In early January, a huge ship collected more than 5,000 electric cars at two ports in north and south China. Five days later, he passed through Singapore and is now heading to India. However, its final destination is Europe, where most of the cars will be sold.
The ship’s name is BYD Explorer No.1. As the first in a huge fleet that BYD is building, it reflects the Chinese company’s ambition to establish a maritime business that supports its new role in the global auto trade.
BYD, founded by a Chinese metallurgy researcher named Wang Chuanfu in 1995, started out making small batteries for mobile devices. He later expanded his business into automobiles and eventually combined the two to manufacture electric vehicles. In two decades, the company has become China’s largest electric vehicle manufacturer. In the fourth quarter of 2023, it was the largest in the world.
BYD offers many options, from affordable sedans to luxury SUVs, and there is a growing appetite for its cars overseas. In 2023, it exported more than 240,000 vehicles, compared to 55,000 in 2022. But it has hit a snag: To reap maximum financial benefit from its growing popularity abroad, it is having to expand beyond the car trade to the transport business.
The shortage of car-carrying ships
To understand why BYD made this change, you need to learn a little about how cars are transported by sea. Typically, the cargo sector uses roll-on/roll-off (RORO) ships. Unlike ships that use a crane to lift cargo and place it on board, RORO ships have ramps that allow vehicles to be driven straight in, making the entire process much easier.
But such ships have been in short supply in recent years. While older vessels are retiring, orders for new ships have declined due to the 2008 financial crisis and the industry-wide upgrade to greener fuels, leaving a deficit.
Additionally, most automobile companies have long-standing relationships with shipping companies or own their own fleets of boats. For example, Japanese automakers such as Nissan and Toyota have fleets of RORO ships that can transport tens of thousands of cars. But China’s domestic car transport vessels represent just 2.8% of global shipping capacity, leaving Chinese brands with few options for transporting their cars across the seas.
As a result, their access to RORO ships has become prohibitively expensive. According to Clarksons Research, the intelligence arm of the world’s largest shipping services provider, the price to rent (or charter, as the industry calls it) a car-hauling ship for a day has skyrocketed to $115,000 in 2023, an all-time high and almost seven times the pre-pandemic average price, which was around US$17,000 in 2019.
New demand to ship cars is predominantly coming from China at the moment. The country is poised to become the world’s largest car exporter (in fact, it may have already achieved that status by 2023, but we won’t know until official numbers are finalized). It exports a mix of traditional gasoline cars, electric cars made by Chinese companies and Tesla cars made at the Giga Shanghai factory.
The lack of transport capacity is what is holding it back.
Adventuring on your own
That’s why Chinese auto companies, which have become such prominent exporters thanks to the rise of electric vehicles, are starting to form their own transportation businesses.
The news that BYD was looking to buy or charter ships was first reported by shipping agency Lloyd’s List in late 2022. In December of that year, the company amended its corporate registration to include the business of international cargo transportation and management of ships.
BYD Explorer No.1 was delivered earlier this year. The RORO ship, which can carry 7,000 cars at a time, is officially registered to Zodiac Maritime, a UK company controlled by Israeli shipping magnate Eyal Ofer, but BYD has leased it for an undisclosed period of time. In a press release, BYD says it plans to add seven more vessels to the fleet over the next two years. It also says it plans to allow other companies to export their vehicles using BYD ships.
For its maiden voyage, the ship is carrying more than 5,000 BYD vehicles and heading to the ports of Vlissingen in the Netherlands and Bremerhaven in Germany, according to Chinese state media Xinhua.
BYD is not the only Chinese automaker to make this change. SAIC Motor, a Chinese state-owned company, sold 1.2 million vehicles abroad in 2023, 24% of which were EVs. It formed a RORO shipping subsidiary in 2021, and its newest RORO ship, the largest of its type and capable of carrying 7,600 cars, also set sail for the first time in January. Just like the BYD Explorer No.1, it’s heading to Europe.
Although BYD has announced that it will add energy storage battery technology to its vessels, the RORO ships it is chartering today are not yet electric. Most newer ships can be powered by traditional fuel or liquefied natural gas, which is a cleaner energy source.
From transporting wood pulp to automobiles
It will be some time before these Chinese companies finish building their shipping empires, as these new gigantic ships take years to build. In the meantime, some have turned to creative solutions to supply shortages: repurposing ships that were designed for other types of cargo.
In particular, they are eyeing gigantic ships typically used to import thousands of tons of wood pulp from South America to China, where it is turned into everyday products such as tissue, paper and books. These wood pulp ships often end up empty or poorly loaded on return because China has no similar products to export.
However, in recent years, Chinese car companies have started to sell their vehicles to the South American continent, and shipping companies have seen an opportunity. China Ocean Shipping Company (COSCO), one of the world’s largest shipping companies, has designed a collapsible rack that can load cars and stack them on a wood pulp conveyor. In July last year, COSCO loaded such a ship with more than 2,700 cars and sent them to Brazil.
With improvised arrangements like this and new RORO ships being built, transportation bottlenecks for Chinese automakers could be significantly reduced in the coming years. Having their own fleets or chartering ships from domestic shipping companies could also reduce costs further, making Chinese cars even more competitive abroad.
And just as the automobile sectors of Japan and South Korea have led those two countries to become global leaders in shipping, electric vehicles can also make China a major player on the ocean.
( source: MIT Technology Review )
