China set to up EV shipping game
Chinese auto industry has invested billions in shoring up maritime route-to-market
Chinese EV maker and competitor with Tesla for the title of world’s biggest EV seller, BYD, has attracted headlines with the departure from China of the first roll-on/roll-off (ro-ro) EV transport vessel it has ordered.
But a more important wider story might be the wider shipping ambitions of the Chinese EV industry and its impact on their competitiveness in export markets.
BYD's new ship, currently bound for Singapore after leaving the Chinese port of Yantai, is just an early example of how — while the US and EU fret about domestic auto industries being undercut by Chinese competition in the EV space — China has been quietly preparing the logistics infrastructure for a wider-reaching export business.
“BYD Auto rides the wind and waves and sets sail on a [ro-ro] transport ship to expand the international market in a new era and create a new world for Chinese cars to go overseas,” the company announced in a post on Chinese website Weibo.
Strategic moves around planning for export logistics is just another way Chinese automakers have been manoeuvring to gain a competitive advantage, from what might otherwise have seemed a point of weakness. After all, shipping vast amounts of EVs across large ocean distance could pose Chinese OEMs significant challenges around cost and capacity.
“While the EU and US try to combat an inevitable deluge of affordable EVs from China with tariffs, Chinese OEMs have another obstacle to contend with, shipping capacity for vehicles. The two most popular ways to transport automobiles are via containerised freight or [ro-ro] ship,” says Jesse Atlas, global e-mobility market manager at Penn Engineering.
Shipping a car on a ro-ro is up to 30pc cheaper per unit when compared to shipping vehicles in containers, Atlas suggests. That said, while allowing a simpler loading and unloading process, ro-ros can be associated with lower levels of security and cargo protection.
Nonetheless, in the last two years, “Chinese OEMs and shipping companies desperate for capacity have stuffed Chinese shipyards order books with hundreds of orders for ro-ros”, Atlas says.
And it is not just Chinese automakers and shipping firms looking to capitalise on an expected boom in Chinese EV exports. For example, in January last year, Italian shipping line Grimaldi extended a contract with Chinese shipbuilder China Merchant Industry Holdings for the construction of ten new pure car and truck carrier (PCTC) vessels with loading capacity of over 9,000 car equivalent units, to be be delivered between 2025 and 2027.
Its order book contains a further seven PCTCs, as well as well as eight ro-ros. And many of the orders are specifically to service the growing Chinese EV export trade.
The firm has "reaffirmed our commitment to our customers, especially the world’s leading car manufacturers", says Grimaldi Group managing director Emanuele Grimaldi.
"Ten out of fifteen of our newly ordered car carriers will be deployed on the Far East trade and support the increasing development of China’s automotive industry.”
A "continued strong run on car carriers" is identified by Adam Kent, managing director at consultancy MSI, as a factor in robust shipbuilding orders in 2023.
"Huge numbers of larger car carriers [are] being built, especially in China" he tells the Seatrade Maritime podcast.
Shipping cost spike
And the advantage for a firm like BYD in bringing shipping into its own control is evidenced by the spike in chartering rates following the disruption in the Red Sea owing to attacks on shipping by Yemeni Houthi rebels.
Almost half of vessels have been rerouted around the Cape of Good Hope in January, according to Dutch bank ING. This has, it says, already more than tripled container rates, and delays and knock-on effects may drag on to the second quarter. Car carriers sailing from Asia are among the vessles it has seen being affected.
Sailing around the Cape saves Suez Canal fees but adds some 3,000-3,500 nautical miles (c.6,000 km) to the journeys connecting Europe with Asia, ING estimates. At a speed of 14 knots, this means over 10 days is added to the length of the trip, potentially running up to two weeks.
Theodoros Striftompolas, packaging engineering manager at Chinese OEM Lotus, suggests that such a potential disruption and hike in spot shipping costs "was anticipated, especially by BYD which has launched its own vessel to carry its cars to the world".
Whether BYD should be given credit for a crystal ball or not, Striftompolas' point that, through vertical inhtegration of shipping, the firm has the opportunity for "reducing its export costs substantially, and remaining competitive” is hard to deny.
And it should be another material tool in its armoury as BYD ups its export market ambitions. "BYD achieved global sales leadership in EVs while selling 92pc of its production inside China," says Michael Dunne, CEO of EV consultancy Dunne Insights.
"Now the company is moving aggressively into global markets. BYD is already winning a record number of customers in Australia, Brazil, Israel, Mexico, Sweden and Thailand, where it already controls 33pc of the Kingdom’s EV market," Dunne continues.
"What is scary is that prices on exported vehicle today are 10-20pc higher than the same BYD products sold in China. That means BYD has room to offer even lower prices on products going overseas in 2024."
The US and EU have tariffs in place on Chinese EVs and the EU is exploring further punitive duties to limit the chances of Chinese OEMs outcompeting incumbent European manufacturing.
So would-be Chinese EV exporters have challenges in the world's two other largest auto markets that could potentially get stiffer. But a failure to plan ahead for the logistical puzzle of getting its vehicles to these markets does not seem set to be an additional hurdle in the way of their ambitions.