Amid rising shipping rates and intense competition with China for shipping space, South Korean paper exporters are facing increasing logistical challenges that threaten their profitability despite growing international demand.
Consequently, industry representatives are voicing concerns about the potential impact on their businesses. “Ships passing through China to enter South Korea sometimes skip the country entirely because there’s no space to load goods. Although demand in the United States and other countries is increasing, it’s worrying that profitability won’t improve even if exports rise due to higher shipping costs,” said a representative from the paper export industry.
With the prolonged drought affecting the Panama Canal and disruptions from the Houthi rebels in the Red Sea region causing shipping rates to rise, the burden on S. Korean mid-sized and small export companies using maritime logistics is increasing as China’s strategy of offloading excess production increases.
Particularly, the paper industry, which is focusing on exporting to markets like the U.S. and Europe where consumer spending power is relatively recovering amid domestic market slumps, is directly hit by competition with China for shipping space.
According to the Korea International Trade Association (KITA), the S. Korea Container Shipping Index (KCCI) from Busan rose 3.5 times from an average of 1,359 last year to 4,778 as of July 1. The Shanghai Containerized Freight Index (SCFI), which tracks shipping rates from Shanghai to Rotterdam, Europe’s largest port, has risen nearly 3.7 times to 7,106.
Currently, with only one national shipping company, HMM, and most foreign shipping companies on the China-U.S. and China-Europe routes filling up their loads in China, it is becoming difficult for S. Korean paper companies to secure shipping space. Moreover, unlike large companies that sign long-term contracts, mid-sized and small companies are trading at current market rates, making conditions more unfavorable.
China, facing reduced domestic consumption but increased production, recorded an industrial inventory level of 16.7 trillion yuan ($2.3 trillion) in May, the highest ever. As a result, they are pushing excess quantities overseas at low prices. In fact, China’s export unit price in October last year fell nearly 10% compared to the same month the previous year, hitting an all-time low, while export volumes increased by nearly 20% earlier this year.
Additionally, the industry reports that Mexico, which has not signed a Free Trade Agreement (FTA) with S. Korea, recently included paper along with steel in the list of items subject to a maximum temporary tariff of 25%, increasing the burden.
An industry representative said, “This measure is seen as targeting Chinese companies entering the U.S. via Mexico. However, since South Korea is also affected, and Mexico itself is a significant market, it seems necessary to either sign an FTA or come up with countermeasures.”
According to the Korea Paper Association, the export value of paper and cardboard in the first half of this year (January to June) was about $1.2 billion, nearly 5% less than the same period last year. However, exports to the largest market, the U.S., increased by 27% to $260 million during this period.
Furthermore, Hansol Paper and Moorim P&P, the top two paper companies in S. Korea, generate about half of their total sales from exports, and the favorable export situation could lead to increased logistics costs due to rising shipping rates.
The industry outlook remains cautious amid the ongoing challenges. An industry representative said, “Some analysts suggest that China is proactively pushing out volumes in anticipation of the possible re-election of the Trump administration. The competition in paper exports between Korea and China, both facing unfavorable domestic conditions, is likely to continue for the time being.”
