Container compression in South Korea plunges exporters into costly deadlock
BUSAN, South Korea – Unable to secure a place on a container ship, Lee Sang-hoon plans to use fishing trawlers moored for repairs in the South Korean port of Busan to meet growing export orders for car engine oil that he sells to Russia.
“China is the black hole in this shipping crisis, all carriers are heading there,” said Lee, owner of Dongkwang International Co. in Busan, which makes around 20 billion won ($ 17.60 million ) annual income.
“Those fishing boats over there could be an answer for us because we are already a month behind. In other words, if we can solve the packaging problems, ”said Lee, pointing to the empty fishing trawlers visible from his Busan office.
Reserving trawlers is a way for companies in the world’s seventh largest exporting country to try to overcome critical bottlenecks caused by the pandemic, especially the shortage of shipping containers.
Thousands of exporters like Dongkwang struggle to move their goods through Busan, the 7th busiest container port in the world, where the terminals handle more than 59,000 containers per day to handle around 75% of all shipments for the country.
As global carriers rush to deliver everything from furniture to toys to American and European consumers, they are prioritizing much larger batches of goods waiting to be picked up along the Chinese factory belt at- above Busan. That leaves fewer ships in the Korean port and a glut in China, cargo managers at Busan terminals said.
“As many (ships) depart from China where the factories are mostly fully operational, there is little space left for the ships by the time they stop in Busan,” said Lee Eung-hyuk, marketing director at Busan Port Authority.
Some don’t stop in Busan at all. The number of inbound container ships to Busan fell nearly 10% through May of this year, even as exports climbed 23.4% from the previous year, according to data from the port authority, resulting in a very uneven recovery for Asia’s fourth-largest economy.
On a real-time map of the world’s major ships in a control tower operated by HMM Co, the country’s largest container ship, most of the red and yellow dots show its Alliance fleet concentrated around China and Singapore, not South Korea.
While the compression of shipments caused by the pandemic is a global problem, congestion at a transit hub like Busan has made matters worse for small Korean exporters.
When Yantian, one of China’s busiest ports, was partially closed in June to control cases of the virus, some cargo was diverted to nearby ports such as Busan, compounding periodic backlogs and delays.
“It’s a transit hub with so many entrances and exits. We have to ship 30 containers per month, but we were only able to guarantee about 70-80%, ”said Lee of Dongkwang International, adding that his company had recently increased prices due to rising costs. shipping.
Carriers sometimes refuse to accept bookings at all or force customers to accept much higher cash rates, according to Lee.
The pain is more acute on the less popular routes that small businesses often use, causing shipping rates from Busan to Vladivostok to rise faster than to the west coast of the United States, for example.
Dongkwang currently pays $ 2,200 per twenty foot equivalent unit (TEU) for the route, about six times more than a year earlier.
For large South Korean manufacturers like Samsung and LG, the squeeze on shipments is not as bad as carriers tend to prioritize orders from customers with deep pockets and a higher volume of goods to ship.
To provide assistance, the government has helped fund HMM’s orders for more containers and additional cash distributions to support affected small and medium exporters.
At the new port of Busan, terminal congestion is clearly visible.
In one of the five new terminals, outgoing containers full of goods were stacked up to their vertical limits.
Transit ships carrying thousands of containers were unloaded by automated cranes, which use artificial intelligence to find space for the steel crates.
Every 10 seconds, a truck carrying a 20ft or 40ft container drives through the gate, taking them to warehouses that already seem to be packed.
“When port closures or other issues arise, it doesn’t just mean a detour for the ships, it leads to a huge pile of cargo that the ship had to pick up for exports halfway around the world,” he said. said a field agent, looking at “metal mountains” at the port.
At the retail level, firms reduce the volume of production or increase prices, or both.
In June, South Korea’s leading tire maker Hankook Tire & Technology Co. said it was suspending operations at major local factories for three days due to lack of shipping space.
“We plan to increase prices by around 3% to 5% in Germany and other European countries in July, and something similar is under consideration for the US market in August,” an official said. by Hankook.
The bottleneck has also affected Korean consumers, with fast food chain Lotteria replacing French fries with cheese sticks due to potato import issues.
The squeeze has created winners as HMM shares have increased 12-fold from early 2020 and more growth is expected.
“The global volume of containers is increasing. Our peak season is usually the third quarter, but as exporters are in a hurry, we expect the trend to continue until the fourth quarter, ”said an official from HMM.
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