South Korea Freight Transport Report Q3 2011
Includes 3 FREE quarterly updates
BMI View: Solid Growth BMI continues to predict a reasonably good year for the South Korean freight transport sector in 2011. We see two major influences at work. First, macroeconomic growth will be solid, although lower than in 2010, and subject to some headwinds in the second half. Growth is being led by net exports, private consumption, and government spending. The potential inhibiting factors in the second half concern the knock-on effects of economic disruption in Japan following the earthquake there in March; slower growth in China; and the impact of higher oil prices, particularly in an energy import-dependent country like South Korea.
As far as industry-specific factors are concerned, we are seeing some fluctuation in cargo volumes either side of the norm set by general economic growth. Part of the explanation for this lies in some adverse price and rate trends. As mentioned, high oil prices are taking a toll, particularly via the effect on aviation fuel in the airfreight sector. On the other hand, container shippers have to contend with the low box rates experienced on the Asia-Europe routes. This is leading some companies to refocus on dry bulk business. On the plus side, however, we note that foreign trade is set to grow significantly faster than GDP.
Headline Industry Data
Key Industry Trends
KRRI Seeks US$20bn Indonesia Projects Korea Railroad Research Institute (KRRI), a state-owned agency, said it had signed a preliminary agreement to bid for two major railway contracts in Indonesia. They are the the Soekarno-Hatta airport line and the Jakarta-Surabaya line.
Korea Line Crisis Triggers Losses Korea Line (KLC) filed for receivership. Share prices had collapsed by 60% in January 2011 (relative to their April 2010 peak) when trading was suspended. The shipping company was hit by the fall in box rates, and its difficulties were intensified because it was tied into long-term charters for its vessels. The collapse had a ripple effect on other shippers, including Eagle Bulk of the US, which had to write off US$6.6mn in bad debts associated with KLC. DryShips of Greece was able to restructure the charters of three bulkers in a deal with KLC.
KAL Faces Further Price-Fixing Investigation
Korean Airlines (KAL), along with many other international freight carriers, faces ongoing price-fixing investigations. It is on the list of airlines currently being investigated by New Zealand's Commerce Commission, following on from the US, with the European and Australian competition authorities also at different points in the enquiry process. BMI notes that the investigations and fines place further negative pressure on an industry that has already had a rocky start to 2011. Airlines around the world have taken a hit in recent months from political unrest in North Africa and the Middle East and rocketing fuel prices, as well as from the earthquake and subsequent nuclear crisis in Japan.
Key Risks To Outlook
As in our last quarterly report, we believe the main risk to our freight industry forecasts is political, and lies on the downside. That said, we are now slightly more concerned by short term domestic political issues, while the longer term issue - Seoul's volatile relationship with North Korea - has temporarily receded. Following a set-back for the government in the late-April by-elections, we feel that President President Lee Myung-bak's reform drive could lose some direction and impetus as both the administration and the opposition adopt more populist stances. This would lead to lower-than-expected economic growth on the medium term, affecting the freight transport sector.
BMI View: Solid Growth BMI continues to predict a reasonably good year for the South Korean freight transport sector in 2011. We see two major influences at work. First, macroeconomic growth will be solid, although lower than in 2010, and subject to some headwinds in the second half. Growth is being led by net exports, private consumption, and government spending. The potential inhibiting factors in the second half concern the knock-on effects of economic disruption in Japan following the earthquake there in March; slower growth in China; and the impact of higher oil prices, particularly in an energy import-dependent country like South Korea.
As far as industry-specific factors are concerned, we are seeing some fluctuation in cargo volumes either side of the norm set by general economic growth. Part of the explanation for this lies in some adverse price and rate trends. As mentioned, high oil prices are taking a toll, particularly via the effect on aviation fuel in the airfreight sector. On the other hand, container shippers have to contend with the low box rates experienced on the Asia-Europe routes. This is leading some companies to refocus on dry bulk business. On the plus side, however, we note that foreign trade is set to grow significantly faster than GDP.
