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China loses 'factory of the world' production dominance

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The Emma Mærsk container ship docked at the Dapukou container terminal of Ningbo-Zhoushan Port in Zhoushan, Zhejiang Province on August 21, 2022.

video | Visual China Group | Getty Pictures

China is losing market share in manufacturing and exports in key sectors to its Asian neighbors as its recent “Zero Covid” policies have been a major factor leading to further erosion of its longstanding dominance in global trade.

China is also seeing declines in its share of exports from minerals to office technology, while losing ground in key consumer categories including clothing and accessories, footwear, furniture and travel goods, according to data shared with CNBC by transportation economics firm MDS Transmodal.

“China’s Zero Covid approach is impacting production and manufacturers are looking for alternatives to the existing ‘factory of the world’,” said Antonella Teodoro, senior adviser at MDS Transmodal.

Teodoro, “If we go down to the individual commodity groups exported from China, we see that China continues to lose its market share and Vietnam is among the countries that gain international importance.” said.

This view coincides with other recent market research, particularly regarding the gains made by Vietnam.

Teodoro said Vietnam’s proximity to China and cheap labor are reasons why Vietnam is seen as a viable alternative.

Ocean liner MSC, together with Vietnam Maritime Corporation, announced the establishment of a new transit container terminal project near Ho Chi Minh City in July. When completed, this terminal will be the largest in the country. both maersk and CMA CGM are investing in their own plant expansions in that region.

“Shipping lines are seeking new markets and investing and expanding into new markets,” Teodoro said. Said. “They detect demand and create a market with these investments.”

In the years before Covid, competition was intensifying. Vietnam has taken the lion’s share of manufacturing trade from China, with an almost 360% increase in long-distance trade since the country began investing in the shipping and manufacturing sector in 2014.

Malaysia and Bangladesh received apparel production from China, while Taiwan saw a marginal increase in metal production, according to MDS Transmodal.

According to Akhil Nair, Senior Vice President of Products Asia Pacific at SEKO Logistics, since the US trade tariffs in 2018, there has been a search for alternative sourcing locations to China, which was initially limited to fashion and footwear. The combined effect of the Covid quarantines in China (Shenzhen, Ningbo, etc.) and disruptions to supply chains has led to a “rapid increase in the number of customers, particularly in countries like Vietnam, protecting sourcing geographies,” as Nair says.

Nair said SEKO has seen an increase in intra-Asian trade for rising raw material flows and subsequent finished goods exports from Vietnam and other southeast Asian countries.

“While the recent quarantines in China have not affected ship operations or the terminal itself, it is clear that in some cases the impact remains on other highly dependent parts of the supply chain, such as trucking, CFS warehousing and container warehouses,” Nair said. said.

Data from cargo tracking firm Project44 shows that total ship TEU (container) capacity departing from Chinese ports has fallen since the start of pandemic quarantines in early 2021.

According to Josh Brazil, Project44 vice president of supply chain insights, ship capacity dropped from approximately 11.2 million TEUs per month before 2021 to 8.6 million TEUs leaving Chinese ports in September, with a 23.2% increase in vessel capacity leaving Chinese ports. represents a decline.

According to ocean reservations tracked by FreightWaves SONAR, there is a continuing decline in shippers placing orders for container shipping by ocean carriers.

Logistics executives told CNBC that cargo orders from China to the United States are expected to fall by 40-50% in November.

“The combination of excess inventory and declining demand continues to put pressure on Pacific import volumes,” said OL USA CEO Alan Baer. “Ship operators have increased the number of empty voyages and terminated several rows of ships, with approximately 30,000 TEUs per week withdrawn from the USWC area.”

Ningbo port hit by Covid policies

The world’s largest port and third largest container port, the Port of Ningbo is the latest Chinese commercial hub to see an impact from the government’s “Zero Covid” policies. According to global marine analytics provider MarineTraffic, a Covid outbreak was detected on Thursday last week and spread to Beilun, the area with the most terminals for the Port of Ningbo, causing a drop in productivity.

On Monday, MarineTraffic tracked what has led to supply chain transit visibility, which Alex Charvalias describes as a “significant drop in container ships arriving at Ningbo port”, tying it to the latest Covid outbreak in the region. “Although the MarineTraffic data shows that the number of ships arriving the next day is higher than the previous days, we can see that the TEU capacity waiting outside the port borders has increased in the last few days.” .

These delays are also visible in the latest CNBC Supply Chain Heatmap.

“Beilun has a lot of warehouse and container yards, so since October 16, the Beilun District administration has temporarily closed,” said Joe Monaghan, CEO and chairman of Worldwide Logistics Group. “Many Ningbo warehouses can’t open to receive cargo and can’t pick up empty containers from container yards, and truckers need to apply for a special pass card for delivery to Ningbo dock area. The situation in Ningbo may take a week.”

CNBC Supply Chain Heat Map data providers are AI and predictive analytics company Everstream Analytics; global freight booking platform Freightos, creator of the Freightos Baltic Dry Index; logistics provider OL USA; supply chain intelligence platform FreightWaves; supply chain platform Blume Global; third-party logistics provider Orient Star Group; global marine analytics provider SeaTraffic; sea ​​visibility data company Project44; shipping data company MDS Transmodal UK; sea ​​and air freight rate benchmarking and market analysis platform Xeneta; Sea-Intelligence ApS, a leading research and analytics provider; Crane Worldwide Logistics; DHL Global Forwarding; freight logistics provider Seko Logistics; and Planet, global provider of daily satellite imagery and geospatial solutions.

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