Expert Column Global Port, the Center of Global Logistics Flow

The Importance of Logistics due to COVID-19 Pandemic The COVID-19 pandemic is not only changing the quarantine system for our lives but also our entire lifestyle. One of the biggest changes will be going back to the normalizing of non-face-to-face activities. As non-face-to-face activities become normal, the importance of logistics is being imprinted in our daily lives. People, who used to go directly to markets or marts in the past, now use smartphones to order goods at home. The goods are moving through the method of delivery. This phenomenon is revitalizing e-commerce to purchase goods not only in our surroundings, but also overseas, creating new Korean terms such as jikgu (English: direct purchasing) and yeok-jikgu (English: reverse direct purchasing).

Due to the collapse of the global supply chain from the COVID-19 pandemic, we often see articles about the surge in logistics costs. Most of these articles are mentioning about the large number of ships waiting at sea without docking in the port, highlighting LA/LB port, which is the gateway to the Pacific Ocean of the United States, the world’s largest consumer. In the case of LA/LB port, the number of waiting vessels at sea, which was only about 10 before the COVID-19 pandemic, is about 150 or more, as of the end of October 2021. Assuming approximately 10,000 to 20,000 (TEU) containers can be loaded by a single vessel, 150 vessels mean that 1.5 to 3 million TEUs are tied there. The world’s total vessel capacity is about 25 million TEU, which means that about 10% of the vessels are in a state of shutdown.

Not only the ports in the United States, but also regional ports affected by COVID-19, especially ports in China, the world’s largest manufacturing country, are temporarily unable to operate ports. A similar situation often occurs in the European Union, the second largest importing International Organization As vessels that should move do not move and cargoes that need to be unloaded cannot be unloaded and are floating on the sea, it is inevitable to say that the global supply chain is collapsing. The goods that were bought, the parts for the factory could not be delivered to homes or to the factories are either floating on the sea or arriving much later than the scheduled time. In the end, the collapse of the global supply chain led to a surge in shipping rates, and freight rates have risen 4 to 5 times higher than before the COVID-19 pandemic.

Some exporters say that logistical costs account for more than 50% of product price, so it seems impossible to make a profit from selling goods. This exporter is in a better situation though. There are numerous companies that cannot even load export goods on vessels in the first place. Eventually, this problem even led to U.S. President Biden’s involvement and the leaders of major countries were to the point of holding talks to resolve the problem. For reference, the importance of shipping and ports in the global supply chain continues to be mentioned because 90% of global trade is conducted by sea.

The Importance of Ports in the Whole of Logistics The global supply chain refers to all process in which suppliers send goods to consumers or bring raw materials and intermediate goods to produce goods. Also, the act of carrying out this process is logistics. So, if logistics are blocked, then the global supply chain will collapse, factories will stop, and consumers will not be able to receive goods. When the great northeast earthquake occurred in Japan, manufacturing was suspended at automobile factories in Republic of Korea and China. There are about 20,000 parts required to manufacture one vehicle, and most parts are procured from the countries around the world. If there is a problem involving a single part, then manufacturing will be stopped. Therefore, in addition to the optimal logistics route, most companies must prepare alternative routes, warehouses for inventory, and alternative companies to respond to emergencies.

As such, the importance of logistics is increasing, and a port is an important infrastructure that connects country to country in the process of logistics. A port is a place, where vessels carrying cargoes from overseas dock and unload cargoes, and on the contrary, it is also a place where we load and send cargoes to exporting countries. So, if a problem occurs in the port, there will inevitably be a problem in the global supply chain. The recent collapse of the global supply chain is a problem caused by the shortage of manpower in ports and hinterland logistics system that connect ports, which are occurring in ports of North America and Europe, world’s largest consumers and China, Southeast Asia, etc., which are world’s largest producers.

Among the logistics infrastructures built in a country, the infrastructure that mainly competes with countries is ports and airports. Roads and railroads do not have to compete with other countries. Roads and railroads provide services only within the country, so there is no reason to compete with neighboring countries. You may have never heard of roads in Korea competing with roads in China. However, ports and airports are different. Ports are in competition with each other because they must absorb transshipment cargoes and attract large vessels from small ports in neighboring countries. Also, airports must compete to attract passengers with the concept of transfer flights. In this context, it is necessary to understand a little about the features of ports. First, ports are infrastructure for competition between countries. Second, ports have a hierarchy that is not determined, but it is inevitably classified into upper, middle, and lower classes.

