Episode 35
SMEs brace for bleak April as costs, disruptions soar in March amid Iran war
This article is by Lim Sun-young, Noh Yu-rim and read by an artificial voice. The war in Iran, now into its fourth week, is taking a toll on businesses in Korea, with the fallout feeding into so-called warflation as food prices and living costs rise. ...
Korea JoongAng Daily - Daily News from Korea · LIM SUN-YOUNG, NOH YU-RIM
April 1, 20264m 35s
Show Notes
This article is by Lim Sun-young, Noh Yu-rim and read by an artificial voice.
The war in Iran, now into its fourth week, is taking a toll on businesses in Korea, with the fallout feeding into so-called warflation as food prices and living costs rise.
Small- and medium-sized enterprises (SME), which are more vulnerable to external shocks, are bracing for another tough month in April after weathering key material supply and logistics disruptions during a tumultuous March.
According to the Ministry of SMEs and Startups, 422 cases of war-related business complications were reported.
Transportation disruptions accounted for the most at 170, or 59.9 percent, followed by contract cancellations or delays at 101 cases, or 35.6 percent, and rising logistics costs at 96 cases, or 33.8 percent, with some complaints claiming multiple grievances.
"A contract worth 500 million won ($327,000) is likely to be canceled, and all returned shipments will have to be disposed of," said the head of a small business manufacturing beauty and cosmetic devices, surnamed Kim.
Kim's exports bound for the United Arab Emirates have been stranded at an Indian port for nearly a month, as shipments through the Strait of Hormuz face delays.
"The delivery deadline has already passed, so we have no choice but to send the inventory back to Korea," Kim said. "On top of additional shipping costs, we will have to dispose of customized items worth 60 million won."
"We had expected exports worth 500 million won over two years with this first Dubai contract, but that has all fallen through. With about half of our exports concentrated in the Middle East, prolonged conflict could threaten the company's survival," added Kim.
The pessimistic outlook appears prevalent among SMEs, with the Small Business Health Index — which indicates how companies view the outlook for the coming month — standing at 80.8 for April, down 1.7 points from the previous month, according to the Korea Federation of Small and Medium Business (KBIZ). A reading below 100 means more companies expect business conditions to deteriorate than improve.
Supply instability for naphtha, a key raw material for plastics and vinyl, is triggering what industry sources describe as a "naphtha shock" affecting sectors ranging from automobiles and furniture to beauty and fashion.
Interior businesses, particularly smaller firms, are struggling to secure materials, with rising costs and eroding profitability.
"Shipments of imported raw materials such as surface materials and boards are facing difficulties, and prices for some items have already risen by 20 to 30 percent," said Jeong Oh-gyun, an executive at a housing and furniture association under the Korea Furniture Testing and Research Institute.
Major paint companies have already raised product prices by 20 to 55 percent, citing the impact of the Middle East conflict.
"Estimates for interior renovations have risen by more than 10 million won in just a month," said an office worker named Park Su-bin.
The food industry is especially on alert. Inventory of packaging materials for products such as instant noodles and snacks is estimated to last only one to two months, while securing alternatives remains difficult.
"If the war is prolonged, we are considering emergency management measures, including suspending production of nonessential products," an industry source said. "After April, production disruptions across the food sector will be hard to avoid."
Some restaurant and cafe owners are also considering raising prices to keep up with rising costs, with the prices of containers for delivery food surging by 40 percent, adding further stress to small business owners.
"Cost pressures are significant, and we will inevitably have to consider raising prices," another source in the sector said.
Surging fuel prices are raising concerns about further disruptions in logistics and delivery services.
"Delivery drivers may quit their jobs as increased fuel costs reduce actual e...
The war in Iran, now into its fourth week, is taking a toll on businesses in Korea, with the fallout feeding into so-called warflation as food prices and living costs rise.
Small- and medium-sized enterprises (SME), which are more vulnerable to external shocks, are bracing for another tough month in April after weathering key material supply and logistics disruptions during a tumultuous March.
According to the Ministry of SMEs and Startups, 422 cases of war-related business complications were reported.
Transportation disruptions accounted for the most at 170, or 59.9 percent, followed by contract cancellations or delays at 101 cases, or 35.6 percent, and rising logistics costs at 96 cases, or 33.8 percent, with some complaints claiming multiple grievances.
"A contract worth 500 million won ($327,000) is likely to be canceled, and all returned shipments will have to be disposed of," said the head of a small business manufacturing beauty and cosmetic devices, surnamed Kim.
Kim's exports bound for the United Arab Emirates have been stranded at an Indian port for nearly a month, as shipments through the Strait of Hormuz face delays.
"The delivery deadline has already passed, so we have no choice but to send the inventory back to Korea," Kim said. "On top of additional shipping costs, we will have to dispose of customized items worth 60 million won."
"We had expected exports worth 500 million won over two years with this first Dubai contract, but that has all fallen through. With about half of our exports concentrated in the Middle East, prolonged conflict could threaten the company's survival," added Kim.
The pessimistic outlook appears prevalent among SMEs, with the Small Business Health Index — which indicates how companies view the outlook for the coming month — standing at 80.8 for April, down 1.7 points from the previous month, according to the Korea Federation of Small and Medium Business (KBIZ). A reading below 100 means more companies expect business conditions to deteriorate than improve.
Supply instability for naphtha, a key raw material for plastics and vinyl, is triggering what industry sources describe as a "naphtha shock" affecting sectors ranging from automobiles and furniture to beauty and fashion.
Interior businesses, particularly smaller firms, are struggling to secure materials, with rising costs and eroding profitability.
"Shipments of imported raw materials such as surface materials and boards are facing difficulties, and prices for some items have already risen by 20 to 30 percent," said Jeong Oh-gyun, an executive at a housing and furniture association under the Korea Furniture Testing and Research Institute.
Major paint companies have already raised product prices by 20 to 55 percent, citing the impact of the Middle East conflict.
"Estimates for interior renovations have risen by more than 10 million won in just a month," said an office worker named Park Su-bin.
The food industry is especially on alert. Inventory of packaging materials for products such as instant noodles and snacks is estimated to last only one to two months, while securing alternatives remains difficult.
"If the war is prolonged, we are considering emergency management measures, including suspending production of nonessential products," an industry source said. "After April, production disruptions across the food sector will be hard to avoid."
Some restaurant and cafe owners are also considering raising prices to keep up with rising costs, with the prices of containers for delivery food surging by 40 percent, adding further stress to small business owners.
"Cost pressures are significant, and we will inevitably have to consider raising prices," another source in the sector said.
Surging fuel prices are raising concerns about further disruptions in logistics and delivery services.
"Delivery drivers may quit their jobs as increased fuel costs reduce actual e...