How BYD Leverages Resilient Vessels to Gain a Competitive Edge Amidst War and Weather Challenges

The BYD Shenzhen departed from the southeastern Chinese port of Xiamen in late November, initiating a vital voyage across the Pacific loaded with 1,768 new electric vehicles. The aim was to reach Mexico before new tariffs on imports from China took effect on January 1.

After enduring challenging seas with an expedited route, the freighter reached Lázaro Cárdenas seaport on December 21, enabling the world’s largest EV manufacturer to significantly reduce tariff expenses. Its punctual arrival, amid competitors competing for shipping services, highlighted BYD’s extensive private fleet as an essential strategic resource in difficult conditions.

Amid ongoing disruptions in shipping lanes due to conflicts in Iran, BYD’s fleet of eight vessels has become crucial as the company seeks to boost exports to recover from a prolonged earnings downturn. Founded in 2022 in response to the pandemic, BYD now ships approximately 300,000 vehicles annually, valued in the billions, to markets across Africa, Europe, Latin America, and the Middle East.

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BYD asserts that its vessels have effectively turned systemic geopolitical risks into operational certainties. This is particularly noticeable in the Arabian Peninsula, a key export path from Asia to Europe, where BYD’s ships navigate routes that other commercial operators typically avoid, boosting both efficiency and cost-effectiveness.

Earlier this month, the BYD Shenzhen reached the UAE port of Khor Fakkan, located near the turbulent Strait of Hormuz, notwithstanding the possibility of renewed tensions between the US and Iran. The company successfully offloaded its cargo in the UAE before continuing toward the Red Sea, another region of concern.

This year, BYD’s vessels have maintained their journeys through the Suez Canal for routes connecting Asia and Europe, contrasting with most other cargo traffic that opted for the longer and pricier detour around Cape of Good Hope in South Africa. This alternate path increases travel time by about 25% and can prolong transit by an extra 14 days compared to the Red Sea and Suez Canal route.

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

While it is typical for automakers to possess fleets, BYD stands out by utilizing its ships exclusively for its own shipments, even if this means making returns with minimal cargo.

“We still need more ships,” stated Stella Li, BYD’s senior vice president for global expansion, in a recent interview. “Owning our vessels offers a substantial competitive advantage.”

The BYD Shenzhen, named after BYD’s hometown, is one of the largest vessels in its fleet, measuring nearly 220 meters (720 feet) long and 38 meters wide, standing 16 decks high, and capable of transporting up to 9,200 vehicles. It spearheads BYD’s international efforts to meet the rising demand for low-emission vehicles while expanding beyond the challenging Chinese market.

According to the China Association of Automobile Manufacturers, Chinese vehicle exports surged by 21% last year, surpassing 7 million units, serving as a critical outlet to alleviate excess inventory within China. A significant portion of these vehicles was carried via Chinese-operated container or specialized roll-on, roll-off vessels.

“Owning a vessel can yield substantial cost savings and facilitate quicker access to essential markets,” commented De Luca, noting that the increase in export volumes from China has rendered securing charter services progressively difficult.

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

All in the family

For BYD, the in-house fleet not only functions as a means to enhance exports but also aligns with the company’s strategy of minimizing external dependencies to reduce costs and improve efficiency. Unlike many automakers that typically liquidate assets to concentrate on core activities, BYD aims to bolster self-sufficiency throughout its supply chain. Reports indicate that BYD produces 75% of the components used in one of its top-selling car models, according to a 2023 analysis by UBS AG.

This strategy allows the company to manufacture its own EV batteries and microchips, own lithium mines, and manage its fleet. Such an approach grants BYD greater control over its future, albeit with significant costs and risks.

The shipping sector poses challenges, including high maintenance and personnel expenses, potential losses from adverse weather, conflicts, or piracy, and the long-term objective of transitioning from exports to localized production in international markets.

