Urgent Air Transport of Chinese Car Parts... The Issue Is Rising Logistics Costs

[Asia Economy Reporter Kim Hyewon] A Hyundai-Kia Motors supplier located in Shandong Province, China, has resumed production early and simultaneously started urgent air transport of parts. While this brings the normalization of Hyundai-Kia's domestic factories, which have faced production disruptions due to the novel coronavirus infection (Wuhan pneumonia) outbreak, one step closer, the total logistics cost of air transport, including tariffs, is up to 30 times higher than sea freight, increasing the cost burden. Some voices suggest that to prevent this from leading to a final vehicle price increase, temporary tax benefits or financial support for suppliers should be provided to suppress factors driving up parts unit costs.

According to the industry on the 10th, Hyundai-Kia parts suppliers such as Euracorporation and Kyungshin, located in Shandong Province, China, have received local government approval and plan to airlift some quantities of 'wiring harnesses' produced since last week starting today. The quantity produced by THN departs from Weihai Airport and arrives at Incheon Airport at 12:30 PM, while Kyungshin's shipment arrives from Qingdao Airport to Incheon at 7 PM.

Thus, Hyundai-Kia plans to operate domestic factories flexibly for the time being by adjusting production volumes based on parts inventory. A Hyundai-Kia official stated, "We plan to receive some quantities by air and sea," adding, "The timing of domestic factory operations depends on monitoring the local parts supply situation in China."

Before the novel coronavirus crisis, sea freight, which typically takes about 6 to 7 days from production to delivery at the finished vehicle factory for the same product logistics, was used. Especially for wiring harnesses, which require high labor costs, 87% are procured only from China, but due to their large volume and weight, air transport costs are difficult for importers to bear.

Currently, sea freight rates from major ports in Shandong Province, China, to Incheon are reportedly less than $100 per 1 TEU (one 20-foot container). An industry insider explained, "When adding air freight and tariffs to parts prices, the difference between sea and air freight can be nearly 30 times."

As the novel coronavirus crisis prolongs, there are calls for policy support to prepare for frequent urgent air transport of Chinese parts. An automotive industry official said, "Considering the urgency of the production cliff facing the automotive industry, support such as imposing tariffs equivalent to sea freight on Chinese parts airlifted locally should follow," adding, "Basically, the suppliers bringing in parts are small and medium-sized subcontractors delivering to the original equipment manufacturer, and if the novel coronavirus crisis prolongs, preserving logistics costs becomes inevitable."

This content was produced with the assistance of AI translation services.