Road laws and trucks - unintended consequences

Those readers who have travelled around China will be well used to the sight of overloaded trucks. Sometimes the loads appear to defy gravity, but most of the time it’s simply a case of dangerous stupidity.

Have you ever wondered why so many trucks in China overload themselves? It’s because of the taxes and fees that the truck drivers have to pay for use of the highways, and for crossing between provinces. Truckers argue that given the cost of fuel and the paltry fees they earn, they have no choice but to carry as much cargo as possible.

All that changed on Wednesday. That’s when Beijing brought down a new policy - “administration of highway management for over-limit trucks”. The new policy enforces the rules regarding the overloading of trucks, and imposes big fines.

So far, the response has been irregular. From what we can understand, the initial response was that many truckers decided to stop driving. It was simply not worth taking their trucks out if there was no money to be made. But that response seems to have been spasmodic and temporary. One can imagine that fruit and vegetable deliveries would be the first to feel the problem, if trucks stopped carrying their goods from farm to market. Indeed, the price of bananas in the banana-growing regions has gone down rapidly. Growers can’t find trucks and are forced to discount.

In our sector, we have seen some impacts. The price of aluminium has risen sharply in the last two days, due partly to trucks no longer delivering to or from warehouses. I am also hearing reports that petcoke and similar deliveries have been impacted. If you have an order for CPC or anodes booked with a Chinese supplier for near-term delivery, it might be worth checking that they have the raw materials available, and that they have the trucks to get the goods to the port.

The major impact however is likely to be in the coal industry. Logistics in that sector have come to a stop. Shaanxi and Inner Mongolia major coal mines are unable to move their product. One salesman said they could not find a single truck to deliver coal in the Yulin market. Some coal mines have reduced output and mine mouth inventory has increased. We understand the new policy will increase transport costs by about RMB30/ton.

Many people are waiting for the further details on this policy, but it seems drivers are erring on the safety side and refusing to drive. Note, this comes just one week before China goes into its Golden Week. It’s a time when factories will close. Golden Week is not a time when people go back to their families. It’s more of a time for going out and exploring. Thankfully for shop keepers it’s not a huge shopping period.

We will keep watching developments. This could peter out to nothing, or it could hit China’s CPI and PPI. Time will tell.