low unit value but are large in volume are more sensitive to rising freight costs.”
One of the reasons labour-intensive products such as toys and other Christmas goods from China are so price competitive is because they are sent by the cheapest mode of transport – shipping.
But as sea freight prices have surged in the past 18 months, some importers have started to scale back their buying, according to Celery Li, a sales manager at a Dongguan-based toy company.