The ro-ro shipping sector is still going at full tilt moving its core cargoes and project loads aren’t getting much of a look in the door. However, disquiet about the Chinese automotive manufacturing sector could see some heat ebb from the market.
The ro-ro shipping sector was the last of the major modes to see rates surge in the wake of the Covid-19 crisis. That was due, in part, to a semi-conductor shortage that prevented car manufacturers from producing new models. During 2022, with those manufacturing issues remedied and with the world returning to a semblance of normality, the ro-ro shipping sector surged to unprecedented highs. Ro-ro carriers to this day have made hay servicing their core market: cars. That, however, has been to the detriment of those in need of heavy transport options. That pain has been acute in the African market, with tonnage pulled away to more lucrative shores.
China’s car manufacturing sector has been booming in recent years and in 2022, COSCO Shipping Specialized Carriers saw enough strength in the market to merit the formation of a joint venture with SAIC Anji Logistics and Shanghai International Ports Group (SIPG) – Guangzhou Yuanhai Car Carrier Transportation. The entity placed an order for six newbuild 7,500 ceu dual-fuel LNG car carriers during December 2022, which are scheduled for delivery in 2025 and 2026. A month prior, it confirmed that 15 LNG-fuelled pure car and truck carriers (PCTC) would begin joining the fleet in 2024.
The market is set to become even more crowded with Chinese automotive manufacturers ordering their own tonnage. For instance, in October 2022, the world’s largest electric vehicle builder BYD ordered at least six PCTCs – the first of which entered service in January 2024 – a 7,000 ceu unit built by CIMC Raffles. Furthermore state-owned SAIC Motor Corp ordered seven new methanol-ready 8,900 ceu PCTCs in January 2023 that are slated for delivery in 2025 and 2026.
Such has been the demand for car transport, some forwarders and manufacturers resorted to moving units in containers, rather than face delays. For instance, COSCO Shipping Lines launched an intermodal service with cars loaded into containers in 2023. In 2022, the line developed a foldable frame that could be fitted inside some of its 62,500-dwt pulp carriers allowing carriage of up to 1,000 cars.
China’s automotive industry has geared itself up to take on the dominant forces in Western markets. However, there have been murmurings of disquiet. Matthias Schmidt, a European automotive market analyst and founder of Schmidt Automotive Research, said that some European gateways are charging EUR25 per day per unit storage prices for vehicles that fail to move within 10 days, with logisticians reporting that unsold Chinese models are starting to pile up. Some of those manufacturers have resorted to offering 30 percent price cuts off models in their inventory.
This has, unsurprisingly, ruffled feathers in Brussels with the EU suggesting that Beijing is distorting the European car market with counterproductive discounts. The EU, the second-largest market behind China for battery-electric vehicles, is in the midst of an investigation into Chinese-made units and there is the threat of import tariffs rising from 10 percent. Beijing has responded with allegations of protectionism.
Another warning sign was reported by the Financial Times on January 19 with China’s vice-minister of industry and information technology, Xin Guobin, stating that there was “insufficient” external consumer demand and that Beijing would take “forceful measures” to address “blind” construction of new EV projects by some local authorities and enterprises.
Such a move by the Chinese government is not unprecedented and may prove to be a catalyst for a wave of consolidation amongst its auto manufacturers. Still, China has overcapacity issues. Last year, Russia plugged some of the gap with just under half of its new car market supplied from Chinese OEMs.
Nevertheless, ro-ro shipping and chartering companies should be on guard. Schmidt noted that if European demand for Chinese autos is lower than expected, and increased tariffs encourage more manufacturers to set up in Europe (like BYD in Hungary), “we could go from a shortage of PCTC and record daily charter prices to a glut within a few years and extremely low prices”.
The above developments are far from a guarantee that the ro-ro shipping market is going to cool anytime soon. However, if some heat heads out of the PCTC market, it should leave the door ajar for project logisticians and shippers looking at ro-ro as a viable option, once again.
