On March 15, Korea’s free trade agreement with the U.S entered into effect. While public opinion in Korea on the benefits of this agreement is still unsettled, Korean industries like electronics, pharmaceuticals and autos look forward to benefit 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, Korean based airlines like Korean and Asiana Airlines have introduced bigger freighters, shipping lines have been adjusted, more ships have been introduced into the shipping lines 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 created new opportunities for Korean logistical providers, it is expected that U.S.-based logistics providers will accelerate the expansion of their capacities in order to prepare for the Korean market. This will result in fierce domestic competition between Korean and U.S.-based logistics providers since they will all try to benefit from the increase of international freight between the two countries.
As a result of the global economic recession, U.S.-based logistics providers have been providing a wide range of logistics services in industries like electronics, automobiles and chemicals. Logistics services include international and domestic transportation, inventory and warehouse management, manufacturing, materials and shipment management. Other logistics services like value added and specialized services are provided in accordance with the needs of corporate customers. This enables U.S.-based logistics providers to react accurately on variation of predictions for appropriate and timely realization of the production of goods.
In the midst of this logistics challenging period, United Parcel Service Inc. recently announced that they had takeover talks with TNT Express NV. The purpose for the intended takeover is to help expand its presence and business development in the European and Asian markets. In Korea, overlapping operations could produce synergy for UPS and lead to an increase in Korean market share; not only for parcel delivery but also for general logistics services as well. Another U.S.-based global logistics services company, FedEx Corporation, continues domestic investment and network expansion in Korea. They also diversified its service scope from air freight and express to warehousing and distribution for Korean corporate customers.
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 reductions. Although lower logistics costs are essential for remaining globally competitive, unless Korean logistics providers compete with global logistics providers through sophisticated logistics capabilities, it would 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 environment in which barriers are removed to enter the Korean logistic markets as a result of the FTA between Korea and the USA. 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 FTAs with Turkey, China and Japan in the future which at present requires and ongoing growth paradigm in logistics R&D 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 and finding a way to achieve it rather than merely just having a vague hope to realize it.
By Lim Jang-hyuk
Lim Jang-hyuk is director of business development at Kuehne Nagel, a global transportation and logistics company based in Switzerland. ― Ed.
