QualityInspection.org

Quality Assurance, Product Development, and Purchasing Strategies in China

You are here: Home / Logistics / Shipping From China In June ’24 Dogged By Rising Costs And Uncertainty

Shipping From China In June ’24 Dogged By Rising Costs And Uncertainty

by

Kate, Sofeast’s Supply Chain Management head, provides an update on shipping costs from China in June 2024. It’s bad news, unfortunately, as costs are rising and there are now unexpected fees being added by shipping lines, too. So what are the costs and what’s driving them?

In addition, Kate also dispels confusion about whether to use FOB or FCA incoterms. The former is generally accepted as ‘good’ in China, but as an importer, it might leave you open to unnecessary risk…

 

If you prefer listening to reading…

Listen to the audio here.

 

Shipping costs from China are spiking. How much are they now?

Costs had previously spiked around Chinese New Year (February ’24), which is normal due to the rush to ship products before factories close, and due to the threats against shipping in the Red Sea at that time.

But the bad news is that shipping costs have increased rapidly as of June 2024 in what should be a cheaper season (as summer in the West is usually slower resulting in less shipping traffic). Current approximate sea freight costs for containers from China to the USA (subject to change by the time the podcast is published) are:

  • 20′ GP container US$1800 in May ’24, now US$5700 as of mid-June.
  • 40′ HC container was US$3100, now a huge US$9500.

However, importers from China also need to pay new additional costs that may come as a surprise:

  • An extra US$300 empty container fee from the shipping line (like a return fee to cover the transport of a container to your port).
  • A US$2000 fee to secure that your shipment will go out on the expected ship and will not be eligible to be bumped onto one that sails later and, therefore, delayed (if your shipment is not secured in this way it may be bumped to another ship and the shipping lines will almost certainly not warn you or give you any notice). (01:23)

 

What is causing the surging prices?

There are a few reasons why the prices are surging:

  • The Red Sea attacks on shipping are still happening and this affects the European and East Coast routes as many ships are rerouting around the Cape of Good Hope in South Africa, making voyages 8-10,00km longer and more costly. The longer journey increases congestion in transit ports and shipping capacity and container shortages as ships are on the water for longer and containers are not back at their origins for longer.
  • Brazil has increased the tariff on imported Chinese EVs, increasing from 10 to 18%, which comes into effect in July 2024, resulting in a surge of imports before then to avoid the additional tax. This demand prompted shipping lines to reassign vessels that would normally travel to Europe or the USA and have them sail to Latin America, resulting in a shortage of capacity in North America and higher costs (American importers recently trying to rush in EVs, solar panels, and other Chinese goods that now or will soon have higher tariffs on them has led to a similar lack of capacity).
  • The US Presidential election coming in November this year is driving American importers to increase their stock early to ride out any potential disruption which has put additional pressure and demand on available shipping routes.
  • There has been an increase in inspections by the US customs on containers coming in from China to check for fentanyl and drug-making equipment and these inspections can happen without warning and take an unspecified amount of time. This causes delays to importers while goods are left in limbo and there is little to no feedback from the customs. Some forwarders have even offered compensation for the goods in this position because they’ve been held for so long that they’re willing to ‘write them off’ rather than keep paying port fees, storage, demurrage costs, etc.

Overall we see increasing shipping costs and delays in the near future as ports are overcrowded and there is a shortage of containers. Therefore, we suggest that importers book shipping at least 2 months in advance, although you will also have to do that without a confirmed price and be willing to pay the additional costs to guarantee the shipment. (06:49)

 

What’s the effect on shipping to Europe?

Shipping to Europe from China is also negatively affected by the container shortage and delays due to ships bypassing the Red Sea, but the same advice applies. Plan ahead. (16:16)

 

FOB vs FCA Incoterms.

A common misconception when using incoterms in China is that FOB ‘is the best’ one to use and is more useful for sea shipments than FCA, but this is not the case. Chinese suppliers like FOB because it is easier for them to claim back VAT from the government with this incoterm, but it may not be best for importers.

  • FOB (Free On Board) – The risk of loss passes to you only when the goods have been loaded onto the vessel. FOB is fine if no issues occur, and it’s commonly used in China, but since the risk of loss transfers when the goods are on the vessel there is a great area about who is responsible for the goods between the factory and the moment that they’re loaded onto the vessel? Importers will have already paid suppliers 100% for them to release the products from the factory, so there’s no leverage over the supplier. However, products could be damaged or lost in transit to the port, or even lost, stolen, or damaged at the port while waiting to be loaded onto a ship. Can importers go to their supplier who has already been paid in full at this point and demand some kind of compensation? Unlikely.
  • FCA (Free Carrier) – Under the FCA incoterm the risk of loss passes when the shipment goes into the custody of the carrier when the goods leave the factory or reach the port. Because the importer knows when the risk passes, they can arrange insurance accordingly as there is no gray area like with FOB and therefore less risk.
  • CIF (Cost, Insurance & Freight [named port of destination])) – this is another possible choice for importers as the seller is responsible for everything up until the shipment arrives at the destination port. However, given that current shipping costs are so high, Chinese suppliers are less likely to agree to this than ever.

In general, it may be safe enough to use FOB if nothing goes wrong, but now there are more delays and goods are stacking up in ports, the risks of problems before they’re loaded onto the ship increases and FOB could leave importers exposed to loss. (18:56)

 

Related content…