Fu Derui, senior vice president of maritime logistics for Greater China of global freight forwarding giant Kuehne Nagel, told China Business News that in the face of the recurring situation in the Middle East, passage in the Strait of Hormuz is still strictly controlled. Only approved ships can pass according to the approval process, and the overall shipping capacity has dropped significantly compared with before the conflict. Affected by this, many shipping companies have adjusted their operating strategies, including changing routes, shortening voyages, or completing cargo transshipment at regional alternative hubs, and suspending entry into the core area of the Gulf.
"Yesterday (8th) it was confirmed that the lockers can be removed, but today they were told that it was blocked. I don't know if the shipping company can still leave."
On the morning of April 9, foreign trader Ding Yandong told China Business News that after the United States and Iran reached a two-week "two-way ceasefire" the day before, freight forwarders to the Middle East had begun to slowly recover. It was confirmed on the 8th that container ships for the recent shipments could depart. Unexpectedly, on the morning of the 9th, news came that the Strait of Hormuz was closed again, which made him fall into anxious waiting again.
For Ding Yandong, business in the Middle East accounts for about 40% of the company's foreign trade, making it an absolute export powerhouse. Since the situation in the Middle East escalated at the end of February, logistics has been blocked, orders have been suspended, raw material prices have increased significantly, and the RMB has continued to appreciate… there are many things that worry him. These are also the common worries of current foreign traders.
Waiting and watching or bypassing are still the mainstream
Ding Yandong's anxiety is not an isolated case. From freight forwarders to shipping giants, the entire chain is cautiously preparing for the worst.
In fact, even if the United States and Iran announced a temporary "ceasefire" on the 8th, the Strait of Hormuz has not yet reopened, and most shipping companies still choose to wait and see or bypass it.
"The current Middle East routes maintain limited operations and have not yet returned to normal levels." Federico Falcone, senior vice president of maritime logistics for the Greater China region of global freight forwarding giant Kuehne Nagel, told China Business News on April 9 that in the face of the recurring situation in the Middle East, passage in the Strait of Hormuz is still strictly controlled. Only approved ships can pass according to the approval process, and the overall transportation capacity has dropped significantly compared with before the conflict. Affected by this, many shipping companies have adjusted their operating strategies, including changing routes, shortening voyages, or completing cargo transshipment at regional alternative hubs, and suspending entry into the core area of the Gulf.
In terms of cargo transportation, some categories can still be shipped to the Middle East normally under strict supervision, while for other cargo, measures such as rerouting transportation, delaying delivery, or re-planning logistics plans are adopted based on the policies of each shipping company, cargo characteristics, and risk assessment results. In order to ensure the continuous and orderly entry of goods into the region, the industry has established a number of alternative transportation channels and land bridge solutions, such as via Oman, Dubai, Turkey or Saudi Arabia, focusing on ensuring the stable supply of critical livelihood supplies such as food and medical care.
Fu Derui pointed out that from the perspective of industry operations, the two-week ceasefire window period is not enough to promote the full return of the shipping network to normal, and it is difficult to support the rescheduling of regular routes in and out of the Gulf region. A more realistic situation may be that some ships currently stranded in the Gulf area will be redeployed due to the expected improvement in safe passage, but the systematic recovery of the overall network will still take time.
According to Ding Yandong, goods shipped to Kuwait, Saudi Arabia and other places a week ago were still unable to be shipped normally due to the situation, but orders from Jordan could be shipped smoothly. On the 9th, they "basically stopped delivering goods to old customers."
Zhou Mu (pseudonym), the person in charge of a freight forwarding company in Zhejiang, told China Business News that currently they are mainly engaged in freight forwarding business to Dubai. The volume of goods in other areas is relatively scattered, so they will not accept orders.
Fu Derui believes that the situation in the Middle East has had a substantial impact on the global shipping and logistics system, and the scope of the impact has long gone beyond the Middle East itself. It has not only caused mismatches in transportation capacity, and some ships and equipment have been stranded or delayed in relevant areas, resulting in regional transportation capacity shortages; it has also extended the overall transportation timeliness, and many routes have been lengthened due to detours or reorganizations, and the overall turnover efficiency has decreased. In addition, fuel expenses, insurance premiums and risk premiums have increased, significantly pushing up comprehensive operating costs.
