[Viewpoint]Improving logistics

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[Viewpoint]Improving logistics

The cargo crisis is now settling down. Although Korea experienced two similar logistics crises caused by large-scale trucker strikes in 2003 and 2006, the government and the logistics industry have failed to prepare an effective response system. The government and the industry should repent for having allowed this crisis to cripple the country once again. The government, the shippers and the truckers need to devise a fundamental counter plan. The government cannot forever play the role of mediator and get involved in every little detail.

We should establish the principle that economic problems occurring in the civilian sector will be mediated and resolved through the accountability and efforts of civilians. The crisis this time originated from the surge in oil prices. The shock from the oil price rises is not a problem for Korea alone.

We need to verify the cause of the crisis and devise an appropriate solution to explain why Korea alone is going through such a crisis when other economic powers are managing to buffer the impact.

Due to the skyrocketing raw material prices worldwide, import prices rose by 44.6 percent in May, the biggest increase since the foreign currency crisis in the late ’90s. The impending inflation is bound to wither consumer spending, and it will consequently result in a drastic drop in both domestic and international cargo volume. International container liners are cutting down on their ports of call, and when choosing their ports, they consider whether ships can get stable services there. They take into account whether port workers often go on strike and how stable the connecting transport network is.

When a container ship makes a port call and the container is not loaded on time, the ship has to sail off empty. Such a loss is fatal to the operation of container liners, and it is only natural that container liners avoid making calls to ports that pose such uncertainty.

At present, it costs twice as much to ship freight on trucks in Korea compared to other major ports in Northeast Asia. The high cost undermines the competitiveness of Korean export products.

Over 75 percent of freight is transported by road in Korea. The Netherlands is an international leader in logistics, and only 38 percent of freight is shipped by road in the port of Rotterdam. In Antwerp, Belgium, another logistics hub in the European Union, by-road cargo makes up 46 percent, and 27.8 percent is carried by inland water transport. Railroad transport is 18.6 percent, and feeders carry 7.22 percent. In the case of the port of New York and New Jersey in the United States, only 47 percent is carried by road. In contrast, 75 percent of cargo is moved by trucks in Korea, and we are especially vulnerable to sudden rises in fuel prices.

If we consider establishing a railroad exclusively for cargo to connect the Seoul-Incheon region to the port of Busan and Gwangyang Bay, each car should be able to load two to three containers. We need to establish a long-term logistics plan so that the railroad can be connected to the inter-Korean economic free trade zone, which is expected to be expanded in the future.

Raising cargo charges through government intervention is not fair for shippers and is a stop-gap measure that does not address the fundamental problem. When the increased cargo charge is paid by the shipper, it will ultimately be translated into the price of goods, which will be yet another cause of inflation. From now on, the government has to win the trust of the shippers and the truckers. As a mid-term plan, the government should propose a clear road map and reform the transport market structure, which is now composed of multi-level subcontractors.

The shippers should form a long-term partnership and create fair and transparent business transactions by outsourcing cargo shipping to logistics professionals trained by the government. The truckers should rotate the allocation of vehicles and reduce driving speed, use more trucks and save fuel through joint operation and gradually retire aged vehicles. While the standard pricing guideline should be determined to guarantee the livelihood of truckers, the ultimate goal is to reduce overall logistics expenses.

What the government can do is to help with a policy to eliminate inefficiency in the industry and save on national logistics expenses. Logistics costs are currently 10 percent of revenue, which is notably higher than competitors. If we can cut down logistics costs, the price competitiveness of export goods will improve. Also, the price of imported goods will go down, and inflation caused by imports will decrease.

This kind of logistics crisis has to become a thing of the past.


*The writer is a professor of business at Sogang University. Translation by the JoongAng Daily staff.

by Jon Joon-soo
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