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  • Skyrocketing Maritime Freight Fare
    2021-05-31 hit 482

    Skyrocketing Maritime Freight Fare


    Export is recovering. Korea’s export increased 16.5% year-on-year between January and March of 2021. Although the number of confirmed cases is still on the rise amidst the vaccine rollout, the real economy is displaying signs of recovery. China’s economy already returned to pre-COVID-19 levels. Similarly, the U.S. is also quickly returning to pre-COVID-19 levels, and President Biden’s American Rescue Plan, the 1.9 trillion USD stimulus package, is only expected to accelerate the process.

     

    And yet, while export is growing, there are voices of concern and hope all around the world. The recovery trajectory gives reasons for hope, but the overall movement of goods around the world is remains hindered by many stumbling blocks. Maritime transport and logistics bore the brunt of the COVID-19 pandemic, leading to an all-time high maritime freight charge across the globe.

     

    There are several drivers behind the skyrocketing fare. The shipping industry was already facing a prolonged downturn and did not proactively place orders for new vessels. Therefore, when the demand for freight space escalated following a momentary decrease during the earlier days of the pandemic, the industry could not keep up with the demand. Another reason is the processes at the port and inland transport were delayed once COVID-19 cases emerged at logistics centers. Meanwhile, empty containers were not retrieved, which drove up the fare even further. The cold spell that hit the southern part of the U.S. in February and the Ever Given blocking the Suez Canal only added to the global maritime traffic congestion.

     

    Freight fare showed a three-fold increase compared to the past year, and in the case of South America, a seven-fold hike (i.e. by May 2021, showed a four-fold hike and eight-fold increase, respectively). High value-added products from established companies tend to be light, small, short, and thin; this means they can be transported via air freight. However, for small & medium sized exporters, whose products are not as compact, the maritime fare hike can be a huge burden. There are reports of exporters hesitant to send the goods because of logistics costs even when they receive an order. In response to this crisis, the Korean government is running the Comprehensive Response Center for Export & Import Logistics, an all-of-government center, to monitor the situation and to proactively add large container space. These strategies solved part of the problem, but the high fare remains a major challenge for SMEs.

     

    Along with the resources provided by the Korean government and relevant organizations, small-and-medium sized exporters too must give an all-out effort to cut down the logistics cost. Transforming the traditionally upheld incoterms or further improving logistics procedures would be a much-needed change. If the fare is fixed at a high rate and with huge volatility, changing the incoterms to a more favorable one for the consigner as opposed to the buyer is another option. Or, small-and-medium sized exporters can also make use of 3PL (third party logistics)’s know-how. For new exporters with comparatively small export volume, they can utilize a joint distribution center to negotiate the fare cost. They must attempt to cut down customs clearance charges by negotiating commission fees as if they are at the end of their rope. The Korean government and public organizations are introducing various resources to reduce the burden of logistics costs for SMEs. If SMEs leverage these resources and seek advice or receive consultation services from experts and certified organizations, then it will minimize hiccups in the trial-and-error process.

     

    The shipping industry and the maritime freight fare are deeply interconnected with the global economic trends, and variables within the sector can create a cycle of its own. However, when the global economy entered the age of New Normal following the 2008 financial crisis, the shipping industry faced a prolonged downturn, and shipping companies utilized economic forecast models to minimize the damage and adopted conservative management strategies. Because of these reasons, freight fare will not be dropping anytime soon. Furthermore, the fundamental cause of the hike is unprecedented and is not likely to be quickly resolved. Therefore, Korean SMEs will have to navigate through two new constants, high freight fare and logistics cost, for the foreseeable future and must find solutions to tackle this issue.

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