Having given notice in July of last year, China has followed through on its pledge to turn away “foreign garbage” by adopting much stricter quality thresholds for a range of waste products. The new rules were implemented on January 1 and will become enforceable on March 1.
The move has shocked a lot of people around the world involved in the waste management and recycling business, who have become accustomed to China taking their products of their hands. Finding alternatives won’t be easy. China imports around 30 million tons of waste paper each year, along with some eight-million tons of waste plastics, roughly the same as the rest of the world combined.
Other markets in places such as India, Vietnam and Malaysia will be asked to pick up some of the slack (potentially offering carriers a bonus extra shipment if the cleaned product is transited to China thereafter), but between them they lack anything like the sort of capacity required to do the same job as China used to do. Fearing piles of rubbish building on their doorsteps, numerous lobby groups and vested interests have pleaded with China to ease its stance, calling for more lead time and to relax the tolerance levels, which many say are impractically strict. However, for the time being it seems that China is determined to clean up its house and won’t back down.
So swift have things moved that some governments were caught completely unprepared. Only two weeks after the January 1 rule change did the UK government, which ships over six-million tons of used paper and plastics to China (including Hong Kong) each year, finally caught on to the problem and launch an inquiry to assess the situation.
China’s policy shift is also bad news for ocean carriers that are tasked with moving the waste materials. The market reacted when the initial notice was delivered in July, with some shippers nervous about dispatching orders until it became clearer what constituted a legitimate shipment, while Chinese importers cut back purchase orders in fear of being heavily fined by the authorities or losing their operating licenses, or both.
The panic got to the carriers too: concerned that laden boxes of waste paper might stand on the quay in China for lengthy periods of time, pending further investigation of contents, several lines decided to tighten up their procedures for the acceptance of bookings in the first place.
According to one major carrier that Drewry spoke with, the company was braced for some volume loss after China gave notice to the WTO in July, but the impact on backhaul shipments has been negligible so far. That situation doesn’t appear to be limited to that single line as trade flow statistics out of the US and Europe didn’t veer off normal seasonal trends at the back end of 2017.
However, while the disruption to shipping might have been limited thus far, the carrier source did concede that they remain concerned about the situation as waste products can make up half of backhaul voyages. The carrier is most fearful for the most heavily-exposed westbound Transpacific market.
The US is by far the biggest exporter of waste to China, shipping two-thirds of its used paper across the Pacific Ocean, sending 13.2 million tons of the stuff in 2016. Its next largest destinations for the commodity are India and Mexico, between them importing about 3 million tons. America also had the lion’s share of exports of the now banned unsorted paper to China, followed by Japan and the UK.
Unless there is a dramatic about turn, carriers can kiss goodbye to those banned paper and plastics shipments. Drewry estimates that worldwide unsorted paper imports to China were in the region of 500,000 teu in 2016, while the still legal other types of waste paper added another two-million teu. Adding in the other lower-volume commodities affected by the new ruling Drewry estimates that there could be as much as between four and five-million teu at risk, equating to nearly three percent of world loaded container traffic.
For the carriers, this development will not break the bank as the ocean freight earned for backhaul waste shipments is extremely low, but they do at least provide some contribution, at least to the costs of repositioning containers back to Asia.
Clearly, volumes from the US and Europe to Asia will fail to reach the heights they could have without China’s decision, but all is not lost for the backhaul trades as other rising cargoes can help fill the gap. Chinese imports of beef, for example, have soared in recent years, reaching more than 800,000 tons in 2016 – compared with just 6,000 tons ten years before – as rising incomes have boosted meat consumption and Beijing recently removed restrictions on the import of American premium grain-fed beef, which should provide a boost.
It is unclear at this early stage whether China’s new waste quality thresholds can be attained, which puts significantly more tonnage at risk of being incinerated or put into landfill rather than boarding containerships. Other backhaul cargoes, particularly foodstuffs, will ease the pain for shipping lines.
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