Company Setup, Key Trends, and Investment Opportunities
South Korea’s logistics industry is undergoing major transformations, spurred by technological innovations, shifting global trade dynamics, and strategic infrastructure investments. Key indicators point to a sector primed for growth and adaptability to emerging trends. From the revitalization of major ports like Busan and Incheon to the rapidly expanding cold chain market, South Korea presents an appealing landscape for logistics experts and investors. This article delves into the factors shaping Korea's logistics ecosystem and explores both domestic and international opportunities within the sector.
Trends and Outlook
Port Growth at Busan and Incheon
In March 2023, Busan Port set a new record with 2.05 million TEUs in monthly container traffic, a 9.3% increase over the previous year. Transshipment cargo is also on the rise, with Maersk's volume up by 53%. Despite a 13% decrease in air cargo traffic at Incheon Airport in February 2023, the airport expects a rebound by the third quarter. Additionally, Atlas Airlines is planning to establish a Maintenance, Repair, and Overhaul (MRO) facility in Incheon to expand its operations. Korean second-party logistics (2PL) providers also reported growth in 2022, with the top five companies achieving an average operating margin of 3.3% and targeting global expansion through AI integration.
Growth in Container Traffic and Consumer Goods
Alongside Busan’s success, Incheon Port saw a 20% year-on-year increase in container traffic, reaching 298,933 TEUs in March—a new record. Factors driving this growth include increased trade with China, Thailand, and Vietnam, extended container ship stopovers, and more repositioning of empty containers. Despite global economic uncertainties, the logistics industry remains optimistic, with projections of 4.2% growth in Korea's import/export container traffic and a 10.9% rise in consumer goods shipments for 2023, fueled by digital transformation and platform expansion.
Mega vs. Urban Logistics Centers
In response to rising transport volumes, logistics companies are scaling up through mergers and acquisitions, favoring large, advanced facilities equipped with AI-driven robotics for enhanced safety and efficiency. Concurrently, the demand for rapid delivery, accelerated by the pandemic, has driven growth in smaller urban warehouses, often repurposed from large retail spaces.
Cold Chain Expansion: 15% Annual Growth
Global research projects the cold chain market to double from approximately USD 224 billion in 2020 to USD 438 billion by 2026, with an annual growth rate of about 15%. In South Korea, the cold chain sector was valued at KRW 49 trillion in 2018, compared to KRW 120 trillion for the broader logistics industry. By 2028, the cold chain market is expected to reach KRW 195 trillion, potentially surpassing the general logistics sector.
Why Korea Attracts Investors
Incheon Airport and Busan Port: Strategic Logistics Hubs
South Korea’s strategic positioning, highlighted by Busan Port and Incheon Airport, facilitates cost-effective trade. Busan Port, the world’s second-largest in transshipment volume, is operated by major global terminal operators like PSA, DP World, and Hutchison. It is well-positioned to connect with key markets in Japan, China, Europe, and North America. Projected to handle around 22.31 million TEUs in 2023, Busan Port benefits from 24/7 operations and resilience against natural disasters, setting it apart from Chinese ports, which frequently experience closures. Its deep-water capacity can accommodate even the largest container vessels.
Logistics Infrastructure Expansion
Since the early 2000s, Korea’s logistics sector has expanded alongside rapid economic growth and an export-focused economy. Infrastructure improvements—driven by the rise of the Chinese market and government investment in facilities like Incheon Airport, Busan New Port, and inland logistics centers—have further bolstered the sector. With limited land and geographical constraints, domestic cargo primarily relies on trucking, while international shipments are managed through ports and airports. Korea’s export-oriented economy has led to key logistics hubs in the capital region and Busan area, connected by a robust transportation corridor featuring airports, ports, and inland facilities.
Diverse Foreign Investments in Korea’s Logistics Sector
In 2020, foreign direct investment (FDI) in Korea’s logistics and distribution sector reached USD 1.831 billion, marking a 38.7% year-on-year increase. The majority of this investment (92%) went to greenfield projects, primarily from companies in Hong Kong, the United States, China, Singapore, Germany, and the UAE. The logistics sector alone attracted USD 632 million across 44 projects in 2020, totaling USD 3.154 billion over seven years. While investment can vary with regional and economic conditions, recent years have seen steady inflows of USD 300–600 million, with greenfield projects accounting for 83% of total investments and mergers and acquisitions comprising 17%.
Conclusion
South Korea’s logistics sector, anchored by Busan Port and Incheon Airport, is poised for robust growth amid global challenges. With rising container traffic and an expanding cold chain market, the country offers substantial opportunities. South Korea’s advanced infrastructure and increasing foreign investment underscore its potential in the logistics domain.
For expert insights on South Korea’s logistics landscape, Pearson & Partners provides specialized consulting services, including support with incorporation and tax accounting. Contact us for tailored guidance on leveraging logistics opportunities in Korea.
