Implications: South Korean businesses are struggling due to their proximity to China’s larger industrial operations. In a recent example, shipping costs for Korean exporters have been rising as carriers leave less room for goods stockpiled in Busan in favor of products from China. While the global economic slump and the logistical bottleneck are factors, the crisis reveals the overall risk of doing business so close to a much larger market. With ships prioritizing cargo to and from the Chinese market, the number of incoming ships to Busan fell almost 10% in the first five months of this year compared to the same period in 2020. While the government has provided some cash handouts to smaller businesses struggling in this crisis, the container shortage is likely to continue into the next year and poses a potential long-term challenge for South Korea’s export-oriented economy.
Context: Small and medium enterprises (SMEs) are in particular struggling to overcome this challenge. These firms have to compete for cargo space with not only Chinese firms but also large domestic industrial players. Despite employing 88% of the country’s total workforce, SMEs do not command the same market power as brands like Hyundai and SK to negotiate favorable terms with shipping companies. SMEs not only offer less valuable contracts for carriers, but also rely on good business ties with the very chaebols that they are competing against for cargo space. In response, 53% of surveyed SMEs called on the government to help them secure cargo ships and cover some of the transportation costs.
This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.
Korea View was edited by Yong Kwon with the help of Sean Blanco, Marina Dickson, and Jina Park. Picture from the fickr account of -EZEK