From world-beating airports to expanding ports and high-speed railways, Korea’s constantly developing logistics infrastructure has added to the country’s appeal as a base of operations.
There are a wide variety of factors that can attract and retain foreign investment in an economy, from a promising domestic market to healthy growth and a favourable legal and tax environment. But perhaps because it is rarely as heavily touted or hotly debated, there is another crucial element that’s often overlooked – logistics infrastructure. If access to capital and solid regulations are the lifeblood of international trade, logistics is its backbone, the support on which everything else depends. Patchy or defective roads, rail or communications links can significantly add to the cost of doing business or even render traditional commerce impossible, while superior transport and technology connections can imbue a company – and a country – with significant competitive advantages.
“Korea also benefits from a strategic location on the doorstep of emerging economic powers China and Russia”
Thankfully for Korea, which would struggle to outdo some of its neighbours in areas such as land availability and labour costs, logistics infrastructure is an area where it truly thrives. Since the Gyeongbu Expressway linking Busan with the capital was completed in the 1960s – against the advice of development agencies, some say – the country has spared no expense in building top-notch transportation services, from the KTX high-speed railway that debuted in 2004 to recognized international shipment hubs such as the Busan Port and Incheon International Airport. These physical assets are complemented by lightning-quick, constantly on communications and data links that enable the rapid provision of supporting services such as customs clearance. Companies in Korea currently enjoy among the lowest average cargo and traveller customs clearance times in the world.
Korea also benefits of course from a strategic location on the doorstep of emerging economic powers China and Russia, but it is not enough for a country to simply occupy the right place; it has to offer strong links to the markets it promises access to – and Korea has an abundance of these. Incheon International Airport and Busan Port alone connect the country directly to 33 cities in China and 27 in Japan, as well as 45 Chinese ports, 60 ports in Japan and five in Russia. Korea’s ports also offer lower charges and a higher operation rate than their regional competitors. Small wonder these facilities handle a massive amount of transshipment traffic to China, Japan and beyond, and rank among the world’s top five cargo handlers of their kind.
Ports such as Busan and Pyeongtaek are in the throes of major expansions. A new high-speed rail system, the Great Train Express, is under development in surrounding Gyeonggi Province to smooth the flow of traffic in the vicinity of the capital. Another expansion to Incheon International is planned which includes a second terminal and the extension of a nearly complete direct rail line to central Seoul. The country has also committed significant planning and resources to its relatively new free economic zones (FEZs), which combine strategic locations and seamless new infrastructure with tax and tariff benefits to function as ideal bases for international trade.
Cosmopolitan Logistics Zones
Not surprisingly, a number of foreign companies have located logistics operations in Korea to take advantage of the country’s superior network of connections. Dutch firm ASML, a leading provider of the lithography systems used in the manufacturing of semiconductors, chose Incheon International Airport in 2008 as the site of its new global distribution centre, saying the move would cut average delivery times to Asian customers by 16 to 30 hours. It has since been joined by other prominent multinationals such as Sony and DHL. UK retailer Tesco invested US$100m in a high-tech logistics complex in Anseong, Gyeonggi province. Maersk Line, the world’s largest container line carrier, has boosted services to the emerging Busan New Port.
Foreign firms have also moved beyond simply enjoying Korea’s logistics infrastructure and services to investing in them – probably a sound idea, given that the Korea Chamber of Commerce and Industry expects the country’s logistics market to expand nine per cent this year. Australian bank Macquarie operates a Korea Infrastructure Fund that holds stakes in assets such as Incheon International Airport Expressway. Prologis, a US-based firm that is the world’s largest manager and developer of industrial distribution facilities, is also a major investor in warehouses and logistics complexes nationwide, including a $44m distribution centre in Incheon. Hong Kong conglomerate Hutchison and Singapore port operator PSA International are among the major backers of the Busan New Port project.
But where there have been many successes, there still exist plenty of opportunities for development and improvement. In a recent study, Prologis estimated that 95 per cent of the country’s existing inventory of warehouse and distribution floor space was confined to small, “outdated and obsolete” buildings, hampering the ability of businesses to build truly effective supply chains. The preference of Korean conglomerates to maintain ownership and operation of their distribution facilities and networks has also constrained the market so far for third-party logistics providers. The market share of third-party logistics companies hovers at around 40 per cent, well under the 70 to 80 per cent typically seen in advanced markets, according to the Korea International Logistics Council.
But, as Prologis noted in its report, trends are shifting. With companies under increasing pressure to dispose of non-core assets and firms – particularly foreign ones – increasingly preferring to lease rather than own logistics facilities, the logistics market possesses “abundant upside potential”. The government looks set to encourage this trend with the implementation of a National Logistics Master Plan that aims to bring logistics value-added to 11 per cent of the country’s GDP by 2020. Among the pillars of the plan are further infrastructure investments, support for the development of cutting-edge logistics technologies and efforts to foster the currently limited role of third-party logistics firms. Other plans include the establishment of a national logistics information network and RFID-based information system for logistics bases such as airports and ports.
The Ministry of Land, Transport and Maritime Affairs, which oversees logistics issues in Korea, is also striving to build the country’s international links, working with financiers and the private sector to establish funds for overseas infrastructure investments. Minister Chung Jong-hwan outlines some of the government’s logistics plans in an exclusive interview with IKJappearing later in this issue, but first, we introduce some of the country’s preeminent logistics destinations. If these fast-developing zones are any indication, businesses can look forward to further improvements to what was already a very favourable state of affairs.