Korean tire manufacturers fret rising ocean freight rates

Seoul, South Korea – The Korean Times is reporting that rising ocean freight rates pose a growing threat to Korea’s top three tire manufacturers – Hankook Tire, Kumho Tire and Nexen Tire – as their business structure relies heavily on exports, according to data and industry officials.

Amplifying jitters, the global freight index shows few signs of stabilizing amid ongoing geopolitical tensions near the Red Sea and in the Middle East. The Shanghai Containerized Freight Index (SCFI), a key barometer of container freight rates worldwide, soared to over 2,700 for the first time since September 2022.

The tire companies are vulnerable to external uncertainties, primarily because they generate a significant portion of their sales from overseas. According to a quarterly earnings report from Nexen Tire, expenditures on freight costs rose to 63.7 billion won ($46.2 million) in the first quarter, up 16 percent year-on-year. Similarly, Kumho Tire experienced a three percent surge in freight costs, reaching 77.5 billion won during the same period.

Of particular concern is that it remains unclear when the external risks will subside, since Korean tire makers derive the majority of their revenues from markets outside their home country.

Earlier, Kumho Tire reported first-quarter sales of 1.04 trillion won. More than 60 percent of the figure was generated from overseas markets. As a result, the rising freight burden comes as a major risk factor for the tire maker.

This is feared to temporarily halt the earnings rallies of the tire firms, according to industry officials.

“Tire firms generated robust earnings in the first quarter on increasing sales of premium and lucrative tires, but the lingering freight uncertainty may drag down the growth momentum, unless the geopolitical risks are cleared,” an official at a local tire company said.
“Typically, tire firms sign freight contracts on an annual or biennial basis, so the recent spike in the rate may not pose an immediate threat, but if the uncertainties continue, this will hamper the overall profitability of tire manufacturers here.”

The state-run Korea Ocean Business Corporation (KOBC) also expressed concerns over the sharp rise of the SCFI.

“The index has steeply risen for the first four months of this year, and the pace is uncommonly rapid, so fear sentiment is growing that the ocean freight rate entered a negative cycle featuring a drastic fall in container ships,” a recent report published by the KOBC said.