'Nurturing Korean Logistics Industry'

The MLTM has steps in place to advance the industry, including integrated logistics company certification

The following are excerpts of an interview between NewsWorld and Kim Han-young, director general of logistics policy at the Ministry of Land, Transport and Maritime Affairs (MLTM), in which he touched on the current status and prospects of the Korean and global logistics markets and government policies, including the ones designed to upgrade the competitiveness of the domestic logistics industry.

Question: Will you tell our readers about the 2010 performance and 2011 prospects of the logistics markets covering land, ports and railways?
Answer: The domestic land freight vehicle transportation business system changed from licensing to registration in July 1999, then to permission in January 2004 in consideration of national economic conditions and the demand-supply status of cargo vehicles. In particular, cargo vehicle supply dramatically surged since the shift to the registration system in July 1999, so the system changed into a permission-based one, thus continuously restraining new permits and keeping additional vehicle supply stagnant. Currently, there are 380,000 vehicles operating. In the wake of restrictions on a new supply of freight vehicle and a rise in cargo volumes caused by the economic recovery after 2009, the cargo vehicle demand-supply imbalance is forecast to be improved significantly during this year.
Institutionally, a revision of the decrees of the Cargo Vehicle Transportation Business Act, made in 2010, stipulating tools designed to protect vehicle owners' property rights and business rights, is expected to contribute to improving fair trading in the cargo vehicle transportation market. Public parking space, cargo vehicle service areas and facilities designated by local governments are included into vehicle owners' garaging facilities in the interests of their convenience. One-vehicle owner-cum-operators are exempted from the requirement to report on permission criteria. Port cargo volumes are projected to surge to a record high of an estimated 12 million tons in 2010, an 11.4 percent jump over the previous year, and in 2011, they are predicted to rise 4.0 percent to 12.5 million tons. Container cargo volumes are projected to climb 18.1 percent from a year earlier to a record high of an estimated 19.29 million TEU in 2010, maintaining the worldOs top fifth container cargo handling nation, and they are predicted to rise 6.3 percent to 20.5 million TEU in 2011, ushering an era of handling 20 million TEU cargo volumes.
Railway transportation volumes soared 100.8 percent to an estimated 39.22 million tons in 2010. Cement volumes slumped to 14.79 million tons, an equivalent to 92.4 percent of the 2009 level, due to the sluggish construction economy and influence of climate upheavals. However, container volumes increased to 9.95 million tons, 116.3 percent of the previous year's levels, thanks to a rise in exporting and importing volumes and stepped-up marketing activities. Steel volumes soared to 1.74 million tons, 153.8 percent of the 2009 levels. And coal and petroleum product volumes each dropped 3.1 percentage points and 9.7 percentage points, respectively, due to a decline in demand caused by the rising use of alternative energies. Given the current trends, railway cargo volumes are forecast to increase to 43 million tons in 2011, but the government plans to ramp up railway cargo volumes to 45 million tons by taking steps to strengthen competitiveness, including the opening of Busan New Port railway and the expansion of railway logistics infrastructure.

Q: Will you tell us about those who won awards in celebration of the logistics anniversary event?
: Logistics Grand Prix awards date back to the economic planning minister's award in 1993. The nation celebrated the 18th anniversary of Logistics Day last year, becoming the sole government award-presenting ceremony in the logistics sector.
Because of insufficient awareness toward logistics, a majority of the winners of logistics awards have gone to manufacturing and distribution firms, including Shinsegae Department Store, the 1993 grand prize winner. The stark reality is that logistics firms have failed to win logistics awards, given the purpose of the awards is to congratulate those who have contributed to the development of the domestic logistics industry and their meritorious achievements. As a result, the 2010 logistics grand prix awards went to logistics firms, particularly integrated logistics service providers, who have made great contributions to the development of the domestic logistics industry. Ten people were presented with various government awards including the Order of Industrial Merit, which was given to Joyang Logistics International Co. CEO Lee Jae-hyun, along with two government medals, and three presidential awards. Twenty-eight people, including exemplary home deliverymen and field hands, were presented with the MLTM MinisterOs award in order to give encouragement to those in the logistics field and correspond to the governmentOs low-income oriented policies.

Q: Will you introduce the nationOs top five logistics firms?
A: The logistics firms put on the top five list in terms of 2009 sales show signs of constant growth by aggressively making inroads into Korean and foreign markets. They are Glovis, Korea Express, Pantos Logistics, Samsung Electronics Logitech and Hanjin Transportation, and the top five players are predicted to continue to grow in the years to come.

