Once the fifth-largest port in the world, Busan Port handled over three-quarters of the nation’s import and export goods. However, the port is currently experiencing a crisis. This is due to the decision made by the new shipping alliance Gemini, which is set to be formed in February of next year by Denmark’s AP Moller-Maersk (Maersk) (2nd) and Germany’s Hapag-Lloyd (5th), to omit Busan Port and Kaohsiung Port Taiwan as its major hub ports on the Asia-Europe route. It is anticipated to be bad news for South Korean import and export businesses which are worried about growing logistical expenses, as well as for Busan Port, which fell to seventh place due to a dip in container traffic. South Korea’s shipping industry has shrunk as a result of the 2017 bankruptcy of Hanjin Shipping, previously the nation’s top shipping business and the seventh-largest in the world. This has increased logistical costs and weakened export competitiveness. Currently, there are fears that the same thing may happen again.
In marine logistics, cargo is gathered at strategically placed hub ports to be transshipped onto huge long-distance boats, just like delivery trucks do not travel directly from the origin to the final destination but rather congregate at intermediary logistics hubs. Over half, or 12.41 million TEUs, of the roughly 23.15 million TEUs (1 TEU is equal to a 20-foot container) processed by Busan Port last year were transshipment cargo. Taking care of transshipment volumes from nations like China and Japan is one of the main competitive advantages of the shipping industry in South Korea. Busan Port will only be used for cargo transfers to hub ports in Singapore and Malaysia if it is denied status as a hub port. It will no longer serve as a departure point for ultra-large ships. This downgrade is unavoidable for Busan Port which generates 73% (or roughly 44 trillion won, $32.25 billion) of the 60 trillion won (about 43.98 billion) of South Korea’s shipping and port sector’s yearly revenue. The industry notes that changes in the shipping sector are inevitable as manufacturing bases move from East Asia to Southeast Asia, requiring steps to maintain Busan Port’s competitiveness. “The shipping industry follows the manufacturing industry’s production volumes,” the Korea International Freight Forwarders Association (KIFFA) chairman Koo Gyo-hoon, said. “The volume of cargo passing through Busan Port, particularly on routes to the Americas, will decline as Southeast Asian manufacturing keeps growing and the United States increases domestic output through reshoring programs.”
East Asia, except China, continues to lose ground in the world maritime business. The biggest shipping business in South Korea, HMM, saw a dramatic change in January of this year when Hapag-Lloyd, the sole European member of THE Alliance, announced its withdrawal.
In essence, shipping alliances are regulated cartels in which participating corporations pool their ports, ships, and routes to cut expenses and increase their market share. One essential component of these coalitions is the variety of routes. The only East Asian shipping companies remaining in THE Alliance after Hapag-Lloyd’s departure are Taiwan’s Yang Ming (10th), South Korea’s HMM (8th), and Japan’s ONE (6th).
A key issue is that ports in South Korea, such as Busan, do not have a clear advantage in terms of cargo volume or productivity compared to its competitors in China and Singapore. For instance, the Port of Shanghai and the Port of Ningbo-Zhoushan in China handle over 40 million TEUs and 30 million TEUs annually, respectively. The Korea Maritime Institute (KMI) reports that Singapore handles 114 containers per hour when ultra-large vessels (8000-TEU or larger) dock, compared to 88 in Busan and 77 in Yeosu-Gwangyang. One major problem is that South Korean ports, like Busan, are not significantly more productive or have a larger cargo volume than competitive ports in China and Singapore. For example, China’s Ningbo Port and Shanghai Port together handle over 30 million and over 40 million TEUs each year, respectively.
Further worries are raised by Gemini’s addition of Qingdao Port in China as a new stop on the Asia-North America route. Busan Port depends on the North American route; however, as Qingdao Port grows in significance, Busan’s influence may wane.
Long-term worries include the possibility of fewer big containerships and transshipment commodities coming through Busan, which would reduce the port’s ability to compete worldwide. There is concern that Busan may suffer the same fate as the Port of Kobe, which never recovered from the 1995 Kobe earthquake. “Although the current shipping alliances will remain this year and many cargoes are tied up in long-term contracts, the influence of Maersk in reshaping market order and the trend of other companies following suit suggest that weakening of shipping competitiveness is inevitable in the long run,” said Jun-woo Jeon, a professor at Sungkyul University’s Department of Global Logistics. “Domestic shipping firms like HMM must actively look for new partners while national ports raise their competitiveness.”
Source: The Chosun Ilbo