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South Korea Shipping Report Q3 2010
Business Monitor International, June 2010, Pages: 95
South Korea Shipping Report provides industry professionals and strategists, corporate analysts, shipping associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on South Korea's shipping industry.
A year has made a big difference at Busan International Container Terminal (BICT). According to press reports the big problem at BICT in early 2009 was a massive pile-up of empty containers as the global recession took its toll on trade and shipping. Now, however, the problem amid a restocking-based upturn is a pile-up of laden containers waiting for shipment. China Daily cited Park Jong-ho, assistant general manager at BICT, saying that surging container shipments of furniture, electronics and clothes exports to the US, along with earlier capacity reductions by shipping companies, had caused delays for as many as 15% of all containers, sometimes by more than a week. 'With the economy recovering, we have been seeing a lot of containers that didn't make it out on time because there wasn't enough space on ships' Jong-ho was quoted as saying. China Daily noted that part of the current problem is that US importing companies had sharply reduced their inventory levels during the slump and were now responding to improving demand by placing 'rush orders'.
In May the generally supportive macroeconomic operating environment for the South Korean ports and shipping industry was being overshadowed by one big political risk factor: the stand-off with North Korea and the possibility of some kind of military confrontation. While BMI expects deteriorating North-South Korean relations to be a big downside risk for the sector, the rest of the operating environment is positive. The local economy is enjoying a strong recovery, based on inventory restocking and rising consumer demand. BMI predicts 5.5% GDP growth this year, sharply up from 0.2% growth in 2009. For the five years to 2014, we believe that GDP growth will average 4.2%.
In real terms this year we expect total trade to grow by an impressive 9.5%, but imports will lead the way (+11.5%) with exports lagging behind a little (+8.0%). In our view, the country's free trade agreement (FTA) with the European Union, and similar negotiations with the US and China and Japan will continue to underpin moderate to high trade growth. Our five-year forecast in real terms is for trade to grow by an average of 8.2% per annum, as a mid point between imports (+8.9% pa) and exports (+7.7%) pa.
Clearly, the risk of further deterioration in relations between the two Koreas and even some kind of military confrontation is the major downside factor to consider. We do, however, expect the major powers led by the US to line up in support of South Korea, with China also bringing its influence with Pyongyang into play to defuse the stand-off. Although we do not at this stage expect the worst, it has to be noted that a prolonged period of tension may put the ports and shipping sector into 'wait and see' mode, implying that some key investment decisions will be delayed.
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