South Korea container shortage causes costly logjam for exporters

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Unable to get a spot on a container ship, Lee Sang-hoon is considering using fishing boats docked for repair at the South Korean port of Busan to meet growing export orders for the auto engine oil he sells to Russia.

“China is the black hole of this shipping crisis, all shippers are heading there,” said Lee, owner of Dongkwang International in Busan, which earns about 20 billion won ($17.60 million) in annual revenue.

Thousands of exporters like Dongkwang struggle to move their goods through Busan, the world’s seventh-busiest container port, where terminals handle more than 59,000 containers a day to process about 75% of all shipments in the country.

As global carriers rush to deliver all kinds of goods, to U.S. and European consumers, they prioritize much larger cargo lots waiting to be picked up along China’s factory belt in Busan. That makes for fewer ships in the Korean port and a glut of them in China, cargo managers at Busan terminals said.

Some do not even call at Busan. The number of container ships arriving in Busan fell nearly 10% through May this year, even as exports soared 23.4% from a year earlier, according to port authority data, leading to a very uneven recovery in Asia’s fourth-largest economy.

On a real-time map of the world’s major vessels on a control tower operated by HMM, the country’s largest container carrier, most of the red and yellow dots show its alliance fleet concentrated around China and Singapore, not Korea.

Container Ship Diversion

While the pandemic-caused shipping shortage is a global problem, congestion in a transit hub like Busan has made matters worse for smaller Korean exporters.

When Yantian, one of China’s busiest ports, was partially closed in June to control virus cases, some cargo was diverted to neighboring ports such as Busan, and this worsened delays and periodic backlogs.

“It’s a transit hub with a lot of inbound and outbound. We need to ship 30 containers a month, but we have only been able to get 70% to 80%,” said Dongkwang International’s Lee, adding that his company had recently raised prices due to rising shipping costs.

The problem is most acute on less popular routes typically used by smaller companies, causing shipping rates from Busan to Vladivostok to rise faster than those on the U.S. West Coast, for example.

For South Korea’s large industrial companies, such as Samsung and LG, the shipping pressure is not as severe because carriers tend to prioritize orders from customers with deep pockets and a larger volume of goods to be transported.

To ease the situation, the government has helped finance HMM’s orders for more containers and extended cash grants to support affected small and medium-sized exporters.

Congestion at Busan Port

Transit ships carrying thousands of containers were being unloaded by automated cranes, which use artificial intelligence to find space for containers.

“When there are port closures or other setbacks, they not only mean a detour for ships, but cause a huge pile-up of cargo that the ship was supposed to pick up for export half a world away,” explains an official on the ground, as he looks at the port’s “mountains of metal.”

In the retail sector, companies are either reducing production volume or raising prices, or both.

In June, South Korea’s top tire maker Hankook Tire & Technology Co. said it would suspend operations at major local factories for three days because of a shortage of shipping space.

“We plan to raise prices by 3% to 5% in Germany and other European countries in July, and something similar is being considered for the U.S. market in August,” a Hankook official said.

“Global container volume is growing. Our peak season is usually the third quarter, but as exporters come under pressure, we expect the trend to last into the fourth quarter,” an HMM official said.

Source gCaptain

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