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The pyrotechnic paradox: Independence Day’s dependence on China

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Each 4th of July, millions around the U.S. celebrate Independence Day by either watching, or “shooting-off,” a vast array of fireworks displays. These “bombs bursting in air” have become quite the tradition on the 4th of July, and according to the American Pyrotechnics Association (APA), in 2018 Americans spent more than $1.3 billion on 277.5 million pounds of fireworks – that’s nearly a pound of fireworks per American. Consumers spent $945 million on fireworks in  2018, which is a $250 million increase since 2014, and sales are expected to reach nearly $1 billion in 2019. Of the estimated 50 million fireworks imported each year, 94 percent come from China. Of those fireworks imported from China, roughly 70 percent are controlled by one man – known to fireworks industry executives as “Mr. Ding.” 

Mr. Ding, whose full name is Ding Yan Zhong, has gained a great deal of power and control over the fireworks industry here in the U.S. over the last decade. Through two different logistics companies, Shanghai Huayang Logistics (Huayang) in China, and Firstrans International in the U.S., he is able to maintain tight control over the end-to-end transportation of the Chinese fireworks export market.

The rise of Mr. Ding 

As reported initially in an expose by the Los Angeles Times, the story of Ding and his control of the fireworks trade started in 2008 when 15,000 cartons of fireworks across 20 warehouses in Foshan, China mysteriously exploded during the middle of the night. It was reported that the massive blast damaged windows and doors half a mile away, but no one was seriously injured. 

Before the explosion, companies could ship fireworks out of numerous ports, fireworks industry executives said. But after the explosion, Chinese authorities cracked down, requiring almost all pyrotechnics to be shipped out of Shanghai. And to ship fireworks, companies now needed to obtain special permits, the executives said.

Only three permits to transfer fireworks onto container ships were initially given out by Shanghai’s Maritime Safety Administration, several fireworks and shipping executives said. Of those three, Ding was the only recipient who could move his vessels through the Port of Shanghai for export to the United States. At that time, Ding was a relatively small player in the fireworks industry; most of his business was in Europe. But he did own a group of warehouses in Hunan, a southern Chinese province where fireworks have been made for more than 1,000 years. It was reported these warehouses were very basic and initially lacked paved roads. 

But in China, the permits he had obtained became a source of power for Ding. Since he held the permits to transport fireworks, most of the producers in China and the buyers in the United States needed to funnel all of their orders through Ding’s company. Huayang quickly upgraded its warehouses and bought nine barges servicing Shanghai via the Yangtze River. 

Ding’s control enabled him to sharply increase prices for transporting fireworks. Before the explosion it was estimated that the cost of shipping a container of fireworks was around $5,000. But after the explosion, Ding was charging $8,000 to $15,000 to ship a container of consumer fireworks and nearly $20,000 for the larger fireworks used at professional shows, according to officials at U.S. and Chinese companies who have relied on him for access. If U.S. companies wanted fireworks from China, they had to pay Huayang. And they did. 

Source: U.S. Census International Trade Data

But Ding wanted more control over his exports, and in order to gain that control he still needed someone to collect them in the United States. Since Ding already had a U.S. partner – JT Worldwide, a logistics company based in Chicago run by Junyuan Tsang, who was born in Shanghai. Ding had first partnered with Tsang before the explosion, and even then, he seemed to have aspirations of starting his own business in the U.S. 

For Tsang, the new business he gained via Ding benefited his business and all was going well. Huayang would load the containers on vessels in Shanghai, and Tsang would arrange for their collection at U.S. ports. By 2010, more than half of Tsang’s business was arranging pickup for Huayang’s containers. But Ding still had his mind set on gaining a larger presence in the U.S., and he was not keen on sharing. Ding wanted to buy Tsang out, he said. Tsang declined to disclose the amount offered, but said it was embarrassingly low. 

After Tsang refused his offer, Ding decided to go with another plan. He would start his own logistics company (Firstrans International), located in Carlsbad, near the ports of Los Angeles and Long Beach. Since Tsang had garnered a great deal of business from Ding’s shipments, he agreed to assist in helping Firstrans get off the ground. It was not long after that when Ding started to route nearly all his shipments through Firstrans, largely cutting out Tsang and JT Worldwide, according to data provided by U.S. Customs. In 2008, JT Worldwide was handling 100 percent of the inbound shipments from Ding, but by 2019, it was only handling about 8 percent. 

The Taicang Dragon

According to the Los Angeles Times article, around the time Ding was creating Firstrans a Danish start-up logistics company tried to enter the global fireworks business. It launched Containership Co. and planned to use a single vessel, known as the Taicang Dragon, to transport shipments from Taicang to California. Since Taicang was another port that would allow fireworks shipments, some U.S. fireworks companies and Chinese manufacturers thought this would provide a means of working around Ding and they would not get stopped by authorities in Shanghai. At first, it appeared that they would succeed, and a number of logistics companies working on behalf of U.S. importers agreed to use Containership. But these companies reportedly backed out, and one company noted it had received threats from authorities at Shanghai’s port.