Headline Industry Data
- The total value of South Korea's trade (imports plus exports) is set to grow 7.3% in 2011, slower than the 15.7% surge registered the preceding year. Imports will lead the way (+7.8% growth) with exports a little slower (+6.7%).
- Busan, South Korea's largest port, will see gross tonnage growth drop to 2.6% (to 232.80mn tonnes), a deceleration on the 9% growth registered in 2010. Containers handled will expand by 2.3% to 14.50mn 20-foot equivalent units (TEUs), down from the big 18.4% surge last year.
- Airfreight volume is set to gain 5.5% this year to reach 4.03mn tones.
Key Industry Trends
KRRI Seeks US$20bn Indonesia Projects Korea Railroad Research Institute (KRRI), a state-owned agency, said it had signed a preliminary agreement to bid for two major railway contracts in Indonesia. They are the the Soekarno-Hatta airport line and the Jakarta-Surabaya line.
Korea Line Crisis Triggers Losses Korea Line (KLC) filed for receivership. Share prices had collapsed by 60% in January 2011 (relative to their April 2010 peak) when trading was suspended. The shipping company was hit by the fall in box rates, and its difficulties were intensified because it was tied into long-term charters for its vessels. The collapse had a ripple effect on other shippers, including Eagle Bulk of the US, which had to write off US$6.6mn in bad debts associated with KLC. DryShips of Greece was able to restructure the charters of three bulkers in a deal with KLC.
KAL Faces Further Price-Fixing Investigation
Korean Airlines (KAL), along with many other international freight carriers, faces ongoing price-fixing investigations. It is on the list of airlines currently being investigated by New Zealand's Commerce Commission, following on from the US, with the European and Australian competition authorities also at different points in the enquiry process. BMI notes that the investigations and fines place further negative pressure on an industry that has already had a rocky start to 2011. Airlines around the world have taken a hit in recent months from political unrest in North Africa and the Middle East and rocketing fuel prices, as well as from the earthquake and subsequent nuclear crisis in Japan.
Key Risks To Outlook
As in our last quarterly report, we believe the main risk to our freight industry forecasts is political, and lies on the downside. That said, we are now slightly more concerned by short term domestic political issues, while the longer term issue - Seoul's volatile relationship with North Korea - has temporarily receded. Following a set-back for the government in the late-April by-elections, we feel that President President Lee Myung-bak's reform drive could lose some direction and impetus as both the administration and the opposition adopt more populist stances. This would lead to lower-than-expected economic growth on the medium term, affecting the freight transport sector.
Contents
Executive SummarySWOT Analysis
South Korea Freight Transport SWOT
South Korea Political SWOT
South Korea Economic SWOT
South Korea Business Environment SWOT
Industry Trends And Developments
Multimodal and Logistics
Rail
Air
Maritime
Market Overview
Multimodal
Road
Rail
Air
Maritime
Container Shipping Overview
Drivers
Bellwethers
Rates
Players
Industry Forecast
Air Freight
Table: Air Freight, 2008-2015
Maritime Freight
Table: Maritime Freight – Throughput, 2008-2015 (‘000 tonnes)
Rail Freight
Table: Rail Freight, 2008-2015
Trade
Table: Trade Overview, 2008-2015
Table: Key Trade Indicators, 2008-2015 (US$mn and % change y-o-y)
Table: South Korea's Main Import Partners, 2002-2009 (US$mn)
Table: Main Export Partners, 2002-2009 (US$mn)
Political Outlook
Macroeconomic Outlook
Table: South Korea – Economic Activity, 2009-2015
Company Profiles
Hanjin Shipping (Container Operations)
Hyundai Merchant Marine (HMM)
Korean Air Cargo (KAL)
STX Pan Ocean (STX)
Korea Express
BMI Methodology
How We Generate Our Industry Forecasts
Transport Industry
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