How BYD Leverages Resilient Ships to Gain a Competitive Edge in Overcoming War and Weather Challenges

The BYD Shenzhen departed from the southeastern Chinese port of Xiamen in late November, commencing an essential voyage across the Pacific loaded with 1,768 new electric vehicles. The aim was to arrive in Mexico before the new tariffs on Chinese imports came into force on January 1.

After braving rough seas with an expedited route, the freighter docked at the Lázaro Cárdenas seaport on December 21, enabling the world’s largest EV manufacturer to save considerable amounts in tariffs. Its timely arrival, set against industry rivals racing to secure cargo ships, highlighted BYD’s vast private fleet as a crucial strategic advantage during trying times.

With the ongoing conflict in Iran disrupting shipping lanes and driving up shipping expenses, BYD’s fleet of eight vessels is proving essential as the company relies on exports to recover from a prolonged decline in earnings. Formed out of necessity in 2022 due to the Covid pandemic, BYD now ships around 300,000 vehicles annually, worth billions, to markets throughout Africa, Europe, Latin America, and the Middle East.

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BYD asserts its ships have effectively “converted systemic geopolitical risks into operational certainties.” This is particularly true in the Arabian Peninsula, a vital route for exports between Asia and Europe, where BYD vessels traverse paths that other commercial ships hesitate to navigate, enhancing both time and cost efficiency.

Earlier this month, the BYD Shenzhen reached the UAE port of Khor Fakkan near the turbulent Strait of Hormuz, despite the potential for renewed tensions between the US and Iran. The company successfully unloaded cargo in the UAE before continuing towards the Red Sea, a subsequent area of concern in the region.

This year, BYD’s ships have also continued to travel through the Suez Canal for routes between Asia and Europe, unlike most other cargo traffic that chose the longer and pricier detour around South Africa’s Cape of Good Hope. This alternative route adds roughly 25% to the distance and could delay transit by an additional 14 days compared to using the Red Sea and Suez Canal.

“This deviation from general market patterns shows BYD’s confidence in the safety of its vessels and crew while navigating the Red Sea corridor,” noted Andrea De Luca, a consultant at Veson Nautical, a maritime data analytics firm.

While it’s not unusual for automakers to have fleets, BYD sets itself apart by exclusively using its ships for its own shipments, even if it means returning with minimal loads.

“We still don’t have enough ships,” stated Stella Li, BYD’s senior vice president for global expansion, in a recent interview. “Owning our vessels has been a significant advantage for us.”

The BYD Shenzhen, named after BYD’s hometown, ranks among the largest vessels in its fleet, measuring nearly 220 meters (720 feet) long and 38 meters wide, towering at 16 decks high, with the capacity to transport up to 9,200 vehicles. It spearheads BYD’s international endeavors to satisfy the increasing demand for low-emission vehicles and expand beyond the challenging Chinese market.

According to the China Association of Automobile Manufacturers, exports of Chinese vehicles soared by 21%, surpassing 7 million units last year, acting as a crucial avenue to alleviate excessive inventory within China. A considerable number of these vehicles were shipped using Chinese-operated container or specialized roll-on, roll-off vessels.

“Owning a vessel can lead to significant cost savings and expedite access to critical markets,” remarked De Luca, noting that the rise in export volumes from China has made securing charter services increasingly difficult.

Shipping costs from China have escalated. Spot container rates soared by 61% following the outbreak of hostilities in Iran.

All in the family

For BYD, the in-house fleet is not merely a tool for enhancing exports; it aligns with the company’s strategy of minimizing external dependencies to reduce costs and boost efficiency. Unlike many automakers that traditionally liquidate assets to concentrate on core activities, BYD aims to strengthen self-sufficiency throughout its supply chain. Reports indicate that BYD produces 75% of the components used in one of its top-selling car models, per a 2023 analysis by UBS AG.

This approach allows the company to manufacture its own EV batteries and microchips, possess lithium mines, and operate its own fleet. Such a strategy gives BYD more control over its future, though it also entails considerable costs and risks.

The shipping sector presents challenges, including high maintenance and personnel costs, potential losses from adverse weather conditions, conflicts, or piracy, and the long-term goal of transitioning from exports to localized vehicle production in foreign markets.

“This places substantial pressure on them to escalate exports due to these sunk costs,” remarked Matthias Schmidt, an analyst at Schmidt Automotive Research. “High utilization is essential to justify these investments.”

