It has already been two years since the outbreak of COVID-19 began to have a generally negative impact on all industries. It is still on the rise, and restrictions in various fields are still in progress.
The COVID-19 pandemic has brought about many changes to our lifestyle. Beyond quarantine and health care, it has a huge impact on every aspect of people’s daily lives, including the economy, society, and culture. As the domestic and international economic and social paradigm has changed, the low growth and low-interest rates that have continued since the 2008 global financial crisis has deepened. Socially, non-face-to-face communication is becoming a common practice, and it is also playing a role in accelerating the transition to the digital economy, deepening imbalance and polarization in all areas by country, industry, and class. However, there are changes that can be viewed positively, such as accelerating the transition to the ESG era in which there are joint responses through recognition of the importance of non-financial values such as the environment and climate.
[Changes in Global Maritime Container Volume (2020)](Source: Container Trades Statistics)
[Changes in Global Air Cargo Volume (2020)](Source: International Air Transport Association)
The trade, port, and aviation industries were also affected in various ways by the COVID-19 outbreak. In 2020, the growth rate of global maritime container volume turned to recovery after falling to -8.3% year on year, and the global air cargo volume also fell to -27.7% year on year. It seems certain that trade has been hit hard with a gradual recovery. Fortunately, global container and air cargo volumes in 2021 have recovered to pre-COVID levels and are expected to maintain their previous status this year.
[Changes in Korean Port Container Volumes (2020)](Source: Port Management Information System (PORT-MIS))
[Changes in Korean Air Cargo Volume (2020)](Source: Air Portal)
Korean ports have also gone through a very difficult period with container volume in 2020 dropping to -7.1% and -33% in air cargo year on year, and then recovering. Korean port and air cargo volume have also recovered to pre-COVID-19 levels, similar to the global volume trend, which is brightening the outlook for 2022.
[Changes in Korean Container Volume by Each Month](Source: Integrated Port-MIS of Ministry of Maritime Affairs and Fisheries)
[Changes in Airport Cargo Volume](Source: Incheon International Airport Corporation)
There have been many unpredictable variables in trade over the past two years due to COVID-19. According to the report based on the evidence for 2 years from 2020 to 2021, let’s take a look at the following forecasts of Korean exports in 2022, the trend of Korean port cargo volume, and the task from the sunset period of the safe trucking freight rate system.
[Average Export Growth Rate by Industry in 2022](Source: Korea Economic Research Institute)
First, looking at the Korean export outlook for 2022, the Korea Economic Research Institute predicts that the growth rate of exports will slow significantly year on year. In 2021, the growth rate of exports from January to November recorded a rapid increase of 26.6% year on year, supporting the Korean economy. However, as a result of a survey of the top 1,000 companies in terms of sales in December of the previous year, it is predicted that this year’s exports will increase by 3.2% year on year. Looking at the forecast for export growth by industry this year, it is in the order of general machinery/ship (8.1%), electrical/electronics (5.4%), bio/health (2.2%), steel (2.1%), petrochemicals/products (1.7%), and automobile/parts (1.1%). In terms of the number of companies, 58.7% of companies expected their exports to increase, and 41.3% expected to decrease this year compared to the previous year.
[Reasons for the Increase and Decrease of Exports] (Source: Korea Economic Research Institute)
Most companies (73.2%) which expected their exports to increase this year compared to the previous year, predicted that the normalization of the world economy and the revitalization of trade, following the transition to the recovery of daily life along with the coronavirus as the biggest reason for the increase in exports. On the other hand, companies that expected their exports to decline this year compared to the previous year cited worsening export competitiveness due to domestic institutional factors such as corporate regulations and rising costs (28.9%) and worsening economic conditions in export destination countries (27.6%) as the reasons for the decline.
[Factors for Worsening of Export Profitability and Export Profitability Forecast]
[Export Conditions Risks and Policies Necessary to Strengthen Export Competitiveness] (Source: Korea Economic Research Institute)
There was a prevailing opinion that the export profitability of the current year is similar to the previous year (52.7%), but there were also some companies that expected worsening (29.3%) or improvement (18.0%).