Q: Will you elaborate on the government's strategies to make the nation a global logistics power?
A: The value of the global logistics market is estimated at $2.725 billion, and the figure is predicted to surge at a rapid pace in the coming years thanks to a rise in cargo trafficking volumes, led by the expansion of free trade agreements. Data Monitor predicted that the world logistics market is projected to grow to $3 trillion by 2012.
Global logistics players are tightening monopolistic and oligopolistic control over the global logistics market through M&As of logistics firms and fortifying entry barriers. The global top 20 players, including Deutsche Post DHL, have a combined 80 percent of the global market. In an effort to cope with the trends, we need to aggressively make inroads into the global logistics market by nurturing logistics firms with a global competitive edge.
To this end, the government plans to grant an integrated logistics company certification to logistics firms armed with a global competitive edge and global network. It is studying ways of raising overseas investment funds with a low interest rate and nurturing global logistics manpower through global logistics internships. Korean manufacturing companies will be encouraged to make inroads into overseas markets, accompanied by logistics firms, and the government plans to provide such support as sharing information on overseas market entry to logistics firms and shippers who will join forces in exploring overseas markets.

Q: Will you specify steps to ramp up the competiveness of the Korean logistics industry?
A: As part of efforts to nurture specialized and integrated logistics companies, the government is implementing such steps as certifying integrated logistics firms, expanding support for diverting logistics to third-party companies and offering programs for training logistics employees. The government has certified specialized logistics firms that offer integrated logistics services, including freight transportation and operation of logistics facilities while carrying out third-party logistics services from shippers for a given period of time in return for payments. Twenty-nine groups have been certified as integrated logistics service providers as of last December. Certified integrated logistics service providers are entitled to such incentives as priority in moving into logistics facilities, financial support, lower electricity rates and tax benefits. The certification will be overhauled in a way that the competitiveness of certified integrated logistics service providers can be enhanced.
Shippers who pay to third-party logistics firms for more than half of their total logistics costs are granted a 3 percent tax credit so as to induce a shift to third-party logistics services. Under the system, 223 firms had 23.1 billion won of their corporate tax deducted in 2008. The system, originally scheduled to expire in 2010, was renewed for two years until 2012. The government finances consulting fees for shippers wanting to shift their own or two-party logistics system into a third-party logistics one. With the system in place, 32 companies signed about 92.9 billion won worth of third-party logistics contracts for three years from 2008, thus contributing to saving an annual average of 12.6 billion won in logistics costs. It plans to provide financial support for consultations for roughly 13 shippers this year.
The MLTM offers specialized educational programs tailored according to each segment of the logistics process in an effort to ramp up the specialization of logistics services. For instance, it provides financial support for logistics field workers who undergo on-the-job educational programs and those who attend logistics graduate schools. Starting this year, the system will be expanded to cover such educational programs on such advanced logistics fields as ship financing.

Q: Will you tell us about strategies to advance the domestic road cargo transportation market?
A: Market forces do not work in the domestic road cargo transportation market, dogged with marginal transportation firms and complex transaction stages. Roughly 58 percent of the transportation companies are charged with vehicle maintenance, but with almost no cargo transportation contracts with the owner of goods. Logistics subsidiaries of large-sized companies just forward cargo from their parent companies to their cooperative firms, resulting in a rise in transaction stages. Unfair contracts between transportation companies and vehicle owner-operators have occasionally come to a head. In January 2009, the government submitted to the National Assembly a revision measure of the Cargo Vehicle Transportation Business Act that would stipulate strategies to advance the domestic road cargo transportation market, based on experts and related interest partiesO views on the overhaul of the market.
If approved by the parliament, the revision would help cargo transportation market have their own functions restored by reducing transaction costs through the inducing of direct transactions as well as protecting vehicle owner-operatorsO rights.

Q: Will you tell us about the current status and prospects of international cooperation in the logistics field?
A: Korean, Chinese and Japanese ministers have begun ramping up cooperation with the goal of realizing a seamless flow of logistics, environmentally-friendly logistics, security and efficiency toward the integration of the Northeast Asian logistics market. The Korean government plans to establish action plans and yield tangible results by beefing up consultations on detailed tasks agreed to by the three countries. The first Northeast Asian tripartite logistics ministersO meeting took place in Korea in September 2006, followed by the second meeting in Japan in May 2008 and the third one in China last May. Korea and China have expanded collaboration projects for improving the efficiency of bilateral logistics services and reducing logistics costs by holding Korean-Chinese logistics vice ministers meetings since 2006 as part of efforts to promote bilateral cooperation and exchanges in the logistics field.
The three countries have held the Northeast Asian port director generals' meeting designed to exchange diverse information following a rise in trading volumes in the Northeast Asian region and the development of the logistics industry. In 2011, the MLTM plans to attach priority to providing support for Korean shipping logistics companiesO entry into overseas resources logistics markets in conjunction with resources exploration projects and overseas ultra-heavy cargo transportation markets. MLTM officials and dispatches in charge of energy posted at Korean embassies abroad will be asked to collect reliable information on each country's energy market and logistics infrastructure construction plans. The ministry is seeking to sign maritime agreements with such countries as Indonesia, Saudi Arabia and Egypt in order to help Korean companies make inroads into the emerging markets.
The government plans to continue cooperation in the maritime field by supporting the education of seamen, the establishment of joint shipping companies and the dispatching of advisers, as requested by the governments of such countries as Mongolia and Kazakhstan. nw

Kim Han-young, director general of logistics policy at the Ministry of Land, Transport and Maritime Affairs

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