For those who have been paying attention to news in China the past few days, a number of events have taken place that are putting a strain on ports in China, particularly in Shanghai. This has the potential to cause shipment delays and problems with availability, which was already becoming a problem due to heavy volumes. Here are the issues at stake that are causing problems in Shanghai and elsewhere:
1. China cut the export tax rebate – This is the big one. Effective July 1st, the Chinese government will scrap or greatly reduce the export tax rebate on roughly 3,000 export products. This means that exporters who used to enjoy huge VAT tax savings on a wide variety of products will now have to pony up the full or nearly full VAT tax on their exports. While this will have a huge overall affect on the China supply chain, how this contributes to the current port situation in Shanghai and elsewhere is two-fold:
a. Panicked exporters are rushing orders and goods out of the country in an effort to export as much as possible before July 1st, when the export tax rebate cut goes into effect. Hence, volumes, already high for this time of the year, just got higher.
b. Chinese customs has increased their inspection rate in order to counter the illegal practice of some exporters mis-declaring their commodity and volume to avoid paying the higher export tax. This means more shipments being inspected which means an overall slowdown in the processing of containers at the port as well as containers being held out of the system for a longer period of time = equipment shortages.
2. High temperatures and the rainy season in Shanghai are affecting the pace of Shanghai customs inspectors. This means even more slowdowns in container and shipment movement.
3. While I haven’t been able to find any official news release on the subject, one of our consolidators reported that there was a serious traffic accident in the Shanghai port area involving a container truck that killed 6 people. Hundreds of angry farmers allegedly blocked the highway and terminal area, which caused massive traffic congestion in and around the port. While I would hope that the situation has been resolved, our consolidator has warned that empty container pick ups can take up to 4 hrs.
4. I have received unconfirmed reports that rising volumes have contributed to carriers being overbooked by at least 30%.
If you contract directly with the container lines, be sure you are providing them forecasts of expected equipment needs well in advance of shipment date, as accurate as possible. Hopefully you are valued enough or negotiated wisely to ensure that your carrier “protects” capacity on their vessels for your shipments. If not, or if you are a smaller player utilizing the services of a forwarder/NVOCC, make sure you communicate your space and service requirements frankly and take steps to work with them to secure space and equipment. Those who already have back up carriers and/or providers in place for just such instances will be better prepared to deal with any potential problems or delays. Those who don’t would be well advised to consider alternatives to primary carriers and providers in case delays and problems begin to occur. Urge your carriers and service providers to communicate the situation honestly so you can be sure to manage the turbulence that is sure to come.