In Depth: Chinese Shippers’ Diverging Fortunes

China's shipping industry is facing contrasting conditions in international and domestic markets. International freight rates have surged, driven by a global shipping boom, whereas domestic shipping struggles with low demand and intense price competition. To balance the decline in local demand, some Chinese shippers have pivoted more resources to international trade. The Shanghai Containerized Freight Index has risen by over 210% from the previous year, reaching 3,253.89, due to tight global shipping capacity and rising Chinese exports.[para. 1][para. 2][para. 3][para. 4][para. 5]

Domestically, the Xinhua·Panasia China Domestic Container Freight Index hit a four-year low, at 876 in late June, and has since rebounded to 1,010—still far below its December 2021 high. This decline is attributed to shrinking local demand across various sectors, influenced by a gloomy job market, prolonged real estate slump, and weak consumer spending. The domestic shipping industry has long struggled with inadequate funding and increasing competition from rail transport, which complicates the central government’s objectives to enhance the water transport system for improved logistics efficiency.[para. 6][para. 7][para. 8]

The domestic shipping market has been particularly hard hit, with a leading shipping company losing substantial amounts—between 400 to 500 yuan per container—to maintain market operations amid falling demand for goods such as furniture and building materials. The real estate crisis has largely contributed to this drop, significantly reducing the need for construction materials. The competitive environment has fostered a price war as shippers lower prices to secure orders. Intensifying competition from shipping firms owned by port operators may worsen the situation.[para. 9][para. 10][para. 11][para. 12]

Shanghai Zhonggu Logistics stands to benefit in this price war, having invested in larger vessels during a period of low shipbuilding prices in 2021. These larger ships enable higher shipment volumes per voyage, reducing overall per-container costs. The logistics sector as a whole is also experiencing slowing demand and increased competition, as highlighted by a report from the China Federation of Logistics & Purchasing. Revenue from logistics services dropped by 0.8% year-on-year in the first five months of the year, with profits down 1.9%.[para. 13][para. 14][para. 15][para. 16]

In response to weak domestic demand, some Chinese shipping companies have reallocated capacities to the international market, with leading domestic companies shifting up to one-third of their capacity towards foreign trade. For instance, Antong Holdings plans to buy stakes in international shipping services, aiming to benefit from the global shipping boom. However, Chinese-registered ships face higher tax costs internationally compared to foreign vessels, making profits challenging. Despite this, the shift is positive for the domestic market, as it could tighten supply and potentially raise domestic freight rates.[para. 17][para. 18][para. 19][para. 20]

Intermodal transport has been another area of focus to reduce China’s reliance on expensive road transport. Vice Premier He Lifeng has emphasized the importance of developing rail-water intermodal transport to drive down logistics costs. Shipping heavily relies on trucking, which increases overall logistics expenses, already constituting 14.4% of China’s GDP compared to 7% in the U.S. and 5% in Japan. Efforts include expanding port-railway links and other infrastructure projects to bolster waterway development, especially given last year's fixed-asset investments in waterways increased by 20.1% year-on-year. These investments are crucial for local economies, particularly in inland areas.[para. 21][para. 22][para. 23][para. 24][para. 25][para. 26][para. 27][para. 28][para. 29]