BYD has not disclosed the precise costs associated with its fleet nor when it expects to recoup its investments. The company declined requests for interviews regarding its logistics and fleet management strategies.

In addition to geopolitical uncertainties, its vessels provide BYD with flexibility during adverse weather conditions.

In January, the BYD Changsha sought shelter off the coast of Spain to evade a winter storm featuring gale-force winds and swells reaching up to 9 meters. It remained in safer waters west of the Strait of Gibraltar for almost a week. However, with inventory shortages and rising customer demand, BYD was eager to deliver its cargo.

“We identified a brief window when the storm subsided and directed the ship to proceed at full speed while the rest of the industry was immobilized,” explained BYD’s head of logistics, Deng Huaiyu. “By the time we navigated around the storm, several third-party vessels were still stuck behind us.”

Following guidance from a BYD operations team that constantly monitored conditions, the vessel expedited its journey to evade the storm and safely reached the UK by February 3.

BYD ventured into the shipping industry in response to disruptions in the supply chain caused by Covid. Shipowners worldwide encountered increased costs as daily charter rates for a 6,500-unit car carrier skyrocketed from $10,000 in 2020 to $110,000 in 2023, according to data from Clarksons Research, a London-based analytics provider.

Deng recounted the frustration of being displaced by third-party shipowners at the last moment, despite having secured prior bookings.

“Logistics became the biggest bottleneck for our global initiatives,” he stated. “We had the technology, the capacity, and the market, but we lacked reliable transportation.”

A total of 233 vessels were ordered globally between 2022 and 2024, according to Clarksons, contrasting sharply with only 13 orders during the period from 2018 to 2020 before the onset of the pandemic. The delivery of this backlog of ships has accelerated over the last two years, with several dedicated to China’s automotive manufacturers.

‘Strategic cooperation’

At a local government forum in Guangdong province in February 2024, BYD founder and chairman Wang Chuanfu committed to maintain a fleet of eight ships over the next two years to “alleviate the export logistics shortage and promote the new-energy vehicles manufactured in the province for wider market reach.” This initiative receives backing from the Chinese government as part of its strategy to enhance exports.

As of May 2023, China’s Ministry of Commerce identified “logistics bottlenecks” as structural challenges jeopardizing the automotive sector’s profitability. Consequently, Beijing has pledged to facilitate “strategic cooperation” between automotive manufacturers and shipping companies, while also encouraging shipping lines to expedite dedicated car-carrier deployments to increase export capacity.

In September, eight ministries unveiled a national roadmap to support growth in the automotive industry, explicitly advocating for the modernization of China’s car carrier fleet and port facilities. They also suggested collaborations and joint ventures between manufacturers and shipping operators to ensure long-term stability, although few such partnerships have been publicly announced thus far.

Major Chinese automakers like Chery Automobile Co and Geely Automotive Holdings, among the top exporters, own only a minimal number of ships, with Chery operating solely through a joint venture. Others, such as Dongfeng Motor Group Co, Guangzhou Automobile Group Co, and Great Wall Motor Co, rely entirely on global shipping giants like Shanghai-based Cosco Shipping Holdings Co, Norway’s Wallenius Wilhelmsen ASA, and Italy’s Grimaldi Group SpA.

Additionally, SAIC Motor Corp, through its Anji Logistics unit, operates numerous ocean vessels, with their flagship, the Anji Fortune, capable of transporting 9,500 vehicles. However, this still falls short of the Glovis Leader, the world’s largest vehicle carrier, with a capacity for 10,800 vehicles per journey. Operated by Hyundai Motor Co’s sister company Hyundai Glovis Co, it is the centerpiece of Hyundai Motor Group’s fleet, comprising around 100 vessels that represent over 10% of global car-carrier capacity.

“It provides a significant edge,” affirmed Hyundai Motor CEO José Muñoz in a recent interview. “In normal circumstances, it’s not a significant distinction. But when challenges arise, you gain a competitive advantage.” According to Muñoz, a carmaker’s sales quantities should not be contingent on shipping timelines. “Shipping capacity should not limit us; instead, it should be governed by consumer demand.”

“Regardless of our overseas manufacturing presence, the volume of complete vehicle exports from China will remain substantial, as past experiences of our Japanese and Korean counterparts indicate,” affirmed BYD’s logistics chief Deng in a company publication. “A significant segment of that ongoing export demand will continue to be managed by our fleet.”

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