[Letters] An opportunity for growth in Korean logistics?

On March 15, 2012, Korea’s free trade agreement (FTA) with the U.S. entered into effect. However the public’s opinion in Korea on the benefits of this agreement is still not settled. Nevertheless, Korean industries like electronics, pharmaceuticals and automakers look forward to benefiting from the agreement as they expect an increase in imports and exports between the two countries.

Various logistical changes have been implemented in Korea to cope with the effects of the FTA. For example, Korea-based airlines have introduced more and bigger cargo planes into the shipping lines, shipping lines have been adjusted, and port facilities have been upgraded.

Over the past few years, the international transportation industry has encountered many difficulties due to high oil prices, a sustained decline in freight costs and an increase in supply from airlines and shipping lines. But after the implementation of the FTA, optimism exists within the transportation industry as the expected increase of freight exchanges will lead to an increase of sales and profits.

However, while the FTA has created new opportunities for Korean logistical providers, it is expected that U.S.-based logistical providers will accelerate the expansion of their capacities in order to prepare for the Korean market. This will result in a fierce turf war between Korean and U.S.-based logistical providers since they will all try to benefit from the influx of international freight between the two countries.

As a result of the global economic recession, U.S.-based logistic providers have been providing a wide range of logistic services in various industries like electronics, automobiles, chemicals, etc. In the midst of this logistics-straining period, United Parcel Service (UPS) recently announced takeover talks with TNT Express (TNTE). The purpose for the intended takeover is to help expand its presence and business development in European and Asian markets.

In Korea, overlapping operations could produce synergies for UPS and lead to an increase in Korean market share; not only for parcel delivery but also for general logistics services as well. FedEx, another U.S.-based global logistics services company, continues domestic investment and network expansion in Korea.

While U.S.-based logistics providers continue to expand and invest to increase their Korean market share, Korean logistics providers are focusing on classical maritime and air transport from Korea through cost shaving. Although lower logistic costs are essential to remaining globally competitive, unless Korean logistics providers compete with global logistic providers through sophisticated logistics capabilities, it will be difficult to secure a competitive edge as well as hard to keep up with changes in market conditions.

Now is the time for Korean logistics providers to proactively reflect on the challenging logistics landscape that has emerged in the Korean logistics markets as a result of the U.S.-Korea FTA removing barriers to entry. Korean logistics providers should also be aware of other opportunities for growth as certain threats are included in the FTA with the U.S. Furthermore, the Korean government will promote its FTA with Turkey, China and Japan in the future, a prospect which at present requires an ongoing growth paradigm in logistics innovation, infrastructure investment and concentrated developments.

Now is the time for Korean logistics providers and the logistics industry as a whole to be concerned about future growth. It should find a concrete way to achieve it rather than merely just having a vague hope to realize it.

Lim Jang-hyuk, director of global logistics company Kuehne + Nagel, Switzerland

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