Bottom Line Costs With Shipping to and from China

Posted on August 20, 2018

“Made in China,” seeing this printed on a variety of goods brings up a variety of thoughts from about moving USA products overseas, varying quality of goods, reduced costs on electronics and clothing, etc.

For decades, the USA has been intricately intertwined with the mega trading partner that is the People’s Republic of China.  Recent administration initiatives, along with lower shipping container demands, have brought lower costs and smaller profit margins.  

Data gathered from a Freightos report shows that the China-U.S. ocean rates have been hitting noticeable lows from the start of this year. The fall in prices is even more relevant when compared to prices that held up last year. Year-on-year rates have been falling for the 32nd week straight. The current rate of the China-U.S. West Coast is 26% lower compared to that of 2017. Additionally, the China-U.S. East Coast has recorded a 19% lower rate against last year.

Millions of jobs and the bottom lines of major maritime shipping companies account for 80% of all global trade. These aspects depend on goods traversing the oceans. Even in times of robust trade, shipping industry profit-margins tend to be slim — about 3%, (Heaney).

Rail companies could also be impacted, even if they may not do direct business with China. Scott Group, shipping analyst for Wolfe Research, states that Union Pacific Corp. (UNP) has 13% of its revenue driven by trade with China due to its trains transporting goods to inland ports.

Issuing new tariff regulations brings about another set of challenges.

"A trade war with China is a bad thing for pretty much all transports," said Group stated in a note at the end of March, when the tariff rhetoric began heating up. Expeditors International of Washington, Inc. (EXPD), a logistics company that purchases and resells cargo space to its customers, will take the lion's share of damage. According to Group, 31% of that company's revenue came from China last year.

The industry will continue to monitor how the tariffs negotiations will affect overall costs and the sub industries dependent on this vital trading route.

Contributor: Chris Poole 

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