Why the Logistics Crisis from the Red Sea Causes Less Complaints from Companies...

"It cannot be said that there is no impact at all, but no one is specifically stating how export companies are being affected or how much the burden has increased. For now, we need to observe the situation a bit longer."

Shin Dalseok, director of the Korea Automobile Industry Cooperative, which has domestic small and medium-sized automobile parts companies as members, recently made this remark regarding the rising maritime freight rates due to escalating tensions around the Suez Canal area. Although global maritime transport is not in a stable condition due to the aftermath of war and natural disasters, the situation is not yet at a level of serious concern. He added, "If the situation prolongs, the cooperative will gather opinions from member companies and consider appropriate countermeasures."

Last month, armed men and a civilian commercial vessel captured by Houthi rebels were anchored off the coast near Yemen. [Photo by Yonhap News, Reuters]

Concerns have arisen that the logistics crisis might worsen as the Yemen Houthi rebels have attacked civilian ships passing through the Red Sea following the Israel-Hamas war, but so far, the impact on domestic exports appears minimal. The government recently discussed with cargo owners, logistics companies, shipping lines, and related organizations and found that the effect on import and export volumes is limited.

The Ministry of Trade, Industry and Energy explained, "Export shipments and deliveries from our country are proceeding normally, so the direct impact on cargo volume is limited at this time," adding, "Some domestic crude oil import tankers are rerouting around the Cape of Good Hope, but there is no disruption in energy imports."

The Shanghai Containerized Freight Index, a benchmark for maritime freight rates, rose about 40% in one week to around 1759 as of the 29th of last month. This is because major shipping companies are rerouting around the southern tip of Africa instead of the Suez Canal, a key global trade route, which has increased transit times.

Despite the sharp rise in freight rates, concerns about logistics are not significant because the current level is considered manageable. More than half of container ship cargo volumes are under long-term contracts with fixed freight rates, meaning short-term fluctuations do not immediately affect rates. Although freight rates have increased recently, they remain significantly lower than the peak in early last year. The Shanghai Containerized Freight Index exceeded 5000 in early last year. The current freight rate level is less than half of that peak.

Container ship of MSC
Photo by Yonhap News, EPA

Rerouting around the African continent instead of the Suez Canal delays transit times somewhat, but this is also considered tolerable. It takes about 40 to 50 days for large container ships to travel from Korea to Europe. Due to recent rebel attacks, routing via Africa adds about one to one and a half weeks.

An official from the shipping industry said, "For long-distance routes such as the US and Europe, the transit time is already long, so both cargo owners and shipping companies factor in a few extra days when making contracts. While this situation does have a negative impact, logistics itself has not stopped, so it is regarded as an acceptable variable."

The automobile, one of the largest traded items between Korea and Europe, may experience some delay in delivery to customers due to the longer transit time, but the industry views this as not a significant burden. Hyundai Glovis, which transports finished vehicles of Hyundai Motor and Kia to Europe, is also reportedly using the rerouted path. Renault Korea Motors, which mainly exports finished vehicles made in domestic factories to Europe, has less concern due to the overlap with the low season at the end and beginning of the year. The international community has also stepped up efforts to ease tensions, with a multinational force led by the US government, concerned about inflation, clearly stating its intention to protect civilian ships. Some point out that, having become somewhat accustomed to frequent supply chain disruptions caused by COVID-19 and various wars over the past two to three years, the industry is better prepared for such challenges.

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