As risk factors for exports in 2022, the main reasons were the increase in raw material prices (36.4%) and the re-spreading of COVID-19 (33.8%), suggesting that concerns about the stable supply of raw materials and awareness of the dangers of COVID-19 are not diminishing. In particular, companies have ordered the need for an active government policy on the price stability of raw materials and basic resources to improve domestic export competitiveness in 2022. In order to strengthen export competitiveness, it was surveyed that Korean companies perceive price stability (55.1%) such as raw materials, and dealing with diplomatic issues such as the U.S.-China conflict (15.8%) as the most important issues.
[Total Cargo Volume of S. Korea](Source: Korea Maritime Institute)
[Current Status and Forecast of Container Volume in Korean Ports](Source: Korea Maritime Institute)
Second, looking at the forecast trend of the cargo volume of Korean ports in 2022, the nationwide port container volume in 2020 recorded 29.1 million TEU, a decrease of 0.4% year on year due to the aftermath of COVID-19. However, it recorded 30 million TEU in 2021, an increase of 3.1%, and achieved 30 million TEU for the first time in history. Korea Maritime Institute predicts that the shipping and port markets will record 31.5 million TEU, an increase of 5% year on year, thanks to the continued economic recovery in response to the stabilization of fiscal policies in developed countries and the expansion of vaccine supply to emerging countries.
[Current Status and Forecast of Total Cargo Volume by Korean Port](Source: Korea Maritime Institute)
The total cargo volume of Korean ports is expected to show a recovery trend to 1.64 billion tons, an increase of 3.8% year on year. Total cargo volume in 2020 was 1.5 billion tons, down 8.6% from the previous year, and it seemed difficult to recover. However, it succeeded in rebounding to a record 1.58 billion tons in 2021. Considering the current trend, it is predicted that the recovery will continue this year at a level similar to the pre-COVID-19 level. Busan Port, which is considered a major port, is expected to increase 7.7% to 470 million tons, and Incheon Port is expected to record 180 million tons, an increase of 4.4%.
Port cargo volume is expected to rise from 1.5 billion tons in 2020 to 1.58 billion tons in 2021 and 1.65 billion tons in 2022, so it can be inferred that Korean ports are slowly recovering from the impact of COVID-19. However, in the face of increasing global uncertainty, a preemptive response to changing trade patterns seems necessary.
Finally, 3 years have passed since the implementation of the safe trucking freight rates system, but there are still complaints about unclear regulations, such as conflicts occurring in the field. The safe trucking freight rates system is a minimum fare announcement system paid by truck owners and transport operators to improve the working conditions of cargo transport workers and ensure the safety of trucks.
Currently, safe freight rates have been decided and announced through concessions and compromises among industry officials and are being implemented. Since the 3-year sunset system was introduced for safe freight rates, the sunset deadline is approaching this year, and discussions about the direction of the full-fledged operation of the system are expected to begin.
There is urgency in solving the practical problems that have emerged through the 3 years of implementation experience. In addition, if an improvement plan to abolish the sunset system or to extend the deadline is proposed, it seems essential to make a drastic improvement to the existing practice, change the composition of the safe freight rates committee, and clarify its role.
As it consumes time to establish the safe trucking freight rates system, there is a need to thoroughly research and review similar domestic and international cases that are currently in progress. In particular, since alternatives such as persuasion or changing the method can be suggested depending on the effectiveness of the implementation, it is necessary to focus on establishing an appropriate system by recognizing the importance of suggesting improvement measures and future research.
We have observed the export forecast of Korea for 2022, the forecast of domestic port cargo volume trends, and the remaining tasks of the safe freight rates system. Although we have encountered unprecedented challenges such as the unexpected COVID-19, we are gradually recovering from our daily lives by adapting and responding to each field. As always, opportunities will surely present themselves in 2022 for those who are prepared.
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