Shipping rates are poised to reach record highs as shipping companies enter emergency management mode. The blockade of the Red Sea and Suez Canal is expected to increase travel distances and sailing days, prompting domestic and international shipping firms to consider further slow steaming to mitigate the impact of high oil prices. The reduction in effective shipping capacity raises concerns about a global supply chain disruption.
According to the shipping industry on September 13, major domestic and international shipping companies are preparing measures in response to the potential for the Houthi rebels' actions to trigger the worst supply chain disruption in history.
A shipping industry official stated, "Unlike past instances when the Red Sea route was temporarily paralyzed, the current situation is much more serious due to simultaneous crises in the Red Sea and the Strait of Hormuz. Major shipping companies are concerned about a sequence of events: rising oil prices leading to increased bunker fuel costs, higher war risk insurance premiums, longer travel times due to detours, reduced effective capacity (the amount of cargo that can be loaded immediately), and skyrocketing shipping rates."
If high oil prices persist, shipping companies are likely to further enhance slow steaming to cut costs. Research indicates that reducing sailing speed by about 10% can save approximately 30% in fuel costs. As a result, the current average speed of container ships, around 20 knots, may drop below 15 knots, the level of bulk carriers.
This slowdown is expected to decrease the annual voyages of individual vessels, significantly impacting their profitability. To compensate, shipping companies are predicted to raise shipping rates across all routes, including those to the Americas and the Middle East, in the second half of this year. A vessel's voyage refers to the number of times and the order in which a specific ship operates on a designated route.
Gu Kyohun, president of the International Logistics Association, remarked, "The Red Sea is a crucial route for both container and tanker ships, so this crisis will exacerbate risks for oil products and European routes. From the shipping companies' perspective, the longer transport times and decreased vessel productivity due to detours around the Cape of Good Hope will inevitably lead to rising shipping rates."
The actions of the Houthi rebels have historically been a key factor in driving up shipping rates. Each time the Houthis threaten to blockade the Red Sea, the Shanghai Containerized Freight Index (SCFI) has surged to 3,500. However, U.S. intervention has often led to a quick stabilization of rates after temporary disruptions.
In contrast, this latest uprising is interpreted as a strategic offensive by Iran and the Houthis to impact global oil and logistics supply chains amid a decline in U.S. influence in the Middle East.
With the situation expected to persist, analysts predict that container shipping rates, previously seen as a critical threshold due to risks, will surpass the SCFI level of 3,500 and reach 5,000.
Currently, South Korea's real GDP growth rate stands at 1.8% for the first quarter and 0.6% for the second quarter, indicating a relatively strong performance. Notably, the nominal GDP growth rate for the second quarter increased by 9.2% compared to the previous quarter and by 26.4% year-on-year, marking the highest level in 47 years since 1979.
However, this is largely attributed to major semiconductor companies like Samsung Electronics and SK Hynix entering a super cycle, leading to increased exports and soaring profits, which some analysts view as a misleading effect. Excluding the contributions from the semiconductor and computer, electronics, and optical device manufacturing sectors, the real GDP growth rate would drop to one-third of its current level.
Consequently, there are concerns that if high oil prices and shipping rates due to the blockade of the Strait of Hormuz and the Red Sea lead to deteriorating performance for non-semiconductor companies and trigger inflation, South Korea's economy could face a worst-case scenario of stagflation (low growth and high inflation).
* This article has been translated by AI.
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