Korean shippers on alert as Red Sea tension triggers higher freight costs

[Photo by AFP / Yonhap]

Concerns mount among South Korean shippers as they face shipping delays and freight cost increases due to the rising tensions on the Red Sea.

According to Xeneta, a global ocean and air freight rate analytics platform, on Monday, freight costs could double until early next year due to the simultaneous disruption of the Suez Canal and the Panama Canal.

Some services departing from East Asia to the Americas by global maritime alliances such as The Alliance and Ocean Alliance were re-routed to the Mediterranean-Atlantic route via the Suez Canal in the first week of December.

They normally navigate through the Pacific route that passes through the Panama Canal. However, due to lower water levels in the Panama Canal, the number of ships able to transit the canal has been reduced.

According to the maritime vessel analytics firm VesselBot, the average transit time per vessel in the Panama Canal was 32.55 hours in November, the longest this year.

A route from Busan Port to Savannah Port in the state of Georgia, United States, takes 30 days via the Panama Canal. The time consumed via the Suez Canal is 40 days, and it is 50 days via the Cape of Good Hope in South Africa.

According to the Shanghai Container Freight Index (SCFI) on Friday, the freight rate index for routes from Shanghai to Europe increased by 45.4 percent compared to the previous week. This is much higher than the weekly 2.1 percent increase in the same index when the Ever Given, owned by Taiwan’s Evergreen Marine Corp., ran aground in the Suez Canal in March 2021, completely blocking the canal.

As of Friday, the SCFI index for routes from Shanghai to the Americas was also up 6.3 percent from the previous week. Around the end of the year and the beginning of the new year is typically the time when the largest number of one-year shipping contracts are signed, leading to a projection for an increase in the overall logistics cost burden.

“Currently, the rates for priority and short-term cargo to Europe have more than quadrupled,” said an industry insider. “Small and medium-sized enterprises with frequent short-term contracts are likely to be hit harder than large companies with high volumes and long-term contracts.”