How BYD Leverages Resilient Vessels to Gain a Competitive Edge in the Face of War and Weather Challenges

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

After navigating challenging seas with an expedited route, the freighter docked at Lázaro Cárdenas seaport on December 21, enabling the world’s largest EV manufacturer to significantly reduce tariff expenses. Its timely arrival, amidst competition for shipping services, highlighted BYD’s extensive private fleet as a crucial strategic asset in tough circumstances.

Given the ongoing disruptions in shipping lanes due to conflicts in Iran, BYD’s fleet of eight vessels has become essential as the company aims to boost exports and recover from a prolonged earnings decline. Founded in 2022 during the pandemic, BYD now exports about 300,000 vehicles annually—valued at billions—to markets in Africa, Europe, Latin America, and the Middle East.

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BYD asserts that its fleet has effectively transformed systemic geopolitical challenges into operational advantages. This is particularly evident in the Arabian Peninsula, a significant export route from Asia to Europe, where BYD’s vessels navigate paths generally avoided by other commercial operators, thereby enhancing both efficiency and cost-effectiveness.

Earlier this month, the BYD Shenzhen reached the UAE port of Khor Fakkan, located near the unstable Strait of Hormuz, despite the risks associated with escalating tensions between the US and Iran. The firm successfully offloaded its cargo in the UAE before proceeding to the Red Sea, another area of concern.

This year, BYD’s vessels have continued to traverse the Suez Canal for routes between Asia and Europe, in contrast to the majority of cargo traffic that has opted for the longer, more expensive detour around South Africa’s Cape of Good Hope. This alternative route adds approximately 25% to travel time and can extend transit by an additional 14 days compared to the routes through the Red Sea and Suez Canal.

“This departure from typical market behaviors demonstrates BYD’s confidence in the safety of its vessels and crew while operating in the Red Sea corridor,” commented Andrea De Luca, a consultant at Veson Nautical, a maritime data analytics firm.

While it’s standard for automakers to have fleets, BYD sets itself apart by utilizing its ships exclusively for its freight, even if it results in returning with minimal cargo.

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

The BYD Shenzhen, named for BYD’s home city, is one of the largest vessels in its fleet, measuring nearly 220 meters (720 feet) in length and 38 meters wide, standing 16 decks high, and capable of transporting up to 9,200 vehicles. It spearheads BYD’s global efforts to meet the increasing 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 for addressing surplus inventory in China. A significant portion of these vehicles was transported via Chinese-operated container and specialized roll-on, roll-off vessels.

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

Shipping costs from China have dramatically increased. Spot container rates surged by 61% following the outbreak of hostilities in Iran.

All in the family

For BYD, the in-house fleet not only enhances exports but also aligns with the company’s goal to minimize external dependencies, thus reducing costs and improving efficiency. Unlike many automakers that typically liquidate assets to concentrate on core activities, BYD aims to bolster self-sufficiency across its supply chain. Reports indicate that BYD manufactures 75% of the components used in one of its leading car models, as per a 2023 analysis by UBS AG.

This strategy enables the company to produce its own EV batteries and microchips, own lithium mines, and manage its fleet, providing BYD with greater control over its direction, despite significant costs and risks involved.

Challenges remain in the shipping sector, including elevated maintenance and personnel costs, potential losses due to adverse weather, conflicts, or piracy, and the long-term objective of transitioning from exports to localized production in international markets.

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

BYD has not disclosed specific costs related to its fleet or when it expects to recoup its investments. The company declined to comment on its logistics and fleet management strategies.

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

In January, the BYD Changsha sought refuge off the coast of Spain to avoid a winter storm characterized by gale-force winds and swells up to 9 meters. It remained in safer waters west of the Strait of Gibraltar for nearly 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 move at maximum speed while others in the industry remained immobilized,” explained BYD’s head of logistics, Deng Huaiyu. “By the time we navigated around the storm, several third-party vessels were still stranded behind us.”

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

BYD entered the shipping sector in response to supply chain disruptions caused by Covid-19. Shipowners around the world faced escalating costs, with daily charter rates for a 6,500-unit car carrier skyrocketing from $10,000 in 2020 to $110,000 in 2023, according to Clarksons Research, a London-based analytics firm.

Deng recounted the frustration of being displaced by third-party shipowners at the last minute, even after booking confirmations.

“Logistics became the largest bottleneck for our global efforts,” he observed. “We had the technology, capacity, and market, but lacked reliable transportation.”

A total of 233 vessels were ordered globally between 2022 and 2024, as per Clarksons, compared to just 13 orders from 2018 to 2020 prior to the pandemic. The delivery of this backlog has accelerated over the past two years, with many allocations going to Chinese 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 “mitigate the export logistics crisis and promote new-energy vehicles manufactured in the province for wider market access.” This initiative has received the backing of the Chinese government as part of its strategy to elevate exports.

As of May 2023, China’s Ministry of Commerce recognized “logistics bottlenecks” as structural issues undermining the profitability of the automotive sector. Consequently, Beijing has committed to fostering “strategic cooperation” between automotive manufacturers and shipping companies while urging shipping lines to enhance dedicated car carrier availability to improve export capacity.

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

Leading Chinese automakers like Chery Automobile Co and Geely Automotive Holdings rank among the top exporters but operate only a limited number of ships; Chery relies solely on a joint venture. Others, including Dongfeng Motor Group Co, Guangzhou Automobile Group Co, and Great Wall Motor Co, entirely depend on global shipping giants like Shanghai’s Cosco Shipping Holdings Co, Norway’s Wallenius Wilhelmsen ASA, and Italy’s Grimaldi Group SpA.

SAIC Motor Corp, through its Anji Logistics division, operates various ocean vessels. Their primary vessel, the Anji Fortune, can carry 9,500 vehicles, though this pales in comparison to the Glovis Leader, the largest vehicle carrier in the world, capable of transporting 10,800 vehicles per voyage. Operated by Hyundai Motor Co’s sister company Hyundai Glovis Co, it plays a vital role in Hyundai Motor Group’s fleet, which consists of around 100 vessels, accounting for over 10% of global car-carrier capacity.

“It provides a significant advantage,” stated Hyundai Motor CEO José Muñoz in a recent interview. “In normal circumstances, it may not be a crucial differentiator, but when challenges arise, you gain a competitive edge.” Muñoz contended that sales volumes for a carmaker should not rely on shipping timelines. “Our shipping capacity should not restrict us; it should be dictated by consumer demand.”

Similar to Japanese manufacturers like Toyota Motor Corp and Nissan Co, Hyundai has sustained its export operations while increasing its investments in local production capabilities in key markets like the US. BYD may align itself with this trend, aiming for a balance between domestic manufacturing bases in regions like Brazil and Hungary. Both areas are critical to its ambitious vision for international expansion, accounting for approximately 40% of total global revenue.

“Regardless of our manufacturing presence abroad, the volume of complete vehicle exports from China will remain substantial, as past experiences from our Japanese and Korean counterparts indicate,” asserted BYD’s logistics head Deng in a company statement. “A significant portion of that ongoing export demand will continue to be handled by our fleet.”

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