In a federal bankruptcy filing, another U.S.-based company, Globe Express, said that it was told that if it were to ship via Taicung that it could forget about ever shipping through Shanghai again. According to the court filings, the company stated, “This disruption included threats against Globe Express’s staff, the active blocking of transport and unloading of Globe Express’s cargo on other carriers’ container ships at Shanghai and other actions that made it impossible for Globe Express to conduct the majority of its business in China.” 

There were multiple executives, including the APA’s Julie Heckman who told The Washington Post that Ding had personally intervened on numerous occasions and persuaded Shanghai port officials to move containers of fireworks after they had been delayed. She also stated, “Everything going through Shanghai goes through Mr. Ding and Huayang,” she said. “We have no choice. You want to get your products, that’s what you do. The industry is at the mercy of that, and nobody wants to rock the boat.” 

The anonymous letter to the Federal Maritime Commission 

Last year, the Post also wrote an expose on Ding’s control over a majority of the fireworks trade. According to the article, in early 2010, Michael Moneck, an investigator with the U.S. Federal Maritime Commission (FMC), received a peculiar complaint. In a two-page letter written in broken English, an anonymous writer alleged that Huayang and JT Worldwide had improper control of the fireworks trade and were violating shipping rules. 

Moneck was a Pacific Coast investigator for the FMC who was responsible for enforcing shipping laws. He had heard other reports about unfair trade practices, and found it odd that two companies were able to control such a large percentage of fireworks shipments, so he decided to investigate. But Moneck was unable to locate the anonymous source who wrote the initial letter, and he was met with a great deal of resistance from industry executives who were unwilling to cooperate with the investigation for fear of losing their access to Huayang and Ding’s fireworks.

The APA’s Heckman also reported that executives were not willing to take a vote on the matter because they also did not want to potentially jeopardize their access to Huayang. She said that Ding’s company had become a source of tension within the trade group with some members wanting to formally address the unfair trade practices, and others wishing to remain silent for fear of repercussions. 

Moneck said his superiors at the FMC wanted him to investigate, but warned that they had also heard reports that the Chinese government might be involved. In the Post article he was quoted as writing (in a two-page statement), “Because the allegations involved a foreign government, it was even more important to have a factual foundation to launch such an investigation.” Moneck also wrote. “I was never able to establish the necessary evidence to proceed.”

In 2016, after 27 years of service at the FMC, Moneck retired. After he left the FMC, the Commission noted that it had carefully examined the allegations and if any additional information were to be brought forward, it would examine it in conjunction with what it already had. 

The formal legal complaints didn’t stop there. On December 31st, 2018, The “Fireworks Lady & Co. LLC” filed a lawsuit against Firstrans International in the United States District Court for the Central District of California to have its allegations of unfair trade practices against Ding investigated. Judging by the court minutes provided online, it appears the case is still ongoing at this time. 

Photo credit: Shutterstock

Trade war creates further uncertainty for the fireworks industry

Ding’s companies have shipped more fireworks this year than any previous year, despite tensions that are pushing the U.S. and China closer to a full-scale trade war. One area of dispute concerns the rules with which China requires many U.S. companies to comply to access its market. Ding has leveraged the complexities of that relationship to build two powerful businesses in both China and the U.S. President Trump wants U.S. firms to be able to compete more freely with Chinese counterparts, but the pipeline Ding’s companies have established in both countries demonstrates how difficult this goal is.

While 2019 has been a good year for the fireworks industry, many are concerned about the future of their business as trade relations between the U.S. and China seem to be deteriorating. While President Trump’s showdown with Beijing has nothing to do with fireworks, the industry has been brought into the crosshairs as it shares many grievances that the U.S. has with China – trade imbalances, government subsidies and intellectual property. President Trump has repeatedly told U.S. importers that they can circumvent any additional tariffs by bringing manufacturing to the U.S., but for the fireworks industry, that is not a realistic goal. The relocation of such a concentrated industry would take years to achieve and many of the current U.S. fireworks businesses would not likely survive. 

Despite these trade tensions, at the recent G-20 Summit in Osaka, Japan, President Trump and China’s President Xi Jinping agreed to resume talks and postpone additional tariffs (including those on fireworks), which helped ease some of these concerns from U.S. importers. But, nearly two days after their agreement, China conducted a fireworks test of its own – launching missile tests over the hotly contested South China Sea. This serves as an example of just how difficult the road to a resolution could potentially be. 

Henry Byers

Henry is the head of ocean intelligence at FreightWaves. He has spent most of his career working for domestic and international 3PLs right here in the heart of Freight Alley, in Chattanooga, TN. His experience includes leadership roles within multiple 3PLs that each possessed different operating models in the domestic and international markets. Working within these varying 3PL models allowed him to see and understand the strengths and pitfalls of each, and where there is still opportunity for improvement within each industry. Most recently, he spent over 3 ½ years in international freight forwarding where he held leadership roles in business development, pricing, procurement, and analytics. During this time, he focused intently on researching, analyzing, and reporting on the air and ocean freight markets, which included him traveling abroad to meet and negotiate with ocean carriers and foreign partners. His unique experience within both the domestic and international freight markets provides him with a comprehensive understanding of how the data made available in SONAR can best be utilized by shippers, carriers, and 3PLs/4PLs to help navigate the complexities of global and domestic supply chains.