South Korea's container squeeze throws exporters into costly gridlock

HMM

09/07/2021 08:02

By Cynthia Kim
    BUSAN, July 9 (Reuters) - Unable to get a slot on a
container vessel, Lee Sang-hoon is considering using fishing
trawlers docked for repair in the South Korean port of Busan to
meet surging export orders for the car engine oil he sells to
Russia.
    "China is the black hole in this shipping crisis, all the
carriers are headed there," said Lee, owner of Dongkwang
International Co. in Busan which makes about 20 billion won 
($17.60 million) in annual revenue.
    "Those fishing boats out there could be an answer for us
because we're already one month behind schedule. That is, if we
can iron out packaging issues," Lee said, pointing out to empty
fishing trawlers visible from his Busan office.
    Booking trawlers is one way businesses in the world's
seventh-largest exporting nation are trying to overcome critical
bottlenecks caused by the pandemic, particularly a shortage of
shipping containers.
    Thousands of exporters like Dongkwang are struggling to move
their goods through Busan, the world's 7th busiest container
port, where terminals handle over 59,000 containers daily to
process about 75% of all shipping for the country.
    As global carriers race to deliver everything from furniture
to toys to U.S. and European consumers, they prioritise much
larger batches of cargo waiting to be picked up along China's
factory belt over Busan. That leaves fewer vessels in the Korean
port and a glut of them in China, cargo managers at Busan's
terminals said.
    "As many (ships) depart from China where factories are
mostly fully in operation, there's little vessel space left by
the time they stop in Busan," said Lee Eung-hyuk, a marketing
director at Busan Port Authority.
    Some do not stop in Busan at all. The number of incoming
container ships in Busan fell almost 10% through May this year
even as exports soared 23.4% from a year earlier, according to
data from the port authority, resulting in a very uneven
recovery for Asia's fourth-largest economy.
    On a real-time map of the world's major vessels at a control
tower operated by HMM Co  011200.KS , the country's biggest
container carrier, most of the red and yellow dots show its
alliance fleet concentrated around China and Singapore, not
Korea.
    
    SHIPS DIVERTED 
    While the shipping squeeze caused by the pandemic is a
global problem, the congestion at a transit hub like Busan has
made things worse for smaller Korean exporters.
     When Yantian, one of China's busiest ports, was partially
shut down in June to control virus cases, some cargo was
diverted to neighbouring ports such as Busan, worsening the
backlogs and periodic delays. urn:newsml:reuters.com:*:nL2N2NL1C9
    "It's a transit hub with so many in and outs. We need to
ship 30 containers a month but have only been able to secure
about 70% to 80% of that," said Lee at Dongkwang International,
adding that his company recently raised prices due to higher
shipping costs.
    Carriers sometimes refuse to accept bookings at all, or
force customers to accept much higher spot rates, according to
Lee.
    The pain is most acutely felt on less-popular routes smaller
firms often use, making shipping rates from Busan to Vladivostok
rise faster than to the U.S. West Coast, for example. 
    Dongkwang currently pays $2,200 per twenty-foot equivalent
units (TEU) for the route, up about six times from a year
earlier. 
    For South Korea's larger industrials like Samsung and LG,
the shipping squeeze isn't as dire because carriers tend to
prioritise orders from customers with deep pockets and a larger
volume of goods to be shipped.
    To provide relief, the government has helped finance HMM
orders for more containers and expanded cash handouts to support
affected small-to-medium exporters.
    At Busan's New Port, terminal congestion is clearly visible.
    At one of the five new terminals, outbound containers full
of goods were stacked to their vertical limits.
    Transit vessels carrying thousands of containers were being
unloaded by automated cranes, which use artificial intelligence
to find space for the steel boxes. 
    Every 10 seconds, a truck carrying a 20-foot or 40-foot
container passes through the gate, taking them to warehouses
which already seem bursting at the seams.
    "When port closures or other hiccups happen, it doesn't just
mean a detour for vessels, it leads to a huge pileup of cargo
the ship was due to pick up for exports half a world away," one
field officer said, looking at "metal mountains" at the port.
    At the retail level, businesses are either cutting
production volume or raising prices, or both.
    In June, South Korea's top tyre maker Hankook Tire &
Technology Co.  161390.KS  said it is suspending operations at
key local factories for three days due to shipping space
shortage.
    "We plan to raise prices by about 3% to 5% in Germany and
other European countries in July, and something similar is in
review for the U.S. market in August," a Hankook official said.
    The bottleneck has also affected Korean consumers with
fast-food chain Lotteria replacing french fries with cheese
sticks due to issues bringing in potatoes.
    The squeeze has created some winners, with HMM shares
jumping 12-fold from early 2020 and more growth expected.
    "Global container volume is growing. Our peak season usually
is the third quarter but as exporters are squeezed, we expect
the trend to last through the fourth quarter," said an official
at HMM.
    
($1 = 1,136.5700 won)

 (Reporting by Cynthia Kim; Editing by Sam Holmes and Raju
Gopalakrishnan)
 ((Cynthia.Kim@thomsonreuters.com; 822 3704 5655; Reuters
Messaging: cynthia.kim.thomsonreuters.com@reuters.net))