The Middle East war that began in late February has spread from the Strait of Hormuz to the Red Sea, and shipping disruptions are now inflicting real damage on South Korea's small and mid-sized companies. Carriers are increasingly avoiding routes to and from Saudi Arabia as they reassess the risk, and insurance premiums are climbing. If the situation drags on, smaller companies that depend heavily on Middle East exports could take a direct hit.
Complaints and damage reports filed with the Ministry of SMEs and Startups over the Middle East war totaled 545 cases for "other" Middle Eastern countries, including Saudi Arabia, as of the 21st of this month, the ministry said on the 26th. That is up 12 cases in about a month from 533 on the 16th of last month, just before Yemen's Houthi rebels declared a naval blockade on Saudi-linked vessels in the Bab el-Mandeb Strait at the mouth of the Red Sea on the 20th. Over the same period, three cases were filed related to Iran and none related to Israel.
The "other" category covers Middle Eastern countries beyond Saudi Arabia and the United Arab Emirates, so the figure cannot be read as damage from Saudi Arabia alone. Still, the ministry said logistics damage tied to Saudi Arabia's Red Sea routes is actually occurring.
An official at a domestic shipping company said carriers are clearly reluctant to send vessels toward Saudi Arabia, adding that it has become difficult both to get ships out of and into the country.
The damage is surfacing first at smaller companies with little bargaining power against carriers. The head of an Incheon-based small company that exports plywood to Saudi Arabia said finding a cargo ship bound for the country has recently become nearly impossible. "Saudi Arabia accounts for 35% of our total revenue, and as securing ships has grown harder, inventory is piling up in our warehouse," the executive said.
"In the Middle East market, you can take an order and finish production and still be unable to ship if you cannot find a vessel," said Jang Chul-soo, chairman of the Korea Plastic Industry Cooperative. "If logistics do not normalize, this is not simply a matter of rising freight costs — inventory and cash flow can be affected as well."
Small auto parts makers, which held up in the first half of this year as exports to alternative markets such as Saudi Arabia grew even as shipments to the UAE fell because of the Middle East conflict, are also on edge. An official at the Korea Automobile & Mobility Association said no cases of logistics damage in the Red Sea have been reported yet, but warned that small auto parts companies would suffer a heavy blow if the Saudi route is blocked.
Earnings at smaller Middle East exporters are already sliding. Small and mid-sized companies exported $1.4 billion to the Middle East in the second quarter of this year, down 9.7% from a year earlier, according to the National Data Office. Exports rose 9.9%, 16.2% and 12.6% in the second, third and fourth quarters of last year, respectively, before turning down 16.1% in the first quarter of this year, marking two straight quarters of decline.
There is also unease that if Houthi threats widen from Saudi-bound vessels to shipping across the Red Sea, routes to Europe could be cut off as well. A closure of the Red Sea corridor would force ships to detour around the Cape of Good Hope at the southern tip of Africa instead of using the Suez Canal, likely driving logistics costs sharply higher.
An official at the Ministry of SMEs and Startups said the ministry is continuously monitoring damage from the Red Sea route disruption, and that it will prepare measures as it did during the Strait of Hormuz blockade if the scale of the damage becomes clearer and larger.