The meaning of ports as infrastructure in which countries compete refers to the sphere of influence that ports have. The larger the port, the wider the sphere of influence, and the smaller the port, the smaller the sphere of influence. Port of Busan in Korea is one of the top global ports in the world. The Port of Busan’s sphere of influence covers the whole of Northeast Asia. Until 1995, the sphere of influence of the Port of Busan was limited to Korea and southern Japan. It was subjected to the Port of Kobe, Japan. However, the Great Hanshin earthquake, or Kobe earthquake in 1995 decisively change the fate of the Port of Busan. As the Port of Kobe, which was the central port of Northeast Asia at that time, was destroyed by an earthquake, and a central port was necessary to handle cargoes entering and exiting the region. The Port of Busan took that position. It is difficult to find the reason solely on the earthquake. The Port of Busan was significantly expensive than the Port of Kobe, and there was a geographical advantage of being located between China and Japan. In any case, the Port of Busan has grown to the world’s third largest port, leaving Kobe behind and currently maintains the world’s sixth largest port. The Port of Kobe has now fallen into the world’s top 60 ports. In the world’s top 10 ports, all ports in Asia, except for Rotterdam in Europe, occupy the top 10, and among them, all are ports in China, except for Busan and Singapore. It is remarkable that Korea, with a population of only 50 million, has one of the world’s top 10 ports.

On the other hand, there was the Port of Kaohsiung in Taiwan, which maintained top 10 in the world until the year 2000. At the time of prosperity for Korea, Taiwan, Singapore, and Hong Kong, which were called the four dragons of Asia, Taiwan’s Port of Kaohsiung was the central port in East Asia, handling not only Taiwan’s cargo volume but also transshipment volume from China. However, Taiwan began to be pushed out of China’s growing ports as large volume of goods flowed out of China due to a large influx of foreign capital after China’s open policy and cross-strait cooperation between China and Taiwan. In particular, the Port of Kaohsiung has started to be pushed behind by neighboring Ports of Shanghai, Ningbo-Zhoushan, and Xiamen. Currently, it is barely maintaining top 20 in the world.

Ports were said to be an infrastructure with international competition. When ports compete one another, they have no choice but to push or subjugate neighboring ports. So, it is inevitable for a hierarchy of ports. This relationship between ports is called Hub & Spoke. Just like the wheel of a bicycle, there is an axle as a hub in the center, and several bicycle spokes connect to the wheel to maintain power, which connects ports in a similar way. The Port of Busan is a central port in Northeast Asia, and it is a sea route with a spoke concept as a feeder ports in Northeast China such as Dalian, Dandong, Xinzhou, Yantai, and Weihai and in ports on the West Coast of Japan, such as Niigata, Hakata, and Shimonoseki. If the ports in Northeast China and the West Coast of Japan export or import goods to Europe and the United States, then they have no choice but to go through the Port of Busan. Like the concept of taking a city bus or a town shuttle bus to get on an express bus, vessels also touch only large ports to load and unload cargoes. In order to load cargoes on the vessels, goods must be moved from a small port to a large port and loaded. This process is called transshipment in technical terms, and the Port of Busan is the second largest transshipment port in the world. Due to the Port of Busan surpassing the Port of Kobe in the past, it was able to become world’s 10th largest port and 2nd largest transshipment port. However, the Port of Busan is adjacent to ports of Shanghai, Ningbo-Zhoushan, and Qingdao, which currently handle more cargoes than the Port of Busan. The Port of Tianjin is also nearing to overtake the Port of Busan. The Port of Busan is also likely to be subordinated to Chinese ports. In fact, it may become a reality in a year or two due to China’s policy changes or the Korean government’s policy practice. It should be noted that the competition among ports is fierce, and the Korean government and companies are putting great efforts to protect the Port of Busan (^[1] Reference). Introduction of Top Global Ports

Currently, the number one port in the world is the Port of Shanghai. Since 2010, the Port of Shanghai has been maintaining the number one position, overtaking Singapore and Hong Kong. It is at the forefront of handling goods made and used by China’s 1.4 billion people. Due to its location at the mouth of the Yangtze River, it receives large-scale cargoes from large sites and hinterland such as Nanjing, Wuhan, and Chongqing in inland China through water transport and exports them overseas. The Port of Shanghai has three major port areas: Waigaoqiao, Pudong, and Yangshan. Yangshan Deep Water Port is the world’s largest port with over 55 berths. Through maximization of efficiency in handling volumes through complete terminal automation, Yangshan Deep Water Port is mainly used by large ocean-going vessel companies. Recently, in order to transform into a futuristic port, great efforts are being made to establish a digital system with global IT companies and to establish an optimal trade system using a port through the introduction of blockchain technology.

