Busan grows up
Monday, July 4, 2005
Journal of Commerce
BY WILLIAM ARMBRUSTER
Faced with growing competition from China, the government of South Korea is seeking to strengthen its economy by developing the Port of Busan as a mega-hub for Northeast Asia, comparable to the role of Singapore in Southeast Asia. Port officials say Busan's location between Japan and China makes it an ideal transshipment point for cargo moving to and from North America and Europe.
The centerpiece of South Korea's plan for Busan, which handles 80 percent of Korea's container traffic, is the construction of a new port that will increase its container capacity by 150 percent by 2011. Other elements include the creation of a free economic zone designed as a focal point for high-tech manufacturing and research and development, and the opening of a distribution park aimed at developing Busan into an international logistics center serving all of Northeast Asia, encompassing China, Japan, North and South Korea, and the Russian Far East.
Korean authorities hope to attract logistics companies to the distribution park by practically giving away the space: Foreign companies as well as joint ventures with as little as 10 percent foreign investment may receive leases for up to 50 years with annual rates of just 48 cents per square meter. That's one-fifteenth the going rate for logistics ventures in Shanghai, according to Boo-Won Kang, director of marketing for the Busan Port Authority.
"Without this revolutionary idea, we cannot compete with China," he told an investment forum in New York last month. The forum was sponsored by the Busan Port Authority, the Busan-Jinhae Free Economic Zone Association and the Korea International Trade Association.
Busan handled 11.4 million TEUs last year, a 10 percent increase from 2003 and an 80 percent increase over the 6.4 million TEUs that crossed its docks in 1999. It ranks fifth among global container ports behind Hong Kong, Singapore, Shanghai and Shenzhen.
Busan remains the world's third-largest transshipment center, with feeder services representing 40 percent of the port's total trade. Of those transshipments, China accounts for 55 percent and Japan, 35 percent. Using Busan as a large transshipment hub allows ship lines to limit the number of ports to which they make direct calls on main-line routes to North America and Europe. Feeder services link Busan, located on the southeastern tip of the Korean peninsula, with 60 Japanese ports and 45 in China, as well as five in Russia, Kang said.
Busan's share of Chinese cargo, however, is likely to decline as ocean carriers introduce direct services to more ports in China, and as the Chinese ports themselves ramp up their capacity. The new Yangshan port outside Shanghai, for example, will have an initial capacity of 2.2 million TEUs when it opens later this year. That total is expected to reach 25 million TEUs when the project is completed in 15 years.
Nonetheless, June-Suk Choo, president of the Busan Port Authority, said he is optimistic that Busan will remain a major gateway for Chinese cargo as long as the port becomes more efficient. Choo said Busan does not compete directly with Shanghai, but that it is a natural transshipment gateway for ports in northern China, such as Qingdao, Dalian and Tianjin.
Choo said logistics companies from Japan, China and the U.S. have expressed interest in the distribution park, known as Distripark. "If we develop the Distripark as planned, we expect a lot of Japanese companies will come," he said.
The first phase of the $7.6 billion new port is slated for completion by the end of this year, when three berths become operational. By the time it is finished in 2011, it will have 30 berths and an annual capacity of 15 million TEUs. With depths of 53 to 56 feet, the new port will be able to accommodate 10,000-TEU ships. The existing port can accommodate vessels with capacities of up to 8,500 TEUs.
Private terminal operators are building the berths in the first phase of the port's development, while the Busan Port Authority is constructing the berths in the next several stages. It will then lease the berths to shipping lines and terminal operators. No decision has been reached on how the berths in the final stage will be developed. Private investors include Dubai Ports International, which is putting up $300 million toward the construction of the new terminals through a joint venture with Samsung. The Dubai group took over the 25 percent share previously held by CSX World Terminals.
Aside from its role as a center for containers transferred from one ship to another, Busan officials also tout the port as the starting point for what they call the Iron Silk Road, a landbridge for cargo that could move to Europe via the Trans-Siberian Railroad. These services would all require an agreement with North Korea to create what the South Koreans call the Trans-Korea Railway. "I see big potential for it," said Scott MacDonald, a Korea specialist with Aladdin Capital Management. "At some point, they expect those rail links to be open." MacDonald added that South Korea already has excellent highways and railroads.
The Iron Silk Road would be a natural link between Busan and cities in Northeast China, such as Shenyang and Harbin. It also could provide a connection to Mongolia, port officials say. In the meantime, Busan acts as a feeder for cargo shipped to and from Russian ports such as Vostochny, Nakhodka and Vladivostok.
The new port is part of the Busan-Jinhae Free Economic Zone, designed to maintain Korea's role as an economic powerhouse by offering generous incentives to manufacturers. Renault Samsung, which invested $300 million in an auto factory there four years ago, plans to invest another $600 million in an engine-production plant, said Yun-Il Kim, the free zone authority's director general for investment planning and support.
The plan also includes the creation of a new city between Busan and the new port. It would attract foreign investment by creating international schools for children of expatriates, as well as tourist attractions such as an indoor ski dome.
Until last year, the central government in Seoul controlled all port activities. It created the Busan Port Authority in January 2004 as a 50-50 venture between the central government and the local government in Busan. Kang said it is modeled after the Port Authority of New York and New Jersey, which is governed by an equal number of commissioners appointed by the governors of the two states.
Current plans for Busan do not include the construction of a major international airport, but Choo said he believes the government is considering that possibility. Inchon International Airport, outside Seoul, is one of the world's largest cargo airports, mainly because of its role as a transshipment center for Chinese cargo. The creation of a major international airport in Busan, located about 250 miles from Seoul, would boost Busan's prospects of becoming a logistics center.
From : seaports.com