Ports to be reared as high value-added strategic industry

The government is aware of the poor port facilities in South Korea, and is planning to rectify the situation with its current plan to turn the Korean Peninsula into a logistic hub for Northeast Asia. The Ministry of Maritime Affairs and Fisheries released a list of the main problems for Korean ports to grow as international hub ports as well as basic plans to bolster them.

International logistic flow is swiftly switching over to a localized logistic system centered around hub ports. In the 1970s, there was a home-centered import and export logistic system and in the 1980s an on-the-spot logistic structure was introduced. Turning into the 1990s, global logistics shifted to a system centered on local points, i.e. the system began to change from one logistic point for one country to one central logistic point covering several countries.

Today, ports strive to be recognized as total logistic service providers as well as centers for SCM (Supply Chain Management), the ministry said. Global entrepreneurs have shown their tendencies to support Supply Chain Management; i.e. they usually deliver and/or produce raw materials (or basic components) from all over the world, such as Japan, China, and South Korea. Components/raw materials are then carried to manufacturing sites where they are processed and then transported to local hub-port logistic centers such as the Netherlands and Singapore. There they are assembled, inspected, packed, cleared and labeled.

Through these processes the need for Third Party Logistics (TPL) providers is expanding for greater logistic flow efficiencies. Sixty-nine percent of the world's largest 500 manufacturing companies concentrate only on their essential business sectors, leaving logistics to TPLs. Singapore is emerging as the hub port for Southeast Asia for TPL providers through appropriate usage of large ports and airports. This is a good indicator of the necessity to foster Korean TPL providers and to aggressively attract foreign TPLs.

As Information Technology develops, manufacturing lines are moving away from developed countries to under-developed countries in Asia. Especially, cargoes from China are highly competitive in Northeast Asia. Container cargoes out of Northeast Asia in 1999 recorded 54 million TEU and are predicted to hit or surpass 100 million TEU by 2006. Accordingly, Shanghai, Hong Kong, and Singapore are planning to double their port facilities by 2011.

Large vessels have tended to divide ports into two categories: hub ports and local ports. To accommodate large vessels, proportionately large terminals are urgently required. Experts expect that vessels ranging between 9,000 and 15,000 TEU will appear on the international shipping scene within the next few years.

In general, ports are regarded as key logistic infrastructure, handling 99.7% of import and export cargoes, estimated at around 20 trillion won or 27% of the total logistic costs.

In the Netherlands, ports produce 7.3% of the GDP (Gross Domestic Products) or 24.5 billion dollars, while in Singapore ports are responsible for 11.5% of the GDP or 16.4 billion dollars.

Even though Korea is blessed with a naturally strategic location, it has some of the poorest port facilities in the region. Strategically, Korea is well positioned to connect the TKR (Trans Korea Railway), TSR (Trans Siberian Railway), and the TCR (Trans China Railway) with sea routes such as Pacific and European trade routes. This is significant when one looks at the situation more closely, e.g. transit cargoes alone through the Port of Pusan in 2000, 2.4 million TEU, were close to the total container handling amounts at the Port of Yokohama.

In spite of this advantage, berths in container terminals in Pusan are far beyond other competitive ports: 41 berths in Singapore, 37 berths in Kobe, 27 in Kaohsiung, 21 in Hong Kong, 18 in Shanghai, and 16 berths in Pusan. Cargo handling amounts in Pusan were also low: Rotterdam 320 million tons, Shanghai 200 million tons, Hong Kong 170 million tons, and Pusan 120 million tons.

Apart from berths, port investment amounts also are falling behind other countries. Port investment has been a continuously decreasing priority for SOC (Social Overhead Capital) in Korea. It occupied 13% in 1981 but gradually decreased to 7% in 2001. In terms of GDP, the average port investment between 1962 and 1999 in Taiwan was 0.42% and 0.37% in Japan. Those numbers stand in stark contrast to Korea’s 0.22%.

Pusan also lacks hinterlands and an FTZ (Free Trade Zone) for the purpose of handling international logistic functions. The lack of hinterlands has driven prosperous ODCYs (Off-Dock Container Yard) in Pusan.