Soaring Airfare Puts Exports at Risk of Suspension... Logistics Crisis Shows No Sign of Improvement Next Year

Rapid Growth in IT Product Demand
Increase in International Transactions of Vaccines
Monitoring Transport Cost Trends of CMO Companies
Export Giants' Logistics Costs Expected to Rise About 24% in Second Half

#Domestic company A, which exports cosmetics to the United States and Europe, is struggling to find ships to send their products. Freight rates have been soaring day by day ahead of the year-end Black Friday. They must complete delivery by the end of next month at the latest to meet the peak season demand, but due to a shortage of ships, prices at the site have become exorbitant. A representative from company A said, "Freight rates to North America are said to be in the $6,000 range, but spot rates on-site are approaching $10,000. Even then, it is not easy to secure a ship."

#Company B, which exports electronic equipment, is in the same situation. As shipping freight rates soared, they turned to air transport as an alternative, but recently, air freight rates have also risen sharply, gradually reducing profit margins. If air freight exceeds $10 per kg, they are considering suspending exports for the time being. A representative from company B lamented, "During the economic recovery period, if we resume exports, we fear losing overseas buyers, so we are reluctantly continuing deliveries to maintain relationships."

With sea freight followed by air freight soaring, the burden on export companies has greatly increased. The logistics crisis triggered by COVID-19 continues throughout the year, and logistics costs have risen sharply and remain difficult to secure, so domestic export companies are facing a bleak outlook ahead of the year-end peak season.

Soaring Air Freight Rates, Exporters Want to Cry

Exports and imports using airplanes mainly consist of IT items such as semiconductors and computers, and pharmaceuticals. Approximately one-third of domestic exports are by air, with the remaining two-thirds by sea. The share of air transport has been rapidly increasing since last year. Recently, global demand for semiconductors has increased, and demand for IT products that account for a large portion of our exports, such as organic light-emitting diodes (OLED) and large-capacity storage devices (SSD), has rapidly grown worldwide.

Due to COVID-19, international transactions using airplanes for vaccines and pharmaceuticals have also increased significantly. A representative from a large domestic pharmaceutical contract manufacturing organization (CMO) said, "Usually, the contracting party bearing the freight cost is the client with whom we have a contract, so the rise in transportation costs is not directly borne by us," but added, "However, since pharmaceuticals mainly use air transport for fast and safe delivery, we are monitoring whether there will be any mid- to long-term impact."

Logistics Crisis Without Solutions... Will It Stabilize After Next Year?

The problem is that the outlook is not optimistic. Although the government, shipping companies, and airlines are working together to increase cargo transport supply, it is still insufficient. According to recent data released by the Federation of Korean Industries, large export companies expect logistics costs to rise by about 31% in the first half of this year compared to the same period last year, and to increase by about 24% in the second half. More than nine out of ten export companies expect logistics costs to stabilize only after next year. In particular, 70% are looking at the second half of next year or later, indicating that the logistics crisis is expected to continue for a long time.

An industry insider said, "For large companies, it is known that long-term contracts usually prevent immediate burden from logistics cost increases, but about one-third of shipments are conducted on a short-term basis," adding, "The immediate increase in costs, delays in delivery due to failure to secure transportation means, and consequential damages such as additional costs and loss of clients are also significant."

Although the government has formed an emergency response task force (TF) for export-import logistics and is implementing various support measures, there are criticisms that the effectiveness of these measures is limited because the problem is intricately linked to domestic and international airports and ports. Congestion at overseas ports and inland transportation in places like the United States and Europe is not easily resolved, and it is difficult to secure warehouses or logistics centers in time.

Meanwhile, the government held a meeting of the export-import logistics emergency response task force (TF) yesterday and decided to implement additional support measures, including providing overseas logistics hubs and supporting local inland transportation, to help export companies struggling with the logistics crisis.

First, to assist export companies facing difficulties with local logistics, Busan Port Authority and KOTRA will establish joint logistics centers in locations with high overseas logistics demand, where cargo can be stored at 10-20% lower costs. The Rotterdam center in the Netherlands, covering 15,000 square meters, will open in January next year, and centers in Barcelona, Spain, and Java, Indonesia, will open in the first half of next year.

Existing overseas joint logistics centers will receive increased budget support next year. Additionally, a project will be promoted to connect sea transport and local logistics such as trucks for small and medium-sized shippers struggling to secure inland transportation means.

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