Global Fireworks Crisis - Live Updates

Nov. 28, 2020 -  The (LFA) Liuyang Fireworks Association and members of the Liuyang fireworks industry drafted a report to the State Council of China describing the issues stopping shipping of fireworks.   The State Council met and directed Beijing General Customs to coordinate between Hunan Customs and Shanghai Port in order to reach the goal of smooth export procedures.   With the support of the State Council & Beijing General Customs, it is expected that a solution will be reached soon.   However, two problems still will exist.  1.) 1.5 months of shipping has been lost, therefore it will be difficult to catch-up.  2.) General Shipping demand is expected to remain strong at least through Chinese New Year, and therefore shipping rates are expected to be extremely high.   Even if General Goods rates fall in April, this will be the peak season for fireworks and therefore will likely keep rates high.

Below is an analysis that explains the issues relating to China Customs and USA products:

White Paper - Global Fireworks Crisis, An Analysis

Summary of 2019's issues

April 30, 2019 -  Vice Mayor Wu made the following announcement.   Loading via Shanghai port will temporarily resume from May 1 – May 20.   

Urgent notice: After Spring and Autumn Secretary and Xinwei Market High Coordination, Changsha Customs agreed to supervise customs clearance from May 1 to May 20, according to the usual practice, all distribution companies, export enterprises and logistics companies are requested to be ready. Xingsha Customs Liuyang Office and relevant government departments in Liuyang May Day take no vacation, fully support shipping! The specific methods of operation will be announced later this afternoon.

Analysis – The following is a chronology of the events leading up to the 2019 Fireworks Shipping Crisis.   The facts below are confirmed, however the deeper motivations and reasons for the specific actions can’t be known clearly.   From the facts it appears the crisis was brewing for the last year.  

The US/China trade war prompted China to reorganize their Customs Import/Export Ministry.   With this reorganization came new leaders.   With those new leaders came changes to the relative stability enjoyed by fireworks shippers over the last 10 years.  Initially it appeared that the new leadership was supportive of the fireworks industry and was willing to listen to industry representatives in trying to address “lose ends” such as fuse, e-match, UN0431, etc.   However, after the devastating March 2019 Pesticide Factory explosion, China Customs had a “knee-jerk” response and began strict interpretation of all fireworks exports. 

The biggest conflict arose between Jiangxi Province and Hunan Province officials.   A province is equivalent to a USA state.   Fireworks are made in both Jiangxi and Hunan.  A common shipment of goods to the USA will contain some goods made in both provinces.   However, all shipments headed for Shanghai must go through the river port at YueYang City.  River barge is the only economical way to get fireworks from Hunan/Jiangxi to Shanghai.   And YueYang is the only port capable of accepting fireworks in Hunan.   Jiangxi is land-locked and does not have any river ports of its own.  We can’t be sure exactly why Hunan officials refused to allow Jiangxi goods.   The official explanation was that Hunan did not want to take responsibility if any accident occurred because of Jiangxi goods.  

However, perhaps an even more significant development was Hunan Customs declaring that the YueYang port was not adequate for fireworks and a new inspection facility would need to be built.   Exactly who would bear the significant cost of this new facility was not clear.    

With all of this uncertainty and potential cost, the four logistics companies that have fireworks licenses in Shanghai all “voluntarily” stopped all loading of fireworks bound for Shanghai.   Our analysis is that it is essentially a “strike” where the logistics companies are asking China Customs to clarify the regulatory procedures and find a solution to pay for the new YueYang inspection facility.   They are “on strike” until a resolution that meets their requirements is reached.  

The assumption is that their requirements are clear regulatory procedures (i.e. resolve the conflict between Jiangxi and Hunan Customs) and find some way to pay for the YueYang inspection facility that will not directly impact the logistics companies.   To be clear, fireworks can still be shipped via Shanghai, however none of the logistics companies holding licenses in Shanghai are willing to ship until a resolution that meets their requirements is met. 

With Shanghai shipping suspended, that only leaves Beihai Port accepting fireworks.   However, Beihia’s total capacity is just 1.8 M TEU vs 40 M TEU in Shanghai.   So Beihai only has 4.5% the capacity of Shanghai.   It is estimated that 1,000-1,500 containers bound for the USA remain in China as of April 25th and Beihai can only process about 200 of those per week.   With transit times of up to 45 days, this suggests some shipments will not arrive for the July 4^th season.

March – April 2018 – USA & China begin a tit-for-tat trade war with tariffs being implemented by both sides.    Fireworks stay off the tariff list.

