How BYD Leverages Strong Vessels to Stay Competitive in the Face of War and Weather Challenges

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

After navigating difficult maritime conditions with an expedited route, the freighter docked at Lázaro Cárdenas seaport on December 21, enabling the world’s largest EV manufacturer to substantially reduce tariff costs. Its timely arrival amid strong shipping demand highlighted BYD’s private fleet as a crucial strategic asset during challenging times.

Amid ongoing shipping lane disruptions due to conflicts in Iran, BYD’s fleet of eight vessels has become essential as the company seeks to boost exports and recover from a prolonged period of dwindling earnings. Established during the pandemic in 2022, BYD now exports around 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 successfully transformed systemic geopolitical obstacles into operational strengths. This is particularly true in the Arabian Peninsula, a vital export route from Asia to Europe, where BYD’s vessels navigate areas often avoided by other commercial operators, enhancing both efficiency and cost-saving measures.

Earlier this month, the BYD Shenzhen successfully arrived at the UAE port of Khor Fakkan, located close to the volatile Strait of Hormuz, despite the rising tensions between the US and Iran. The company was able to unload its cargo in the UAE before proceeding to the Red Sea, another contentious area.

This year, BYD’s vessels have consistently traversed the Suez Canal for routes linking Asia to Europe, unlike most cargo traffic that has chosen the longer, more expensive detour around South Africa’s Cape of Good Hope. This alternative route prolongs travel time by about 25% and can extend transit by an additional 14 days compared to routes through the Red Sea and Suez Canal.

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

While it is common for automakers to run fleets, BYD stands out by utilizing its ships exclusively for its own cargo, even if it means returning with minimal load.

“We continue to require more ships,” stated Stella Li, BYD’s senior vice president for global expansion, in a recent interview. “Owning our vessels gives us a notable competitive advantage.”

The BYD Shenzhen, named after BYD’s home city, is among the largest vessels in its fleet, measuring close to 220 meters (720 feet) long and 38 meters wide, standing 16 decks high and able to carry up to 9,200 vehicles. It spearheads BYD’s global initiatives 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 climbed by 21% last year, surpassing 7 million units, serving as a critical outlet for managing surplus inventory in China. A large portion of these vehicles was transported via Chinese-operated container and specialized roll-on, roll-off vessels.

“Owning a vessel can yield significant cost savings and expedited access to essential markets,” remarked De Luca, highlighting how the rise in export volumes from China has made securing charter services increasingly complicated.

Shipping expenses from China have surged sharply. Spot container rates soared by 61% following the escalation 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 goal of reducing external dependencies, thereby lowering costs and boosting efficiency. Unlike many automakers that typically divest assets to concentrate on core activities, BYD strives to ensure self-sufficiency throughout its supply chain. Reports indicate that BYD manufactures 75% of the components used in one of its leading car models, according to 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, allowing BYD greater control over its operations, despite the considerable risks and costs involved.

Challenges in the shipping industry remain, including high maintenance and personnel expenses, potential losses due to adverse weather, conflicts, or piracy, alongside the long-term aim of shifting from exports to localized production in foreign markets.

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

BYD has not revealed specific costs associated with its fleet or when it expects to recuperate 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 greater adaptability during adverse weather conditions.

In January, the BYD Changsha sought shelter off the coast of Spain to avoid a winter storm characterized by severe winds and waves 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 keen to deliver its cargo.

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

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

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

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

“Logistics became the most significant 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 only 13 orders from 2018 to 2020 prior to the pandemic. The delivery of this backlog has gained momentum over the past two years, with many allocations directed towards Chinese automotive manufacturers.

‘Strategic cooperation’

At a 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 “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 enhance exports.

As of May 2023, China’s Ministry of Commerce identified “logistics bottlenecks” as structural issues affecting 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 improve the availability of dedicated car carriers to enhance export capacity.

In September, eight ministries unveiled a national strategy aimed at promoting growth in the automotive industry, specifically advocating for 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 announced thus far.

Leading Chinese automakers such as Chery Automobile Co and Geely Automotive Holdings rank among the top exporters but operate 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 operates several ocean vessels through its Anji Logistics division. Their main vessel, the Anji Fortune, can transport 9,500 vehicles, although this is dwarfed by the Glovis Leader, the world’s largest vehicle carrier, capable of carrying 10,800 vehicles per journey. Operated by Hyundai Motor Co’s sister company Hyundai Glovis Co, it is a crucial part of Hyundai Motor Group’s fleet, which comprises around 100 vessels and accounts for over 10% of global car-carrier capacity.

“It offers a substantial advantage,” noted Hyundai Motor CEO José Muñoz in a recent interview. “In typical scenarios, it may not serve as a decisive factor, but when challenges emerge, it gives you a competitive edge.” Muñoz contended that sales volumes for a car manufacturer should not hinge on shipping timelines. “Our shipping capacity should not restrict us; it should be determined by consumer demand.”

Much like Japanese manufacturers such as Toyota Motor Corp and Nissan Co, Hyundai has sustained its export operations while boosting investments in local production capabilities in vital markets like the US. BYD might align itself with this trend, seeking a balance between domestic manufacturing bases in regions like Brazil and Hungary, both critical to its ambitious vision for international growth, contributing to around 40% of total global revenue.

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

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