Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Hormuz disruption presents hardship rather than benefit for shipping firms
Cargo ships near the Strait of Hormuz are seen from the United Arab Emirates, March 11. Reuters-Yonhap
By Park Jae-hyuk
Uncertainty remains over Iran's opening of strait to 'non-hostile' ships
Korean shipping companies say they are suffering heavy losses from rising costs following disruptions in the Strait of Hormuz, rather than seeing gains from increased freight rates.
Struggling to pass the added costs on to customers, the companies are urging the government to provide financial support and effective policy measures.
“Because shipping firms sign contracts before launching voyages, it takes time to reflect higher fuel prices and insurance premiums,” an official from the Korea Shipowners’ Association said Wednesday.
“Although they can ask customers to pay surcharges after shipment, small and medium-sized shipping firms find it difficult to make such requests while under the government’s close scrutiny on exporters’ situations.”
In earlier stages of the conflict in Iran, the shipping industry was initially regarded as a potential beneficiary from the crisis, as disruptions to sea routes typically drive up freight rates.
The Shanghai Containerized Freight Index for the Middle East indeed soared to 3,324 as of Friday, marking a 150.5 percent increase from Feb. 27, the day before the U.S.-Israeli strikes began on Iran.
On March 4, Hyundai Glovis CEO Lee Kyoo-bok, whose company owns crude and gas carriers, said the crisis could become an opportunity to boost profitability.
Major global shipping companies such as CMA CGM have already informed clients of emergency conflict surcharges of up to $4,000 per container. HMM also decided to levy a $1,000 charge per container to detour affected routes.
Sinokor, a Korean shipping company that had aggressively purchased crude carriers before the war, has reportedly earned $500,000 a day by chartering its crude carriers to petroleum firms using them for floating storage.
In contrast, smaller shipping firms have been burdened by soaring costs due to weaker bargaining power.
“The price of ship fuel has doubled to $1,000 per ton, now accounting for 30 percent of transportation costs,” the association official said. “Ships stranded in the strait are suffering losses from maintenance costs and crew provisions.”
According to the government, 26 Korean ships are currently stranded near the strait. Among them are vessels operated by seven small and medium-sized firms earning less than 100 billion won ($67 million) in annual revenue, including Taikun Shipping, Saehan Marine and Jeil International.
Around 180 Korean sailors aboard the 26 ships and other international vessels stranded in the area are reportedly safe, with access to daily necessities and permission to disembark.
“Shipping firms are seeking government financial support, but there have been no effective countermeasures so far,” the association official said.
The Korea Shipping Association, which represents coastal shipowners, also asked the government Tuesday to impose a price cap on ship diesel, as it did for land transportation fuel.
The Ministry of Oceans and Fisheries is considering asking the Ministry of Planning and Budget to allocate part of the proposed extra budget to subsidize tax-free fuel for fishing and coastal passenger transport.
New Oceans Minister Hwang Jong-woo said Wednesday that the ministry will support shipping companies and fishers affected by the Middle East crisis and protect the safety of sailors stuck in the Persian Gulf area.
That same day, lawmakers from the National Assembly’s Foreign Affairs and Unification Committee said they had asked Iranian Ambassador Saeed Koozechi to ensure freedom of international transit through the strait as soon as possible.
Iran has declared that the strait remains open to non-hostile vessels, sending a letter to the International Maritime Organization stating that ships from the United States, Israel and their allies are not permitted to use the route.
However, it remains uncertain whether Korean vessels can safely transit the strait.
Some international companies have reportedly paid Iran $2 million per ship to secure passage, although the Ministry of Trade, Industry and Resources said this has not been officially confirmed from Tehran through diplomatic channels.