March 2018 -  The 13th National People's Congress of China implemented a massive reformation of many Chinese governmental agencies, with special emphasis on those managing the operations around import and export.   This reorganization is needed to effectively implement the planned import tariffs on US goods and better control export of goods coveted in the USA.

May 2018 - China Inspection and Quarantine (CIQ) integrated into China's Customs. The responsibilities for the physical inspection of goods by CIQ are totally unified under China Customs supervision.

June 1, 2018 – US Importers begin to notice changes being implemented by the new China Customs organization.   One example is the requirement of all USA importers to provide an EIN number before goods would be allowed to leave China.   An additional 20+ declaration parameters were also changed indicating tighter control of both imports and exports. 

Sept 2018 – CIQ’s merger into China Customs complete.   The new leadership at China Customs begin to announce planned changes that would affect the fireworks industry.    Some changes seem to be for the better, others for the worse.   But it is clear the relatively stable period of the last 10 years with regard to fireworks export might be drawing to a close as the new Customs leadership vowed strict regulatory compliance.  Many fireworks export processes had never been formalized in regulation or the regulations only loosely followed.     

March 21 - Xiangshui pesticide chemical factory explosion. A major explosion occurred where 617 people were injured and at least 78 were killed. Note this was not fireworks related. 

March 22 - Liuyang CIQ stopped loading of Jiangxi product after tighter interpretation of the regulations due to the pesticide factory accident.

April 2 - Yueyang Customs issued a Notice of Correction, requesting Yueyang City Lingji Newport Co., Ltd. to construct a complete set of dangerous chemical inspection sites for fireworks and firecrackers in two months or lose the Dangerous Goods license.

April 8 - Jiangxi CIQ stopped loading of Liuyang product.

April  9 -  Informal meeting held in Liuyang between industry members and China CIQ.   Dominator in attendance.  Optimism that problems would be resolved by April 14th.

April 14 - Unexpected WeChat from Mr. Ding of Huayang Logistics announcing Huayang's decision to stop loading all containers to Shanghai Port.   Four main reasons given:

1.) $200,000 per day cost associated with demurrage at Shanghai port caused by delays from China Customs.  

2.) Shipping space utilization of only 30% for three weeks, feeder shipping companies are reluctant to reserve space for fireworks cabinet.  

3.) Huayang directly bears the risk of an accident for any containers delayed in the port.

4.) Huayang fears the risk of customer claims if the shipments are delayed.

Full text below.

April 15 - Remaining Dangerous Goods License holders in Shanghai Port join Huayang in refusing to load containers bound for Shanghai until a resolution can be worked out with China CIQ.

April 16 -  Fireworks Exporters begin to change all bookings to Beihai Port.  Beihai port capacity is very small.   Only a small percentage of Shanghai capacity.   There is not enough capacity to ship all fireworks containers.  If no solution found, some importers will not be able to  receive their goods.

April 21 - Liuyang Fireworks General Association letter to Liuyang government "Request for resolution".  The mayor of Liuyang  will visit Changsha customs April 22 to coordinate a  resolution.

April 25 - Dominator Staff travel to Beihai Port to begin direct supervision of container loading, warehousing, etc.

April 26 - Vice Mayor Wu Min, member of the Standing Committee of the Municipal Committee of the Communist Party of China, convened the Coordination Meeting of Export Fireworks Channels, which was attended by representatives of Customs, Commerce Bureau, Fireworks Industry Development Center, China Tobacco Association, Fireworks General Association, Export Companies, and Logistics Enterprises.   Dominator Fireworks in attendance.  

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Notes:

2019 Xiangshui chemical plant explosion

China CIQ

Yueyang Chenglingji New Port Co., Ltd.

Yueyang Chenglingji New Port is the only Yangtze River port in Hunan, the only national first-class port and an important transit port along the Yangtze River. It is located on the right bank side of Songyang Lake in Yueyang City and the Xianfeng Waterway in the middle reaches of the Yangtze River, 3Km away from Sanjiangkou. The project will construct 3 universal berths for 3,000 tons of multi-purpose wharfs, and design annual container throughput of 300,000 TEU.

The total investment of the project is 633.57 million yuan. The project is managed and operated by China Communications Investment Co., Ltd. and Yueyang Chenglingji Port Co., Ltd. and Yueyang City Highway Infrastructure Corporation. The project was developed and constructed in BOO mode. Construction started on May 18, 2007. The construction period is 2 years. It was accepted and accepted on April 1, 2009. It was officially opened on June 8, 2009, and the operation period was 48 years.

April 14 -  Huayang WeChat

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