(Yicai) April 10 -- Logistics disruptions in the Strait of Hormuz are dealing a severe blow to Chinese foreign trade enterprises, which were already grappling with pressure from declining demand, elevated costs, and the strengthening of the Chinese yuan.

Freight forwarders shipping to the Middle East slowly resumed operations after the United States and Iran reached a two-week mutual ceasefire, Ding Yandong, a Chinese foreign trade practitioner, told Yicai. His goods departed from China on container ships on April 8, but the following day, the Strait of Hormuz closed again, he explained.

"Middle East routes are operating on a limited basis and have not returned to normal levels," Federico Falcone, senior vice president of sea logistics at Kuehne und Nagel China, told Yicai yesterday. Amid the volatile situation in the Middle East, passage through the Strait of Hormuz remains under strict control, and the overall shipping capacity has dropped significantly from pre-conflict levels.

In response, several shipping companies have adjusted their operational strategies, including rerouting, shortening voyages, or transshipping goods at alternative regional hubs, to avoid entering the Gulf area, Falcone noted.

The Middle East situation has exerted a great impact on the global shipping and logistics system, with ripple effects extending far beyond the region, he said, adding that the closure of the Strait of Hormuz has triggered capacity mismatches, with some vessels and equipment stranded or delayed in the region, leading to tightness in shipping capacity.

Moreover, this situation has prolonged overall transportation times, as many routes have been extended due to diversions or restructuring, dragging down overall turnover efficiency, Falcone pointed out. Rising fuel expenses, insurance premiums, and risk premiums have also pushed up comprehensive operating costs.

An issue even more severe than capacity disruptions is insufficient demand. In fact, demand from Middle Eastern clients has fallen sharply, Ding explained. "This season is a traditional peak purchasing period, but now there are hardly any inquiries at all."

About a dozen Middle Eastern clients have already said they will not attend the China Import and Export Fair in Guangzhou later this month, he noted.

Exhibitions in the Middle East have also been suspended since March, and they have yet to resume. Zhang Yan, head of an international exhibition company based in China's Zhejiang province, told Yicai that his firm has decided to cancel several exhibitions scheduled in Dubai and Saudi Arabia this year.

Raw material prices have also increased since the outbreak of the Middle East conflict. Ding, for example, had to negotiate price hikes with clients while bargaining with suppliers, which inevitably led to shrinking profit margins.

Export profits are also being eroded by the strengthening of the Chinese yuan. On April 8, the yuan climbed to a three-year high against the US dollar, driven by strong domestic economic expectations, export-related settlement demand, and a weaker greenback.

The onshore yuan closed at 6.8274 versus the dollar on April 8, up 323 basis points compared with the previous trading day and its strongest level since Feb. 15, 2023. The offshore yuan touched 6.8215 intraday, the highest since April 2023. The People's Bank of China set the central parity rate for the yuan 174 bips stronger at 6.8680 on April 8. 

Easing tensions in the Middle East have reduced demand for safe-haven assets, causing the US dollar index to sharply decline and major non-US currencies to appreciate, said Wang Qing, chief macro analyst at Golden Credit Ratings. The yuan is expected to maintain a generally stable yet strong trajectory amid sharp fluctuations in the US dollar index, he predicted.

Editor: Futura Costaglione