"If the current disturbance lasts longer than previously expected, the industry may face deeper structural adjustments." He gave examples, such as the long-term adoption of alternative routes or multimodal transport solutions, a shift from "prioritizing the efficiency of a single route" to strengthening contingency and alternative plan planning, and more prudent assessment of geopolitical risk exposure in network layout and procurement strategies. This further highlights the central role of resilience and flexibility in modern supply chain planning.
Foreign trade demand is lower than expected
Under the conflict, the uncertainty of transportation capacity is only superficial pressure, and the deeper pressure comes from the demand side.
For example, Zhou Mu said: “The overall feeling is still weak.”
Ding Yandong also said that the demand from Middle Eastern customers has dropped too obviously. "Normally, this season is the peak purchasing season, but now I don't even bother to ask."
Faced with the still tense geopolitical situation, freight rates on most ocean routes in China's export container shipping market continue to rise, driving the composite index to rise. On April 3, Shanghai's export container comprehensive freight index increased by 1.5% compared with the previous period. Among them, the Persian Gulf route increased by 6.7% from the previous issue, the European route fell slightly, the North American route increased slightly, and the Australia-New Zealand route and the South American route benefited from the recovery in demand, which increased by 14.2% and 5.4% respectively from the previous issue.
Fu Derui analyzed that the current freight price trend shows significant differentiation characteristics, among which rising fuel costs are an important driver of recent fluctuations. The combination of factors such as lengthened voyages and rising risk premiums has further increased cost pressures. These pressures are difficult to alleviate in the short term.
Observing from the freight demand side, he believes that "the current market performance is not as good as expected at the beginning of the year" and the volatility is also significantly higher than the same period last year. As far as the Middle East is concerned, import and export demand is mainly restricted by three factors. First, the cancellation or delay of bookings has increased. Second, cargo owners have become more cautious in inventory management and procurement decisions. Third, it has become more difficult to predict transportation cycles and landed costs.
Profit margins are squeezed by multiple factors
Pressure also exists on the double squeeze on the cost side.
Affected by the war, raw material prices continued to remain high. Ding Yandong has to negotiate price increases with customers while fighting for prices with suppliers. He is quite passive in the middle, and a decline in profit margins is inevitable.
Also impacting exporters' profits is the continued strengthening of the RMB exchange rate: On April 8, the onshore and offshore RMB exchange rates against the U.S. dollar once rose by more than 300 basis points, rising above the 6.83 mark, setting a new high in the past three years.
Wang Qing, chief macro analyst of Oriental Jincheng, said that driven by the easing of the situation in the Middle East, demand for safe havens has declined, and the U.S. dollar index has fallen sharply, driving a strong appreciation process for major non-U.S. currencies, including the renminbi. It is expected that the RMB will most likely continue its stable to strong trend amid the violent fluctuations in the U.S. dollar index.
Ding Yandong said that what they can do is to "bite the bullet and hold on" and wait until the exchange rate is better before settling foreign exchange; at the same time, they will continue to reduce costs and increase efficiency on the supply side.
The Spring Canton Fair, which originally had high hopes, has now become one of Ding Yandong's worries. "A dozen customers from the Middle East have already said they can't come to the Canton Fair in mid-April," he said frankly.
In addition to the domestic Canton Fair, Middle East exhibitions that have been suspended since March have not yet resumed. Zhang Yan, the head of an international exhibition company in Zhejiang, told China Business News that several of their exhibitions in Dubai and Saudi Arabia have decided to cancel this year. Although the current business volume in the Middle East is not large, Zhang Yan said that they will follow up on the progress of the situation in a timely manner and keep in close contact with the exhibition hall to see if there is an opportunity to reorganize the Middle East exhibition. Of course, it is still unknown whether the exhibition hall can squeeze out the schedule before the end of the year.
Not all foreign trade people can only bear it passively. Some foreign trade manufacturers are regaining their rhythm.
Che Yunwen, a foreign trade manufacturer whose inventory can only last until the end of March, told China Business News that starting last week, they have started to re-purchase. The reason is that customers generally accept the fact that raw material prices have increased and are willing to bear the rising costs. As business continues to pick up, overseas customers also have a strong willingness to replenish goods, and their orders on hand have continued to grow during the same period this year. In order to cope with exchange rate fluctuations, on the one hand, they will take some measures to lock the exchange rate, and on the other hand, they will also consciously reserve about 0.2 room for exchange rate appreciation when quoting.
