How BYD Leverages Strong Vessels to Stay Competitive Amid War and Weather Challenges

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

After navigating difficult maritime conditions and opting for a faster route, the freighter docked at Lázaro Cárdenas seaport on December 21, allowing the world’s leading EV manufacturer to significantly reduce tariff costs. Its timely arrival amidst heightened shipping demand highlighted BYD’s private fleet as an essential strategic asset during these challenging times.

With ongoing disruptions in shipping lanes due to conflicts in Iran, BYD’s fleet of eight vessels has become increasingly vital as the company looks to boost exports and recover from an extended period of declining earnings. Founded during the pandemic in 2022, BYD is currently exporting approximately 300,000 vehicles annually—valued in the billions—to markets spanning Africa, Europe, Latin America, and the Middle East.

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BYD asserts that its fleet has successfully turned systemic geopolitical challenges into operational advantages. This is particularly true in the Arabian Peninsula, a crucial export route from Asia to Europe, where BYD’s vessels navigate regions often skipped by other commercial shipping lines, enhancing both efficiency and cost-effectiveness.

Earlier this month, the BYD Shenzhen effectively reached the UAE port of Khor Fakkan, situated near the contentious Strait of Hormuz, despite escalating tensions between the US and Iran. The company was able to unload its cargo in the UAE before continuing to the Red Sea, another sensitive area.

This year, BYD’s vessels have consistently traversed the Suez Canal, linking Asia with Europe, unlike most cargo traffic, which has chosen a longer and pricier detour around South Africa’s Cape of Good Hope. This alternate route adds roughly 25% to travel time and can extend transit duration by an additional 14 days compared to routes via the Red Sea and Suez Canal.

“This deviation from standard market behavior illustrates BYD’s assurance in the safety and reliability of its vessels and crews while operating in the Red Sea corridor,” stated Andrea De Luca, a consultant at Veson Nautical, a maritime data analytics firm.

While it’s not uncommon for automakers to operate fleets, BYD sets itself apart by utilizing its ships solely for its own cargo, even when it means returning with minimal loads.

“We constantly need more ships,” said Stella Li, BYD’s senior vice president for global expansion, in a recent interview. “Owning our vessels gives us a significant competitive edge.”

The BYD Shenzhen, aptly named after 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 carrying up to 9,200 vehicles. It spearheads BYD’s global initiatives to cater to 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 soared by 21% last year, surpassing 7 million units, acting as a vital outlet for managing 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 result in considerable cost savings and quicker access to essential markets,” remarked De Luca, emphasizing that the surge in export volumes from China has made securing charter services increasingly complex.

Shipping costs from China have surged dramatically, with spot container rates rising by 61% following the intensification of hostilities in Iran.

All in the family

For BYD, its in-house fleet not only enhances exports but also aligns with the company’s objective of minimizing external dependencies, thereby reducing costs and improving efficiency. Unlike many automakers that typically divest assets to concentrate on core activities, BYD aims for self-sufficiency throughout its supply chain. Reports indicate that BYD produces 75% of the components utilized in one of its flagship car models, according to a 2023 analysis by UBS AG.

This strategic approach enables the company to manufacture its own EV batteries and microchips, own lithium mines, and manage its fleet, offering BYD greater control over its operations, despite the significant risks and costs involved.

Challenges within the shipping industry remain, including high maintenance and personnel costs, potential losses due to inclement weather, conflicts, or piracy, alongside the long-term goal of transitioning from exports to localized production in global markets.

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

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

In addition to maneuvering around geopolitical uncertainties, BYD’s vessels provide the company with greater flexibility in adverse weather conditions.

This January, the BYD Changsha sought shelter off the coast of Spain to avoid a winter storm characterized by strong winds and waves as high as 9 meters. It remained in safer waters west of the Strait of Gibraltar for nearly a week. However, with inventory shortages and heightened consumer demand, BYD was eager to fulfill its shipment.

“We identified a brief window when the storm relented and directed the ship to proceed at full speed while other vessels in the industry remained in port,” explained BYD’s logistics head, Deng Huaiyu. “By the time we navigated around the storm, multiple third-party vessels were still stalled behind us.”

With continued support from a BYD operations team monitoring the situation, the ship accelerated its journey to escape the storm and successfully reached the UK by February 3.

BYD ventured into the shipping sector in response to supply chain disruptions caused by Covid-19. Shipowners globally faced rising costs, with daily charter rates for a 6,500-unit car carrier soaring from $10,000 in 2020 to $110,000 in 2023, as reported by Clarksons Research, a London-based analytics firm.

Deng expressed frustration at being sidelined by third-party shipowners at the last moment, even after confirming bookings.

“Logistics became the primary bottleneck in our global operations,” he noted. “We had the technology, capacity, and market potential but lacked dependable transportation.”

Globally, 233 vessels were ordered between 2022 and 2024, according to Clarksons, compared to just 13 orders from 2018 to 2020 prior to the pandemic. The delivery of this backlog has accelerated over the last two years, with many assignments directed toward Chinese automotive manufacturers.

‘Strategic cooperation’

At a government forum in Guangdong province in February 2024, BYD founder and chairman Wang Chuanfu committed to sustaining a fleet of eight ships over the next two years to “alleviate the export logistics crisis and promote new-energy vehicles produced in the province for broader market access.” This initiative has garnered support from the Chinese government as part of its strategy to boost exports.

As of May 2023, China’s Ministry of Commerce pinpointed “logistics bottlenecks” as structural challenges impeding the profitability of the automotive sector. As a result, Beijing has pledged to encourage “strategic cooperation” between automotive manufacturers and shipping firms while urging shipping lines to enhance the availability of dedicated car carriers to improve export capacity.

In September, eight ministries introduced a national strategy aimed at fostering growth in the automotive sector, specifically advocating for the modernization of China’s car carrier fleet and port infrastructure. They also suggested partnerships and joint ventures between manufacturers and shipping operators to ensure long-term stability, though very few such collaborations have been publicly announced so far.

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

SAIC Motor Corp operates several ocean vessels through its Anji Logistics division. Their main vessel, the Anji Fortune, can transport 9,500 vehicles, although this pales in comparison to the Glovis Leader, the world’s largest vehicle carrier, which accommodates 10,800 vehicles per journey. Operated by Hyundai Motor Co’s sister company Hyundai Glovis Co, it is pivotal to Hyundai Motor Group’s fleet, which consists of around 100 vessels and accounts for over 10% of global car-carrier capacity.

“It offers a substantial advantage,” remarked Hyundai Motor CEO José Muñoz in a recent interview. “In ordinary circumstances, it may not serve as a decisive factor, but in times of difficulty, it provides a competitive edge.” Muñoz argued that sales volumes for a car manufacturer should not rely on shipping timelines. “Our shipping capacity should be driven by consumer demand, not constrained by it.”

Like Japanese manufacturers such as Toyota Motor Corp and Nissan Co, Hyundai has maintained its export operations while simultaneously increasing investments in local production capabilities in essential markets, including the US. BYD may align itself with this trend, striving to balance domestic manufacturing bases in regions like Brazil and Hungary, which are pivotal to its ambitious vision for international expansion, comprising approximately 40% of its total global revenue.

“Regardless of our manufacturing footprint abroad, the volume of complete vehicle exports from China will stay significant, as previous experiences from our Japanese and Korean counterparts have shown,” emphasized BYD’s logistics head Deng in a company statement. “A significant portion of that ongoing export demand will still be fulfilled by our fleet.”

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