Asian traders fret over South Korea middle distillate logistics amid trucker strike

South Korean refiners are reassessing domestic diesel sales outlook, while traders across Asia fret over potential cutback in South Korea middle distillate supplies, as the prolonged truck driver strike in Asia's top oil product exporting nation could jeopardize the country's logistics network, market participants said June 13.

Unionized cargo truckers nationwide began an indefinite general strike June 7 and the walkout has extended to its seventh day June 13.

South Korean truck drivers are protesting over surging fuel prices, with the protest group demanding for increased freight rate as well as higher minimum wage based on delivery distance to reflect surging fuel costs.

The collective action can disrupt oil products and petrochemical distribution, as well as fuel production and exports, according to middle distillates marketers based in Seoul, Daesan, Ulsan and Incheon.

"Just when the market was somewhat upbeat on demand recovery propelled by removal of COVID-19 restrictions, the industry is now faced with serious logistical issues that could seriously dampen June and possibly even third quarter demand and exports," said a marketing and distribution manager at S-Oil.

Most of the 25,000 members of the Cargo Truckers Solidarity, under the wing of the Korean Confederation of Trade Unions, as well as many non-unionized truckers, have joined the walkout, which accounts for some 10% of the country's total truckers numbering 420,000, according to the transport ministry.

The truck drivers staged protest to initiate their indefinite strike at major logistics points such as the country's biggest ports in Busan and Ulsan that houses SK Innovation, S-Oil Corp and many other petrochemical complexes.

Domestic demand, exports

Product marketing and distribution managers at major South Korean refiners said monthly sales estimates may need to be adjusted lower, based on the worst case scenario that the trucker protest could continue for several more weeks.

South Korea's diesel demand could slip below 14 million barrels in June, compared with 14.8 million barrels consumed in the same period a year earlier and 14.34 million barrels in June 2020, according to five sales and marketing managers surveyed by S&P Global Commodity Insights.

"We have not been affected by the strike for now, but if the walkout is protracted, oil demand and supply will be disrupted," said an official at a major South Korean refiner, who declined to be identified due to the sensitive nature of corporate sales and earnings.

Meanwhile, fuel import and distribution firms across Southeast Asia and Australia indicated they have been told by South Korean suppliers that their June and July shipments would not be disrupted, though it would be necessary to regularly double check on their deliveries for the coming months if the South Korean trucker protest persists.

Logistics for middle distillate exports are conducted mostly via pipelines, but trucks are still needed to carry some special chemicals and equipment that are required to keep the fuel products in pristine condition to the exporting tanker vessel, according to the South Korean refinery middle distillate marketers.

South Korea exported a combined total of 85.65 million barrels of diesel and jet fuel over January-April, up 17% from 72.92 million barrels in the same period a year earlier, latest data from state-run Korea National Oil Corp. showed.

"Asia has been severely short diesel, jet fuel and gasoline for quite some time and if there's any hiccup from major suppliers like South Korea, consumers across the entire region would suffer even more, especially from the price surge," said a gasoline trader based in Singapore.

Government stance

The protesters have threatened to block entrances of ports and Inland Container Depots (ICDs) with vehicles, disrupting the movement of non-participating trucks, which can paralyze logistics across the country.

Police have said they will respond sternly to any illegal acts during the strike and arrest any union members trying to disrupt the services of other non-striking truckers.

President Yoon Suk-yeol, former prosecution chief, said the walkout should be handled according to principles. "Whether it's the unjust labor actions of employers or illegal actions of laborers, I've made clear that I will handle them in accordance with the law and principles," he told reporters.

The government has implemented an emergency transport scheme to minimize impacts of the strike, by sending vehicles for official use to major ports and enhancing the monitoring of the logistics situation, according to the transport ministry.

The government has lowered taxes on auto fuels by 20% since Nov. 12 last year. In April, the government decided to expand oil tax cuts to record 30% from 20%, for three months from May as part of efforts to ease upward pressures on inflation and surging energy prices.