How BYD Leverages Sturdy Vessels to Stay Competitive Amidst War and Weather Challenges

The BYD Shenzhen embarked on its journey from the southeastern Chinese port of Xiamen in late November, initiating a crucial voyage across the Pacific with 1,768 new electric vehicles on board. The goal was to reach Mexico before the new tariffs on Chinese imports took effect on January 1.

Having navigated challenging maritime conditions and selecting a quicker route, the freighter arrived at Lázaro Cárdenas seaport on December 21, effectively minimizing tariff expenses for the leading EV manufacturer worldwide. Its timely arrival amidst heightened shipping demand highlighted BYD’s private fleet as an essential strategic resource in these challenging circumstances.

As shipping channels continue to face disruptions due to conflicts in Iran, BYD’s fleet of eight ships has become crucial as the company seeks to escalate exports and rebound from an extended period of declining profits. Established during the pandemic in 2022, BYD is currently exporting around 300,000 vehicles per year—valued in the billions—to markets across 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 effectiveness is particularly apparent in the Arabian Peninsula, a key export lane from Asia to Europe where BYD’s ships traverse regions often avoided by other shipping companies, enhancing both efficiency and cost-effectiveness.

Earlier this month, the BYD Shenzhen smoothly docked at the UAE port of Khor Fakkan, located near the contentious Strait of Hormuz, amid rising tensions between the US and Iran. The company swiftly unloaded its cargo in the UAE before heading to the Red Sea, another sensitive area.

This year, BYD’s vessels have consistently traversed the Suez Canal, linking Asia and Europe, unlike most cargo traffic that has opted for a longer, pricier detour around South Africa’s Cape of Good Hope. This alternate route can prolong travel time by about 25% and add up to 14 extra days of transit compared to paths through the Red Sea and Suez Canal.

“This divergence from standard market behavior highlights BYD’s confidence in the safety and reliability of its vessels and crews when operating in the Red Sea corridor,” remarked Andrea De Luca, a consultant at Veson Nautical, a maritime data analytics firm.

While managing fleets is common for automakers, BYD distinguishes itself by utilizing its vessels solely for its own cargo, even if this results in limited return loads.

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

The BYD Shenzhen, aptly named after BYD’s home city, ranks among the largest vessels in its fleet, measuring nearly 220 meters (720 feet) in length and 38 meters in width, standing 16 decks high, and capable of carrying up to 9,200 vehicles. It leads BYD’s global 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 soared by 21% last year, surpassing 7 million units, which served as a vital outlet for excess inventory in China. A significant number of these vehicles were transported via Chinese-operated container and specialized roll-on, roll-off vessels.

“Owning a vessel can result in substantial cost reductions and quicker access to key markets,” emphasized De Luca, highlighting the increasing complexity of securing charter services amid growing export volumes from China.

Shipping costs from China have risen sharply, with spot container rates climbing by 61% following the intensification of conflict in Iran.

All in the family

For BYD, its internal fleet not only boosts exports but also aligns with the company’s vision of reducing external dependencies, thereby minimizing costs and enhancing efficiency. Unlike many automakers that typically offload assets to concentrate on core operations, BYD aims for self-sufficiency across its supply chain. Reports indicate that BYD manufactures 75% of the components utilized in one of its flagship car models, according to a 2023 analysis by UBS AG.

This strategic approach allows the company to produce its own EV batteries and microchips, own lithium mines, and manage its fleet, giving BYD greater control over its operations despite the considerable risks and costs associated.

Challenges within the shipping industry persist, including high maintenance and personnel expenses, potential losses resulting from adverse weather, conflicts, or piracy, along with the long-term objective of evolving from exports to localized production in international markets.

“This creates immense pressure to elevate exports due to these sunk costs,” noted Matthias Schmidt, an analyst at Schmidt Automotive Research. “High utilization is vital to justify these investments.”

BYD has not disclosed specific information regarding the costs linked to its fleet or its timeline for recouping such investments. The company declined to comment on its logistics and fleet management strategies.

Beyond maneuvering geopolitical uncertainties, BYD’s vessels offer the company increased flexibility in adverse weather conditions.

This January, the BYD Changsha found safe anchorage off the coast of Spain to avoid a winter storm marked by strong winds and waves reaching up to 9 meters. It stayed in safer waters west of the Strait of Gibraltar for nearly a week. However, with inventory shortages and surging consumer demand, BYD was eager to fulfill its shipment.

“We found a brief window when the storm subsided and aimed the ship to proceed at full speed while other vessels in the industry remained in port,” detailed BYD’s logistics chief, Deng Huaiyu. “By the time we circumvented the storm, numerous third-party vessels were still trapped behind us.”

Supported by a dedicated BYD operations team that monitored the situation, the ship accelerated its journey to evade the storm and ultimately reached the UK by February 3.

BYD ventured into shipping as a response to the supply chain disruptions inflicted by Covid-19. Across the globe, shipowners faced mounting 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 securing bookings.

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

Between 2022 and 2024, a total of 233 vessels were ordered globally, according to Clarksons, in stark contrast 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 assignments targeted at Chinese automotive manufacturers.

‘Strategic cooperation’

During a government forum in Guangdong province in February 2024, BYD founder and chairman Wang Chuanfu committed to maintaining a fleet of eight ships over the next two years to “mitigate 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 critical challenges hampering the profitability of the automotive sector. Consequently, Beijing has expressed its dedication to fostering “strategic cooperation” between automotive manufacturers and shipping companies, urging shipping lines to enhance the availability of dedicated car carriers to boost export capacity.

In September, eight ministries launched a national strategy aimed at stimulating 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, although very few such collaborations have been publicly announced to date.

Prominent Chinese automakers like Chery Automobile Co and Geely Automotive Holdings are among the top exporters but operate a limited number of vessels; Chery relies solely on a joint venture. Other manufacturers, such as Dongfeng Motor Group Co, Guangzhou Automobile Group Co, and Great Wall Motor Co, primarily depend on global shipping giants including 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 flagship vessel, the Anji Fortune, can carry 9,500 vehicles, yet this capacity is dwarfed by the Glovis Leader, the world’s largest vehicle carrier, with a capacity of 10,800 vehicles per journey. Operated by Hyundai Motor Co’s sister company Hyundai Glovis Co, it plays a pivotal role in Hyundai Motor Group’s fleet, which comprises around 100 vessels and represents over 10% of global car-carrier capacity.

“It offers a significant advantage,” noted Hyundai Motor CEO José Muñoz in a recent interview. “In normal circumstances, it may not be a decisive factor, but during difficult times, it provides a competitive edge.” Muñoz asserted that the sales volume for a car manufacturer should not rely on shipping timelines. “Our shipping capacity should be driven by consumer demand, not restricted by it.”

Similar to Japanese manufacturers like Toyota Motor Corp and Nissan Co, Hyundai has sustained its export operations while simultaneously enhancing investments in local production capabilities in key markets, including the US. BYD may align with this trend, aiming to balance domestic manufacturing in regions like Brazil and Hungary, essential to its ambitious vision for international growth, constituting about 40% of its 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 have shown,” insisted BYD’s logistics chief Deng in a company statement. “A significant portion of that ongoing export demand will continue to be fulfilled by our fleet.”

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