South Korea's Logistics Sector: Emerging Opportunities and Growth Trends

South Korea's logistics industry is experiencing a significant transformation driven by technological advancements, evolving global trade patterns, and strategic infrastructure investments. Key indicators suggest a sector ripe for expansion and adaptation to new trends. From the revitalization of major ports like Busan and Incheon to the rapidly growing cold chain market, Korea presents an attractive landscape for logistics professionals and investors. This article explores the various factors influencing Korea's logistics ecosystem and the opportunities available both domestically and internationally.

Trends and Outlook

Port Recovery: Growth at Busan and Incheon

As of March 2023, Busan Port has achieved a record high of 2.05 million TEUs in monthly container traffic, marking a 9.3% increase from the previous year. The port has also excelled in transshipment cargo, with Maersk's volume rising by 53%. Incheon Airport, despite a 13% decrease in air cargo traffic in February 2023, anticipates a recovery in the third quarter. Atlas Airlines plans to establish a Maintenance, Repair, and Overhaul (MRO) facility in Incheon, further expanding its operations. Korean second-party logistics (2PL) providers saw growth in 2022, with the top five achieving an average operating margin of 3.3% and aiming for global expansion through AI integration.

Growth in Container Traffic and Daily Goods

In alignment with Busan Port's performance, Incheon Port reported a 20% year-on-year increase in container traffic, reaching 298,933 TEUs in March, a record high. This growth is attributed to increased trade with China, Thailand, and Vietnam, longer stopovers for container ships, and greater repositioning of empty containers. Despite global economic uncertainties, the logistics industry anticipates growth driven by digital transformation and platform expansion. Korea's import/export container traffic is projected to rise by 4.2%, with a 10.9% increase in daily goods shipments in 2023.

Mega vs. Urban Logistics Centers

With rising transportation volumes, shippers are consolidating through mergers and acquisitions, embracing larger, advanced logistics facilities. New centers are incorporating AI-driven robotics for improved safety and efficiency. Concurrently, the surge in quick commerce, accelerated by COVID-19, has led to the proliferation of smaller urban warehouses. Urban logistics centers are expanding by repurposing existing large stores.

Cold Chain Expansion: 15% Annual Growth

Projections from various research organizations indicate that the global cold chain market is expected to double from approximately USD 224 billion in 2020 to USD 438 billion by 2026, with an average annual growth rate of around 15%. In South Korea, the cold chain sector was valued at KRW 49 trillion in 2018, compared to KRW 120 trillion for the logistics industry. By 2028, the cold chain sector is forecasted to reach KRW 195 trillion, potentially surpassing the logistics industry.

Why Korea Attracts Investors

Incheon Airport and Busan Port: Key Logistics Hubs

South Korea's strategic position, with Busan Port and Incheon Airport, offers efficient and cost-effective trading opportunities. Busan Port, ranked second globally in transshipment, is operated by leading terminal operators such as PSA, DP World, and Hutchinson. Its strategic location facilitates connections to major markets including Japan, China, Europe, and North America. Expected to handle approximately 22.31 million TEUs in 2023, it promises steady growth in import, export, and transshipment traffic. Busan Port's 24/7 operations and resilience to natural disasters provide a competitive advantage over Chinese ports, which are often affected by closures. Its deep water depths accommodate even the largest container vessels.

Ongoing Expansion of Logistics Infrastructure

Prior to the 2000s, Korea's logistics sector grew significantly due to rapid economic expansion and an export-oriented economy. Since then, development has continued with improvements in quality, driven by the emergence of the Chinese market and government investments in logistics infrastructure, including Incheon Airport, Busan New Port, and inland logistics centers. Due to limited land space and geographical constraints, domestic cargo primarily relies on trucks, while international cargo is handled through ports and airports. Positioned between China and Japan and surrounded by sea, Korea's export-oriented economy has led to the establishment of key international logistics hubs in the capital region and the Busan area. The logistics corridor between Seoul and Busan is rich in transportation networks, airports, ports, and inland logistics facilities.

Diverse Foreign Investments in Korea's Logistics Sector

As of 2020, foreign direct investment (FDI) in Korea's logistics and distribution sector reached USD 1.831 billion, a substantial 38.7% increase year-on-year. Greenfield projects dominated, comprising 92% of the total, with investments from companies in Hong Kong, the United States, China, Singapore, Germany, and the United Arab Emirates. In the logistics industry alone, FDI amounted to USD 632 million across 44 projects in 2020, contributing to a total of USD 3,154 million over the past seven years. While investment levels can fluctuate due to regional competition and domestic economic conditions, recent years have seen an increase to USD 300-600 million, stabilizing at these levels. Mergers and acquisitions made up 17% of the declared investment amount, with greenfield projects accounting for 83%.

Conclusion

South Korea's logistics sector, supported by Busan Port and Incheon Airport, is set for substantial growth amid global challenges. With rising container traffic and a flourishing cold chain market, Korea offers numerous opportunities. Advanced infrastructure and increasing foreign investment underscore Korea's logistics potential.

For expert guidance on navigating South Korea's logistics sector, Pearson & Partners offers specialized consulting services, including incorporation and tax accounting solutions. Contact us for personalized advice on capitalizing on Korea's logistics opportunities.