"'Record High' Maritime Freight Rates Likely to Persist Long-Term... Need to Reduce Logistics Costs"

[Asia Economy Reporter Jeong Hyunjin] There is a possibility that the soaring maritime freight rates will continue for a long time, prompting export companies to actively try various logistics cost reduction measures.

According to the report titled 'Recent Causes of Maritime Freight Rate Increases and Logistics Cost Reduction Measures for Small and Medium Enterprises' released on the 23rd by the Korea International Trade Association's International Trade and Commerce Research Institute, as of the 16th of this month, the Shanghai Containerized Freight Index (SCFI) recorded 2,833, a 241.3% increase compared to the same week last year. This continues to be at an all-time high. The route-specific freight indices of the Shanghai Shipping Exchange (SSE) began rising mainly on North American routes after hitting a low point in May last year, and since November of the same year, freight rates on all major routes including Europe and South America surged sharply.

The Korea International Trade Association analyzed that the rise in maritime freight rates is due to shipping companies' conservative container ship operations maintained since the 2008 global financial crisis, compounded by the COVID-19 crisis. Because shipping companies did not actively place new ship orders due to the long-standing downturn in the shipping industry, supply could not keep up with the rapidly increased demand for shipping capacity following the temporary contraction caused by COVID-19.

The association forecasted that the high freight rate situation may be prolonged due to port congestion caused by COVID-19, instability in the supply and demand of empty containers, and increased demand from retaliatory consumption. It stated, "In the complex structure of international logistics, port congestion and delays in empty container retrieval continued due to COVID-19 infections among port workers and truck drivers," adding, "The recent grounding of the Ever Given in the Suez Canal last month is also feared to contribute to reversing the briefly declining freight rates in early March back to an upward trend."

To prepare for the prolonged high freight rate situation, the association suggested changing Incoterms trading conditions as a logistics cost reduction measure that Korean companies can utilize. Incoterms are international rules that deal with the obligations, costs, and risks between exporters and importers in trade transactions. The association explained, "By changing shipping terms to receive refunds on tariffs and taxes or increasing the number of loading ports to reduce domestic land transportation costs, export companies can reduce various costs."

Additionally, the association mentioned that cost reduction can be achieved by using logistics specialized companies tailored to specific product categories, cost savings through joint logistics centers or collective freight purchasing by the government and export-related organizations, and negotiating with customs corporations for discounts on customs clearance fees.

Cho Sung-dae, a research fellow at the Korea International Trade Association, said, "Although the shipping industry is increasing new container ship orders to resolve the increased cargo volume, it will be difficult for shipping capacity to recover in the near term," adding, "Our companies need to accept the high freight rate situation as the new standard and make active efforts to cope with it."