China Imports and Its Impact on the Freight Forwarding Sector
By Stephen Willis
Freight forwarding companies in China are becoming increasingly bullish in the face of the worldwide financial crisis. Demand for China import across the globe has been a major factor over the last couple of decades and China's exports have seen rapid growth. This has taken China to the position of being the world's largest exporter in 2009. Despite a significant fall off in demand for China imports in 2008 and 2009 as the recession and credit squeeze has meant less disposable income for many consumers in key markets for China imports such as the United States and the UK, the outlook is reasonably positive as there now starts to be signs of recovery in China's key export markets. It is therefore expected that China will be able to regain its position as world export leader and that the fortunes of the international freight market will recover in tandem.
Following an approximate 20% decline in volumes of China import goods being sent overseas by shipping companies in 2009, the market is expected to grow by around 10% in 2010, so this should reassure every shipping company and freight company that has struggled to maintain profitability during the economic slowdown. It will also help reassure the China government which has taken drastic steps over the last couple of years to try to protect the china import business, in the face of a drop off in factory orders, which in some places in China has resulted in factory closures and mounting unemployment, with the various social problems that can cause.
In Guangdong Province, there have been so many instances of factories closing without paying their employees that some other employees are resigning and demanding payment in advance of their employers going bankrupt.
The problems have been exacerbated by some American retailers delaying payment for their China import goods, some for example taking 120 days to pay instead of the usual 30 to 45. This means that their suppliers need to borrow the difference and for many, this has not been possible, so businesses have failed, with a knock on effect for businesses in the freight transport and freight services sectors.
Victor Fung, Chairman of the Li & Fung Group, the supply chain management group that connects factories in China with reailers in the United States and Europe seeking China imports, was quoted in 2009 as saying: "Trade finance is collapsing. We've got orders we can't ship right now.' It is clear to see that the impact of this has been significant on many international freight businesses, such as freight services and shipping companies.
During the downturn, logistics managers have often been able to negotiate significant discounts with shipping companies, as some ships have left China's ports with significant capacity still available.
The downturn in demand for China imports has not been consistent across all sectors. Consumer electronics manufacturers have been amongst the hardest hit with a big decline in consumer demand for mini hi-fi systems.
To help offset the problems, the China government has introduced a raft of measures designed to help businesses survive the decline in demand. These have included directions to state banks to lend more money to small and medium sized exporters, support for letters of credit and a restoration of export tax rebates for the textile sector. In addition, there has been a halt to raising of the minimum wage, again to help employers weather the decline.
One of the factors that has adversely affected China imports is the number of trade remedy measures launched by other developed nations and the growth of trade protectionism.
However, with the robust actions taken by the Chinese government to try to minimise the impact of the economic slowdown and the slowly improving economies worldwide, the outlook for overseas trade is now looking more positive. This bodes well for the continued development and strength of freight transport and the international freight sector in China.
Stephen Willis is Managing Director of RW Freight Services a UK based freight transport company, established in 1971 and operating worldwide freight forwarding services including specialist freight services to and from China