The Port of Singapore maintained 2^nd place, following the Port of Hong Kong before 2005, but it maintained the world’s number one ranking from 2005 to 2010. Currently, it has been overtaken by the Port of Shanghai and has maintained 2^nd place for 10 years. In the case of Singapore, it does not have a large hinterland like Korea’s Port of Busan. Based on a dense transshipment and shipping network connected to Southeast Asia, it maintains the world’s number one transshipment port and the world’s second largest port. The port of Singapore is maintaining its strong position as a central port by defeating neighboring ports based on its excellent service with the amount of handling cargoes. In particular, the world’s largest Port of Tuas with a scale of handling 65 million TEU, which is being prepared for full opening in 2040, is under development as a future port incorporating digital concepts by overcoming the limitations of the current port in the city center. It is preparing to integrate various technologies that minimize collisions with cities while providing optimal logistics services without manpower by connecting the port and the hinterland city in an optimal state based on digital technology beyond the level of simple port automation.

Port of Ningbo-Zhoushan, the world’s third largest port, shares the lower Yangtze River with the Port of Shanghai, handling cargoes from Zhejiang Province, China’s largest industrial region, and water-borne goods from Yangtze River simultaneously. Port of Shenzhen, world’s 4^th largest port, was connected to Hong Kong in the past and served as a support for Hong Kong. Due to the electronics and machinery-based industries in the hinterland, it has been pushing out the Port of Hong Kong, reigning as the world’s fifth largest port since 2010. The Port of Guangzhou is also growing while maintaining the triangle formation of Hong Kong, Shenzhen, and Guangzhou ports in connection with the Pearl River water transport in southern China with the same region as its hinterland. The Port of Qingdao, the world’s 6^th largest port, had a smaller cargo volume than the Port of Busan until 2019 and served as a feeder port for the Port of Busan in the past. However, it overtook the Port of Busan based on the cargo volume in Shandong Province and the central region of China.

As mentioned before, the Port of Busan, the world’s 7^th largest port, handles 75% of Korea’s import and export cargoes and attracts more than 50% of the remaining total cargoes from Northeast China, Japan’s West Coast, and Russia’s Far East through a transshipment shipping network. It once rose to become world’s 3rd largest port, but it currently ranks between 6^th and 7^th. It has an excellent geographical advantage, a natural climate that allows 360 days of operation, and a port logistics infrastructure with the best cost-effectiveness connecting the North Port and New Port of Busan Port and New Port of Jinhae. The Port of Busan is developing a large-scale port hinterland complex to handle not only port cargo volume but also create value added services. This hinterland complex is spread out to Gangseo-gu, Busan city, where the New Port of Busan Port is located and Jinhae-gu, Changwon city, Gyeonsang Province. In order to overcome the narrow hinterland limited to Korea, a foundation for its own cargo volume is being created and an infrastructure for sustainable growth based on recently confirmed New Gadeok Airport and the hinterland rail network are being built. Compared to major competing ports such as the Ports of Shanghai, Qingdao, and Singapore, great efforts are required into the evolution of port automation and smart port. To overcome these problems, the Northeast Asian smart logistics platform concept that enables business attraction and operation management by integrating the Tri-port connecting New Port of Busan, New Gadeok Airport, and a hinterland railway and a new type of business model that incorporates data-based digital technology are being contemplated.

In Conclusion Due to the recent global supply chain turmoil, the importance of ports is being recognized again. When ports are blocked, logistics is disrupted, and supply chains stop working. The global supply chain will be shut down rather than disrupted, and consequently, global trade, production, and consumption will stop sequentially. Although such a case will not occur, while watching the global supply chain turmoil originating from the United States and China, we can once again feel the importance of ports, which is a key link between land and sea, as well as overall supply chain management. Although physical conflicts between countries, such as wars, do not occur frequently in recent years, conflicts between nations through trade do occur frequently and are still ongoing. If ports are stopped, there may not be a greater threat. From this perspective, Korea’s port policy should be reviewed once more. Also, Korea should pay attention to the efforts of major countries in expanding their overseas networks through securing overseas ports. References

1. 1995~2005: Containerisation International Yearbook 1997, 2002, 207,
   2010~2020: “Top 50 Ports", World Shipping Council (2019)
2. Entire Ranking ISL, Shipping Statistics & Market Review 2021,
   Transshipment Ranking Drewry, Container Forecaster & Annual Review 2021/2022 3Q

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