Summary

SCFI Climbs to 3,662.18 as Middle East Risks and Oil Prices Drive Costs Higher The Shanghai Containerized Freight Index (SCFI), a key global measure of container shipping rates, reached 3,662.18 in the second week of September, extending its upward streak to seven consecutive weeks. The figure was up 72.13 points from the previous week and is approaching the all-time high of 3,733.8 recorded in 2024. With geopolitical risks in the Middle East showing no signs of abating and international oil prices continuing to rise, the logistics cost burden on South Korean exporters is approaching a critical level. The primary driver of the shipping rate surge is a “double bottleneck” caused by the blockade of the Strait of Hormuz and escalating tensions around the Red Sea. As key shipping routes have been disrupted by the conflict between the United States and Iran, vessels have been rerouting around the Cape of Good Hope, adding about 30 days to transit times and more than doubling fuel costs. The situation has become even more uncertain after Saudi Arabia’s east-west oil pipeline was knocked offline by drone strikes. The home appliance industry, which depends heavily on shipping because of the size and weight of its products, has taken a direct hit. Samsung Electronics’ transportation costs totaled 1.32 trillion won ($976.65 million) in the first half of this year, up 7.8% from a year earlier, while LG Electronics spent 1.53 trillion won, an increase of 7.4%. Companies are increasingly concerned that passing higher shipping costs on to consumers through higher product prices could hurt sales. Samsung Electronics plans to focus on improving its product mix and streamlining logistics to protect profitability in the second half. Rather than passing higher costs on to consumers, the company plans to expand sales of premium products to improve margins. With prices of key components such as memory chips also rising, Samsung aims to absorb cost pressures by cutting unnecessary expenses. LG Electronics is responding by diversifying its production bases and expanding its B2B business. By strengthening local production in Brazil, India and other markets, the company is shortening the distance between production and sales destinations while reducing shipping distances and logistics costs. Baek Seung-tae, head of LG Electronics’ Home Solution Business Division, said at a recent press meeting that the company factors logistics costs into its planning and manages the risk through flexible production and long-term contracts. According to the Korea Customs Service, maritime export shipping costs to the eastern United States stood at 9.97 million won per 2 TEU last month, up 24.8% from the previous month. Freight rates to the Middle East rose for the sixth consecutive month to 8.84 million won. In contrast, rates to the European Union and China fell 9.4% and 22.4%, respectively, highlighting a sharp divergence across shipping routes. Rising logistics costs are expected to eventually translate into higher consumer prices. Some companies in the food and apparel sectors have already raised prices, citing accumulated cost pressures. Small and medium-sized exporters face a particularly difficult situation, as their limited ability to secure long-term contracts leaves them exposed to soaring freight rates, raising concerns about weakening price competitiveness. Numerous energy cargo vessels are currently stranded in the Strait of Hormuz, further limiting vessel availability. An official in the oil refining industry said that while refiners are securing alternative crude oil from North America and other regions, doing so also entails high transportation costs. Unless geopolitical tensions ease, elevated shipping rates and the resulting cost pressures on industries are expected to persist for the foreseeable future.