Freight cost hits highest due to Omicron, threatening export companies

It is concerned that the 'Omicron' variant can cause logistic disruptions during the peak season at the end of the year. As the Omicron variant has slowdown major ports and global supply again, shipping and air freight rates hit record highs.

According to the industry on the 10th, the Shanghai Containerized Freight Index (SCFI) increased by 125.09 points to 4727.06 points last week. It is the first time that the SCFI has exceeded 4700 points since the related statistics were compiled in October 2009. Compared to October last year (1438.2 points), it has more than tripled in a year.

The SCFI has fallen to 4,535.92 points for four consecutive weeks since it hit the highest point (4647.60 points) on October 8. The SCFI, which has not changed for a while, soared last week when the Omicron variant appeared. In particular, freight rates to the West Americas, the important export route of major countries, including Korea, increased by USD 289 last week to USD 7,019, hitting an all-time high.

 

According to the Korea Ocean Business Corporation, the number of ships waiting for unloading near LA and Long Beach ports, main ports on the west coast of North America, is about 80, taking about two weeks to berth. The congestion has continued due to the lockdown of the Suez Canal early this year, and the situation has worsened due to the Omicron variant.

As export companies, which are suffering from freight charge hikes and freight space shortages, have begun to use air shipment, the air freight rates are also increasing.

According to the TAC Index, a global air freight rate index, average freight fares for Hong Kong-North America routes were USD 11.54 per kilogram last month, the highest ever since statistics were compiled in 2015. The average monthly freight rate for Hong Kong-North America routes rose to USD 7.89 in June, USD 7.90 in July, USD 8.64 in August, USD 9.74 in September, and USD 9.94 in October.

Due to the surge in freight rate, export companies are worried. This is because the year-end season is the biggest shopping season, including Christmas, but the profitability will inevitably deteriorate due to high fares even if they secure the freight spaces.

As small and medium-sized export companies generally sign short-term contracts unlike large companies that sign long-term contracts at the fixed rate, the burden of freight fares is increasing. In particular, companies that mainly produce domestically rather than local production are being hit harder.

An industry official said, "Freight rates had maintained a stable rate but turned to increase again after the spread of Omicron variant. As the export volume increases at the end of the year, it became difficult to get ship spaces and hard to make a profit due to freight rate hike.