"Currently, there is no strategy the government can implement to respond. This makes it even more difficult."
The Shanghai Container Freight Index (SCFI), a key indicator of shipping rates, has risen for seven consecutive weeks, surpassing 3,600 for the first time in over two years. With the Strait of Hormuz blocked and the Iran-backed Houthi rebels potentially threatening the Red Sea, a critical global shipping route, the SCFI could soar to its all-time high of 5,000. South Korean exporters, already struggling with rising raw material prices due to high oil costs in the first half of the year, now face the double burden of skyrocketing logistics expenses.
According to the Shanghai Shipping Exchange (SSE), the SCFI reached 3,662 as of September 11, marking the first time it has exceeded 3,600 since July 12, 2024.
The SCFI reflects the average freight rates for container cargo on major shipping routes departing from Shanghai, a crucial hub for South Korean companies that rely heavily on maritime transport. Currently, the SCFI is approximately 200% higher than it was in February, before the outbreak of the U.S.-Iran conflict, indicating that logistics costs for South Korean companies have tripled compared to six months ago.
Industry experts cite the Houthi rebels' resurgence as the primary reason for the SCFI's surge. As the Houthis rapidly gain control over the Bab el-Mandeb Strait, the risk of blockages in the Red Sea and the Suez Canal has increased, which is reflected in rising shipping rates.
Experts are increasingly concerned that as the U.S.-Iran conflict drags on, the SCFI could rise to levels seen during the COVID-19 pandemic in January 2022, potentially leading to a fivefold increase in shipping costs for South Korean companies.
Two years ago, the SCFI also rose to 3,600 due to clashes between the Houthis and Israel and Saudi Arabia. However, U.S. airstrikes quickly led to a normalization of the situation. In contrast, the current prolonged U.S.-Iran conflict has weakened America's military capabilities in the Middle East, while the Houthis, bolstered by Iranian support, pose a greater threat of a Red Sea blockade.
Additionally, oil prices, which significantly impact shipping costs, have surpassed $110 per barrel for Dubai crude, further fueling the SCFI's upward trend. While the pandemic-induced logistics crisis was characterized by port congestion in North America and explosive cargo demand, the current situation is marked by disruptions in Middle Eastern shipping routes and high oil prices, leading to a 'route and oil crisis' driving freight rate increases.
Han Jong-gil, a professor of global logistics at Sungkyunkwan University, stated, "The Houthi blockade of the Red Sea could have effects beyond mere logistics disruptions, potentially halting Saudi oil exports. If the situation in the Middle East worsens, the SCFI could exceed 5,000 and go even higher."
A business leader expressed concern, saying, "South Korean companies, already struggling with high oil prices and rising raw material costs in the first half of the year, now face the burden of high shipping rates. Particularly, electronics companies are likely to face a 'perfect storm' due to soaring semiconductor prices, leading to anticipated price increases for goods after Chuseok."
* This article has been translated by AI.
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