South Korea: A free-trade lifeline
Asiana and KAL have cultivated transit traffic through Incheon, making up a substantial portion of the airport’s intra-Asian volumes. “Incheon, as a regional gateway, has a lot of importance for the Asian market. The fact that it has two substantial carriers based there gives value to Incheon as a transit point,” Whittingham says.
Aside from volumes flown from the region to Incheon to feed into the long-haul departures from there, the airport has also attracted a fair amount of cargo brought in from northern China by a combination of truck and ferry. This sea-air traffic has shrunk considerably in recent years, though, and is likely going to fall further. Choung reckons that it could drop by as much as 22 percent this year.
Agility explored the sea-air option last year and came to the conclusion that it was not an avenue to pursue. “Three, four years ago, capacity from northern China was tight, and prices were high. Sea-air made sense then. Today, volumes across the region are soft, and pricing from northern China has decreased,” remarks Whittingham. By late March, rates out of northern China to Europe were almost on a par with pricing from Incheon to Europe, he adds.
“Until the China market advances and exports pick up, sea-air volume in Korea will remain slow,” DHL’s Jun agrees.
At this point, sea-air through Incheon only makes sense to destinations like Russia, which have scant direct lift out of northern China, Whittingham concludes. One emerging market he is much more upbeat about is Latin America, notably Brazil. Large Korean manufacturers like Hyundai, Samsung and LG are either moving in or expanding their presence there, he says.
“Korea-Latin America is part of our trade lane development strategy for 2012. The challenge is lift and getting airfreight there,” Whittingham adds.
KAL sees potential in the sector. Last November, the carrier mounted three weekly flights with B747-400 freighters from its home base to Lima via Sao Paulo. Management has since signaled its intention to build up cargo operations in South America centered around a hub in Brazil. Shipments headed for South America will be vying for lift with Asian exports to the U.S. when the eastbound transpacific market eventually firms up. Predictions indicate an improvement in the second half of the year, and Korea’s FTAs are widely expected to contribute to this.
Walker figures that the automotive and textile industries will benefit considerably from the new regime. “The free-trade agreement with the E.U. has contributed to an increase in automotive imports from Europe,” he adds. A significant number of products were not affected by the free -trade regime with the E.U., as they had not faced any tariffs in the first place, Choung points out.
“Although Korea’s exports to the E.U. have been reduced by 8.5 percent during the last five months after the FTA came into effect, exports of products that have tariff benefits from the FTA increased by 14.8 percent. In fact, among the exports, products whose tariffs were removed or reduced — such as petrol products, automobile parts and lighting equipment — saw a huge increase in export,” Choung says.
The Korean government has predicted a rebound in cargo traffic, pointing to mega-events like the Olympic Games as catalysts for growth. For their part, forwarders and carriers seem to be preoccupied at the moment with honing their value-added capabilities rather than preparing for a surge in volumes.
Kuehne + Nagel recently expanded its product portfolio with the launch of KN PharmaChain, which includes wireless temperature control, a 24-hour alert system and best practice standards for facilities. DHL Global Forwarding is building up value-added services at Incheon’s free-trade zone. The company has obtained certification for security and for handling and storage of life science and healthcare traffic at Incheon. It is also in the process of getting authorized economic operator designation for Customs clearance.
DB Schenker is expanding segments like healthcare and fashion. This is now supported by a new 200,000-square-meter distribution facility in the Seoul area that opened in April. Likewise, Agility is focusing on the development of particular segments. “We want to place a greater focus on retail and consumer goods here,” Whittingham says.