Soaring freight costs and shipping shortage squeeze Korean exporters

A plastic manufacturing plant in Hwaseong, Gyeonggi Province. Small and mid-sized exporters in South Korea are struggling from soaring shipping costs. [Photo by Han Jae-beom]

Expensive shipping rates are hardening smaller South Korean exporters as they struggle with reduced working hours, minimum wage hikes and rising raw material prices.

“The price for a 40-feet container to New York used to be $3,000, but now we have been quoted $20,000,” said chief executive of a rubber product manufacturer based in Gangwon Province. In the past, exports accounted for 80 percent of the company’s sales but now the share has fallen to around 25 percent as it has been lost out to Chinese rivals offering cheaper prices when it is struggling from minimum wage increases. Its exports began rebounding last year but the surging shipping rates are putting the business at another risk.

A business owner of a machine part maker in Daejeon also said he is now being quoted $6,300 to ship a 40-feet container to the Middle East although the usual price was $700 before the Covid-19 pandemic.

The Shanghai Containerized Freight Index (SCFI), a widely cited metric on market freight quotation, keeps breaking its records. The index jumped 90.86 from the previous week to 3,703.93 on June 11, the highest since the data was made available in October 2009.

The shipping crisis has hit small and mid-sized companies even harder. According to a survey done by Korea Federation of Small and Medium Business (KBIZ) on 519 SMEs from June 2 to 11, 73.4 percent said they are facing difficulties in overseas trading.

The soaring freight costs also undermine their bottom lines as shipping costs account for 8 percent on average in total import value and 6.8 percent in export value. The KBIZ poll found that 26 percent of the SMEs surveyed saw their operating profit cut by more than 10 percent due to the surging freight rates.

Shipping agony also affects the big.

The country’s largest tire maker Hankook Tire & Technology Co. temporarily closed down its factories to adjust output as it cannot find room in containers. The company announced in its filing on Wednesday that it would suspend production at its Daejeon and Geumsan plants from Thursday to Saturday. The shutdown is expected to lead to an output reduction of 100,000 to 150,000 units per day.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]