“This exerts substantial pressure on them to escalate exports due to these sunk costs,” stated Matthias Schmidt, an analyst at Schmidt Automotive Research. “High utilization is crucial to validate these investments.”

BYD has not revealed the specific costs associated with its fleet or when it anticipates recouping its investments. The company declined to comment on inquiries regarding its logistics and fleet management strategies.

Along with navigating geopolitical uncertainties, BYD’s vessels provide the company with flexibility during adverse weather conditions.

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

“We identified a short window when the storm weakened and directed the ship to proceed at maximum speed while the rest of the industry remained immobilized,” explained BYD’s head of logistics, Deng Huaiyu. “By the time we maneuvered around the storm, several third-party vessels were still stranded behind us.”

With ongoing support from a BYD operations team monitoring conditions, the ship expedited its journey to circumvent the storm and safely reached the UK by February 3.

BYD ventured into the shipping industry in response to supply chain disruptions triggered by Covid. Shipowners worldwide faced rising costs, with daily charter rates for a 6,500-unit car carrier skyrocketing from $10,000 in 2020 to $110,000 in 2023, as per Clarksons Research, a London-based analytics entity.

Deng recalled the frustration of being displaced by third-party shipowners at the last moment, despite having confirmed bookings.

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

A total of 233 vessels were ordered globally between 2022 and 2024, according to Clarksons, compared to just 13 orders between 2018 and 2020 before the pandemic. The delivery of this backlog has accelerated over the past two years, with numerous allocations made to China’s automotive manufacturers.

‘Strategic cooperation’

At a local government forum in Guangdong province in February 2024, BYD founder and chairman Wang Chuanfu pledged to maintain a fleet of eight ships over the next two years to “ease the export logistics crisis and promote new-energy vehicles produced in the province for broader market access.” This initiative is supported by the Chinese government as part of its strategy to boost exports.

As of May 2023, China’s Ministry of Commerce recognized “logistics bottlenecks” as structural issues compromising the profitability of the automotive sector. As a result, Beijing has promised to promote “strategic cooperation” between automotive manufacturers and shipping firms while encouraging shipping lines to enhance dedicated car carrier deployments to bolster export capacity.

In September, eight ministries released a national roadmap aimed at facilitating growth in the automotive industry, explicitly supporting the modernization of China’s car carrier fleet and port facilities. They also proposed collaborations and joint ventures between manufacturers and shipping operators to ensure long-term stability, although very few such partnerships have been publicly disclosed to date.

Major Chinese automakers like Chery Automobile Co and Geely Automotive Holdings are among the top exporters but possess only a limited number of ships; Chery operates 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, Wallenius Wilhelmsen ASA from Norway, and Italy’s Grimaldi Group SpA.

Moreover, SAIC Motor Corp, through its Anji Logistics division, operates various ocean vessels. Their flagship, the Anji Fortune, has a capacity of 9,500 vehicles. However, this pales in comparison to the Glovis Leader, the largest vehicle carrier globally, capable of transporting 10,800 vehicles per voyage. Operated by Hyundai Motor Co’s sister company Hyundai Glovis Co, it is integral to Hyundai Motor Group’s fleet, which comprises around 100 vessels representing over 10% of global car-carrier capacity.

“It offers a significant advantage,” asserted Hyundai Motor CEO José Muñoz in a recent interview. “In normal circumstances, it’s not a major distinction. But when challenges arise, you gain a competitive edge.” According to Muñoz, sales volumes for a carmaker should not hinge on shipping timelines. “Shipping capacity should not limit us; it ought to be driven by consumer demand.”

Similar to Japanese manufacturers like Toyota Motor Corp and Nissan Co, Hyundai has maintained its export operations, even while increasing investments in local production facilities in crucial markets like the US. BYD may align itself with this trend, striving for a balance between domestic capabilities and developing manufacturing bases in regions such as Brazil and Hungary. Both areas are pivotal to its ambitious vision for international expansion, aiming to account for approximately 70% of its total global revenue.

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

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