[No Export Ships] Freight Rates Soar Causing Shortages... Idle Ships at Lowest in 2.5 Years

Idle Ship Ratio Hits Record Low Amid Full Operation of Vessels
Export Companies Struggle Without Ships

[Image source=Pixabay]

The idle vessel ratio has dropped to its lowest level in two and a half years. This means that the shortage of ships compared to the volume of cargo to be transported has become the most severe in two and a half years. For domestic export companies with a large share of maritime transportation, concerns are rising that they may miss the rare opportunity of export growth due to soaring transportation costs and difficulties in securing ships on time.

According to French maritime market research firm Alphaliner on the 12th, the global idle vessel ratio as of early last month was 0.7% (based on container ships). It had even dropped to 0.4% the previous month. The idle vessel ratio falling to 0.4% is the first time since February 2022, when the Shanghai Containerized Freight Index (SCFI), a maritime freight indicator, rose to the 5000s and recorded an all-time high.

In 2022, there was a vicious cycle of cargo congestion → loading delays → port entry disruptions due to a surge in COVID-19 cases at major U.S. ports. The current maritime transportation situation is so severe that the shortage of ships is comparable to that time.

The phenomenon of ships being unavailable is not easily resolved. At the end of last year, the route through the Red Sea was blocked due to attacks on vessels by the Houthi Yemeni rebels, known as the 'Red Sea risk,' which extended voyage schedules by more than a week one-way. Recently, China has been increasing export volumes in advance to avoid U.S. tariffs. The U.S. has announced plans to impose additional tariffs of over 25% on China for general-purpose semiconductors, batteries, and other products.

Korean Companies Hit by Increased Volume from China

Typically, the trans-Pacific routes from Asia to North and Latin America passed through Korea from China. However, with the surge in volume from China, situations where there is no space left to load goods have become frequent. Even if shippers try to export bearing the increased costs, they face situations where they cannot reserve ships. This is also affecting exports of Korean companies.

A trading company official explained, "As freight rates rise daily, there are cases where ships are deliberately withheld to demand higher charter fees," adding, "Currently, this mainly affects irregular short-term transport contracts (spot rates), but if this situation continues, the burden on export companies could increase even when signing long-term transport contracts." An export company official said, "It is so difficult to secure ships that sometimes extra fees are demanded just before departure."

Export companies are enduring rising freight rates to meet delivery deadlines, but how long they can sustain this is uncertain. Kim Jong-hyun, a researcher at Hana Financial Management Research Institute, analyzed, "This trend contradicts the market's initial expectation of a decline in freight rates due to oversupply from new ship introductions. Empty containers have accumulated in specific regions such as the Americas and Europe, and with rising freight rates, their retrieval has become difficult, making it hard for shippers to secure ships and containers."