Surging international oil prices and freight rates in the wake of the Middle East war have sharply increased logistics costs for exporters, but many firms have been unable to pass those costs on to product prices, leaving them struggling with worsening profitability.
According to the "Survey on Export Logistics Difficulties from Oil Price Volatility in the First Half" released by the Korea International Trade Association (KITA) on the 26th, 83.1% (182 companies) of 219 domestic export manufacturers cited "rising freight rates" as their biggest difficulty.
The Shanghai Containerized Freight Index (SCFI) climbed to around 3,062 as of the 24th, 2.3 times the level before the Middle East war and about 1.4 times higher than last year's peak (around 2,240).
Next, 56.6% (124 companies) of respondents pointed to "rising costs of raw materials and parts procurement" as a major difficulty, indicating that firms are being squeezed simultaneously by logistics costs and input cost burdens.
Amid this situation, most exporters have been absorbing the increased costs themselves, unable to reflect the rise in freight rates and input costs in their sales prices. Some 78.1% (171 companies) of respondents said they pass on less than 20% of the increased costs to product prices. Companies unable to pass on any of the costs (a pass-through rate of 0%) reached 32.9% (72 companies). By contrast, only 5.5% (12 companies) said they pass on 80% or more of the increased costs to prices.
The deterioration in corporate profitability is also progressing rapidly. Some 85.9% (188 companies) of respondents said their operating margins declined in the first half of this year. In particular, 39.3% (86 companies) said their operating margins fell by 3 to 5 percentage points. Considering that the average operating margin of small and medium-sized manufacturers last year was 4.6%, the decline in profitability felt on the ground is interpreted as considerable.
The report analyzed that although oil prices, which surged immediately after the war, have recently been on a downward trend, the logistics cost burden will continue for some time as the first-half oil price increases are being deferred and billed through the third quarter. Following July's increases in the bunker adjustment factor (BAF) and low sulfur surcharge (LSS) on near-sea routes, a hike in domestic container inland transport costs is also scheduled for August under the supplementary provisions of the freight truck safe rate notice.
"As the Middle East war intensifies again, delays in resolving logistics congestion are being prolonged, and oil price increases across all export transport sectors—shipping, air, and inland—are being passed on to exporters with a time lag, raising concerns about the downward rigidity of logistics costs," said Han Jae-wan, head of KITA's Logistics Service Division. "We will cooperate with relevant ministries and related organizations to devise measures to ease the logistics cost burden on small and medium-sized exporters."
