[No Export Ships] "No Cargo Space, Korea Pass"…13% Decrease in Ships Entering and Leaving Busan Port

Prolonged Red Sea Crisis Leads to Shortage of Idle Ships
Route Diversion Causes Congestion in Singapore and Malaysia
Limits on Additional Ship Deployment... Strategic Management Needed

[Image source=Yonhap News]

The shortage of ‘empty containers’ is a phenomenon caused by the concentration of cargo volume in specific regions. As shipping rates soar to unprecedented levels, the practice of idling vessels has emerged, creating a vicious cycle that further drives up freight rates.

The Butterfly Effect of the Red Sea Crisis

The surge in maritime freight rates triggered by the indiscriminate attacks declared by Yemeni rebels in the Red Sea is manifesting as a butterfly effect. The increased time required for each voyage has caused schedules to be delayed one after another, and to cope with this, all available spare vessels have been deployed, resulting in a shortage of empty containers. Since ordering and introducing new ships cannot be done quickly, it is difficult to promptly supply new vessels.

The regional concentration phenomenon has also worsened. As Singapore Port and Malaysia’s Port Klang were identified as safe detours around the Red Sea crisis, ships and containers have been concentrated there. According to the export-import logistics platform ‘Treadlinks,’ the average dwell time at these two ports was 1 day and 1.5 days respectively before the route detour, but after the Red Sea detour began, it doubled to 2 days and 3 days respectively. Compared to the 10% increase in dwell time at Busan Port during the same period, the anchorage duration at these ports has increased significantly. Dozens of vessels have been waiting to enter these two ports, causing congestion, while internationally, voyage times have lengthened and idle vessels have decreased.

To make matters worse, export volumes have also expanded. Ahead of the U.S. tariff hikes on China, China has been pushing out export volumes, sweeping up all vessels departing from Asia. Competition has also arisen among European and American importers to secure low-priced goods from Chinese e-commerce companies such as Ali and Temu in advance. Containers and vessels departing from Asia to the U.S. and Europe have become congested and are not returning on time. An industry insider explained, "As the number of waiting vessels increases, even emergency deployment vessels are running out," adding, "With the additional volume pushed out from China, the shipping routes have become severely tangled."

This has also affected domestic shipments. Until now, shipping to North America passed through China and Busan, but due to a lack of vessel loading space, there have been cases where vessels skip domestic ports. According to Busan Port Authority, as of May, the number of vessels entering and leaving Busan Port was 7,045, a 13% decrease compared to the same month last year.

Government Steps In but Faces Physical Limits

The Shanghai Containerized Freight Index (SCFI), which indicates the level of freight rates on international maritime routes, recorded 3,733.8 as of the 5th. This is the highest since August 2022. It has risen for 13 consecutive weeks, nearly doubling compared to the beginning of the year. The government has also taken action in response to the rising freight rates. Since the beginning of the year, the Ministry of Trade, Industry and Energy has been implementing phased response measures. Based on the SCFI’s all-time high (5,109.60), the response level is raised each time it reaches half (2,700, phase 2) and 75% (3,900, phase 3) of that level. Last month, three temporary vessels with a total capacity of 9,000 TEU (1 TEU equals one 20-foot container) were urgently deployed through the national shipping company HMM to high-demand regions such as the U.S. West and East Coasts and the Middle East. In the second half of the year, seven large new container ships (totaling 70,000 TEU) will be deployed on major routes, and a dedicated capacity of 1,685 TEU per voyage will be supplied exclusively for small and medium-sized enterprises. Currently, the government is monitoring whether the phase 3 threshold will be surpassed.

However, supply-focused policies cannot be expanded indefinitely due to the physical limits of vessel capacity. At the same time, it is impossible to ask exporting companies to reduce demand. Earlier, the Korea Fair Trade Commission imposed a total fine of 90 billion won on 23 domestic and foreign shipping companies for colluding on freight rates on routes between Korea and Southeast Asia for 15 years. However, the shipping companies filed administrative lawsuits seeking cancellation, and rulings to cancel the fines have begun to be issued since the beginning of the year. Professor Ha Heon-gu of Inha University’s Graduate School of Logistics explained, "Prices are formed entirely by market logic, and as market forces have become stronger in the meantime, the government’s room for intervention has further diminished."

Need for Exporters’ Logistics Cost Subsidies

Ultimately, the most realistic solution is to subsidize exporters’ logistics costs. The government recently accelerated the disbursement of 20.2 billion won in export vouchers for the second half of the year and plans to consider additional freight support measures based on future freight rate trends. Currently, the government selects promising export companies and provides export vouchers in the form of coupons divided into three stages according to company size. Vouchers can be issued up to 100 million won, with up to 30 million won usable for logistics costs. The government is considering increasing this logistics cost limit by more than 10 million won.

Professor Ha said, "Small-scale exporters lack the competitiveness and bargaining power to pass on freight increases to product prices," adding, "While the high won-dollar exchange rate somewhat cushions the impact of rising maritime freight rates, it is not a fundamental solution, so more sophisticated support such as export vouchers is necessary."