Distribution, Pharmaceutical and Bio Industries on High Alert as Oil, Logistics Costs Rise and Consumption Weakens [Era of $100 Oil]

As international oil prices have surged past $100 per barrel in the wake of the war in the Middle East, the food and retail sectors, as well as the pharmaceutical and bio industries, are closely monitoring the situation. There is little expectation of immediate disruption to product supply, but concerns are mounting that a prolonged period of high oil prices could simultaneously drive up logistics costs and dampen consumer spending.
■ Retail sector wary of rising logistics costs and weaker consumption
According to industry sources on the 9th, international crude prices have climbed above $100 per barrel due to the war between the United States of America (U.S.) and the Islamic Republic of Iran, heightening a sense of alarm across the retail sector.
For now, however, retailers generally believe there has been no significant impact on product supply. Most goods shipped from the Middle East and Europe travel by sea and take more than a month to reach Korea, and companies still judge that inventory levels are sufficient.
Another factor easing short-term concerns is that many imported foods sold at large discount stores are frozen, dry, or processed products with long shelf lives. This reduces the likelihood of immediate supply disruptions.
Even so, the industry is worried that a prolonged war could hurt both raw material procurement and cost structures. Many supply chains are set up so that raw materials sourced in Europe are processed in Southeast Asian countries such as Thailand and Vietnam before being redistributed, which could lead to indirect disruptions. There are also projections that sustained high oil prices will push up logistics costs and unit production costs for goods.
Convenience store chains and e-commerce companies are also keeping a close watch. In the short term, they do not expect major changes in demand or product supply, but they warn that if high oil prices persist, rising prices for raw and subsidiary materials and higher delivery costs could eventually feed through to consumer prices. An industry official said, "If higher oil prices start to fuel overall inflation, it could weaken consumer sentiment, so we are closely monitoring how things develop."
Food manufacturers, which rely heavily on imports for key ingredients such as soybeans, wheat, corn and starch, are particularly sensitive to the spike in oil prices. Because these raw materials are bulky and heavy relative to their unit cost, any increase in transport expenses is highly likely to translate directly into higher production costs. Companies are also worried that expensive oil will drive up the price of naphtha, the main raw material used in packaging for products like instant noodles and snacks. A food industry representative noted, "High oil prices affect not only logistics costs but also raw material expenses and factory operating costs step by step, so we are watching the situation very closely." Another food company official added, "We draw up our business plans each year based on projected oil prices, but with crude now above $100 a barrel and the won remaining weak, conditions have moved beyond our assumptions, so we are reviewing our response options."
■ Self-sufficiency at 30%: pharmaceutical sector also on high alert
The shock waves from the war originating in the Middle East are also hitting Korea's pharmaceutical and bio industries. The biggest structural vulnerability is the low self-sufficiency rate for active pharmaceutical ingredients (APIs). According to the report "Trends and Support Measures for Active Pharmaceutical Ingredients" by the Korea Pharmaceutical and Bio-Pharma Manufacturers Association, Korea's API self-sufficiency rate stood at 25.6% in 2023, with the 2024 estimate at only about 31%. This is far below the levels in Japan (50–60%) and Europe (40–50%). When higher oil prices coincide with a stronger dollar, procurement costs effectively rise twice over. Instability in raw material supplies could lead to imbalances in the availability of essential medicines such as cold remedies and antibiotics, posing a potential threat to health security.
Another problem is that while a weaker won immediately pushes up the cost of imported raw materials, it is difficult to pass those higher costs on to product prices. Under the national health insurance drug pricing system and the government's price controls, companies cannot readily reflect increased raw material costs in what consumers pay. Smaller pharmaceutical firms, which rely heavily on generics, say they are particularly hard-pressed to absorb these burdens. Export prospects are also dimming for companies targeting markets in the Middle East. The Dubai World Dermatology and Laser Conference & Exhibition (Dubai Derma), an international cosmetic dermatology trade show that was scheduled to be held in Dubai at the end of this month, has been postponed indefinitely, forcing Korean companies to overhaul their strategies.
wonder@fnnews.com Jeong Sang-hee, Park Kyung-ho and Lee Jeong-hwa Reporter