"Nothing Left Even After Selling": Small Business Owners Lament Soaring Fixed Costs and Uncertain Future

Sea and Air Freight Rates Surge Due to Middle East War

Domino Effect of Fixed Cost Increases Halves Profit Margins

Policy Funds Exhausted, Small Businesses Left to Fend for Themselves

#. Mr. Song, who sells imported fruit, says that sighing every time he uses the calculator has become part of his daily routine. This is because, in addition to the rise in wholesale fruit prices due to the impact of the Middle East war, the costs of packaging boxes and other materials have also increased, sharply reducing his profit margins. Song lamented, "Freshness is everything in fruit, so I can’t just skimp on packaging or skip delivery," adding, "With only the unavoidable costs going up, I’m worried about how to keep my business running."

#. Mr. Lee, who supplies packaging materials to small business owners, raised his sales prices by 15% two weeks ago due to an increase in the price of "wonji," the raw material for boxes. Lee said, "After much deliberation, I raised prices, but even long-term clients left, saying they couldn’t afford the higher rates," and added, "Orders have dropped so much that sales are now only about half of what they used to be." He sighed, "For small operators like us, the sense of crisis is so great that the future feels pitch-dark."

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The aftermath of the Middle East war is hitting small business owners. From the cost of importing goods due to surging sea and air freight rates, to the key fixed costs like packaging materials, expenses are soaring and eating into profit margins.

According to the Korea International Trade Association on May 4, since the outbreak of the Middle East war, sea and air freight rates have surged by nearly 50%. The Shanghai Containerized Freight Index (SCFI) jumped 41.5%, from 1,333.11 at the end of February to 1,886.54 in mid-April. The Baltic Air Freight Index (BAI) also showed a steep increase, with rates for Asia-to-North America routes rising by 47.8%. This spike in freight rates is directly reflected in wholesale prices, dealing a severe blow to self-employed business owners who handle imported clothing, furniture, fruit, and more.

Peaches are displayed at a store in Cheongnyangni General Market, Dongdaemun-gu, Seoul. Photo by Yonhap News

On top of that, packaging material costs are also on the rise. The price of naphtha, the key raw material for polypropylene (PP), polyethylene terephthalate (PET), and polyethylene (PE), soared from about $600 per ton before the war to over $1,200 last month, doubling in price. With the KRW-USD exchange rate hovering in the upper 1,400-won range, the unit prices of essential consumables for small businesses—such as plastic containers, plastic bags, and disposable cutlery—are facing even greater upward pressure.

The purchase prices of goods—linked to freight rates—along with packaging material costs, are core fixed expenses. When unavoidable costs soar, the profitability of small business owners deteriorates further. Indeed, Mr. Park, who runs a fruit shop in Mapo-gu, Seoul, said, "A 5kg box of mangoes used to be 30,000 won wholesale, but in just two weeks, it jumped to 37,000 won, and even the price of fruit boxes went up by 300 won each. It's hard to simply raise selling prices for fear of losing customers," he confessed.

If Park maintains mango retail prices at pre-war levels, he has to absorb at least an additional 7,800 won per order, combining the increased fruit wholesale price (7,000 won), box price (300 won), and other packaging materials (500 won). If he sells 10 orders a day, or 300 orders a month, this translates to about 2.34 million won in extra monthly costs. Nearly half of his previous profit margin is wiped out by these losses.

The situation is even more dire for small online sellers who cannot operate without "delivery." The unit costs of packaging boxes, cushioning materials, and tape—all essential for each order—have all risen simultaneously.

According to the Korea Corrugated Packaging Industry Cooperative, the price of "wonji," the base material for boxes, has jumped by about 18.0% over the past four months. In particular, a series of fires and industrial accidents at "wonji" factories have halted some production, causing inventories in January to fall to 150,000 tons—40.0% lower than the usual average of 200,000 tons. On top of this, prices for other materials have soared: adhesives by 55.0%, printing ink by 22.0%, and wrapping film by 20.0%, further increasing cost pressures.

There are few practical support measures available. An official from the Small Enterprise and Market Service said, "All available policy support funds have already been used up," adding, "Businesses will have to wait until the third quarter for additional support."

Professor Kang Insu from Sookmyung Women's University’s Department of Economics analyzed, "It is difficult for the government to individually control macro-level price fluctuations, and there are significant administrative limitations in providing tailored support to fragmented small business owners," adding, "The situation is so difficult that the only option is to hold on until the cost shock subsides."

This content was produced with the assistance of AI translation services.