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A Study on the Linkage of Railroad & Shipping to Strengthen Logistics Competitiveness in Korea

S. Lee, J.K. Yoo, K.T. Kim, D.S. Moon Korea Railroad Research Institute, Uiwang-City, Korea

Abstract Due to logistics cost being a major component of national competitiveness, efficient freight transportation by multimodal transport is needed to save transportation cost and time. This paper deals with the efficient linkage of railroad and shipping to save on logistics costs and improve national competitiveness in Korea. First of all, the operation status of the train- in and and the trade status of Korea, Japan and China are discussed. The northeast Asian logistics system which linked railroad and shipping is recommended for Korea in order to play an important role as the logistics hub in northeast , to cut down logistics cost and to reinforce national competitiveness. The train-ferry system will contribute to revitalize railroad freight transportation and develop the multimodal logistics system.

1. Introduction Logistics cost is a major component of national competitiveness because of fast-growing freight volume between nations due to continued economic growth and the expansion of trade volume. Transportation cost, which is the largest part of logistics cost, has particular effect on the whole logistics cost. Therefore, efficient freight transportation by multimodal transport is needed to save transportation cost and time. The train-ferry system is the economical multimodal transport method that integrates efficiency and mass transportation by combining shipping with railroads. This system is an efficient transport method because it ensures connections of transportation in areas which are disconnected by geographical barriers such as lake, river, sea, and so on. Due to the rapid economic growth of developing countries such as Korea, Singapore, Hong Kong, Indonesia and Malaysia, and the introduction of market economy in China, Asia has been in the spotlight. Northeast Asian economies such as Korea, Japan and China are leaders in the rapid growth of the economy in Asia. The major characteristic of Asian trade is the large increase in the rate of intra-trade in relation to economic growth and industry development. Among the whole export and import amount of Korea, Japan and China, the rate of intra-export volume is 20.2% and the rate of intra-import is 27.6%. For this reason, economic cooperation between intra-countries is very important to the Asian economic bloc and the efficient construction of an international logistics system is needed. Because of the geographical conditions and complementary trade structure of Korea, Japan and China and the rapid economic growth in China, a train-ferry system contributes to the revitalization of freight transportation by rail and the improvement of multimodal transport system in northeast Asia. The train-ferry system is expected that Korea play an important role in multimodal transport system connecting Korea, Japan and China as well as providing efficient transportation between Korea, Japan and China. Therefore this paper deals with the operation status of train-ferry, the trade status of Korea, Japan and China and efficient linkage of railroad and shipping to save the logistics cost and improve national competitiveness in Korea.

2. Operation status of train-ferry and implications 2.1 Operation status of train-ferry in Europe Train-ferry transportation systems of loading freight cars into are a world-wide transportation system. More than 100 train- are operated in 25 countries with 30 lines. The range of operation distance is from 200km to 800km, and that of cruise time is from 10 hours to 20 hours. The minimum distance of train-ferry line operated in Europe is generally 100 miles until now. This is caused by the needs of combining geographical influence in Europe and the advantages of train-ferry. When carriers freight goods by trucks in Baltic Sea area, they must pass the national borders of countries many times. But, if they use train-ferry, they sharply reduce the number of passing of

national borders. Another advantage of train-ferry lies in the fact that it saves transportations of goods. Freight cars can be loaded to ferry directly and unloaded from ferry directly. Where fragile goods are concerned all risks of breakage by handling at the ports are avoided. Perishable goods also derive considerable benefit from a train-ferry. The main routes of train-ferry in Europe are located in three regions. In the Baltic Sea, Finland, , and are connected by train-ferry. Sea routes are significantly shorter than land routes in this area. The advantage is that carriers using train-ferry can avoid crossing the other nations’ borders. In the Mediterranean Sea, train-ferry connecting two islands (Italy and , ) is operated. In the , Rumania, , and are connected by train-ferry. There are two reasons connecting by train-ferry in this area. The first one is to connect to Asian railway network, and the second one is land transportation by railway is difficult.

Area Line Note relatively short distance, – Rodby economic feasibility (Mukran) – – Trelleborg Baltic Sea Swinoujscie – Lubeck – Travemunde – Malmo – /Abo Sassnitz(Mukran) – Klaipeda Lubeck – Travemunde – Turku/Abo Connecting the Mediterranean VS Giovani – passenger service Sea Civitavecchia – Golfo Aranci linking an Sardinia Island Constantza – Istanbul Ilichevsk(Odesa) – Varna Black Sea Constantza – Ilichevsk(Odesa) – / Constantza – Poti/Batumi Table 1: Train-ferry line operated in Europe

The train-ferry is seen at its best in the Baltic Sea. The reasons of the growth of transportation by train-ferry between the three nations (Sweden, and Finland) of the Scandinavian Peninsula and the nations of the European Continent can be summarized into two viewpoints. The first is geographical condition carriers must cross the Baltic Sea to freight goods. The second relates to efficiency at the bottleneck. Reducing entire transportation time, it is essential to save time at the ports originated freight transshipment.

Figure 1: Train-ferry in Travemunde Port, Germany

2.2 Operation status of train-ferry in China China has promoted a - train-ferry project as a part of rail construction project from northeast China to River Delta region. After the exhibition run was performed in November 2006, three train-ferry ships are operating. By 2010, 8 train-ferry ships will be transporting about 10 million tons of freights for a year. In contrast to the length of the railways connecting the two cities via Bohai Bay Rim, the distance between Yantai and Dalian over sea is only 159.8km. As a consequence of train-ferry, the transportation distance is reduced over 1,000km in comparison with an existing long-distance train connecting northeast area to Shantung. This train-ferry enables to reduction of transportation cost and time between Yantai and Dalian and improves the capacity in a main railroad connecting north to south. Also, the train-ferry brings on the development of economic growth through the integration of northeast China, the Bohai Bay area and Yangtze River Delta area which makes up 86% of Chinese economy.

Figure 2: Dalian-Yantai train-ferry

The Qiongzhou Straits train-ferry connecting to Chinese mainland was completed in late 2002 and is operating since January 7, 2003. This project is the first train-ferry system and is promoted as part of a rail construction project from to Hainan. The distance of Qiongzhou Straits train- ferry connecting Hainan to Guangdong is 22.5km, and two train-ferry ships are operating which can carry trains, cars and passengers at once.

Figure 3: Qiongzhou Straits train-ferry

2.3 Implications of train-ferry system As the train-ferry is shown in Europe and China, the train-ferry system is the most efficient and economic transport method and provides a connection of transportation in the area disconnected by geographical conditions of lake, river, sea, and so on. Recently, the train-ferry system is substituted by the competitive facilities such as tunnels and bridges under development of bridge and tunnel technology and increase of demand. However, the new train- ferry lines are established in the Baltic Sea and the train-ferry system is regarded as a major transport method in Germany and Sweden as environmental issues by freight transportation are considered to be significant. Considering the geographical conditions of Northeast Asia that a large bay is formed between Korea and China and Japan is separated by the Continent of Asia, it is important for Korea, Japan and China to connect by railroad directly. Despite the disconnection between South and North Korea by railroad, can connect to Trans- (TCR) using the train-ferry between Korea and China. It can reduce the distance about 1,000km rather than connecting of a railroad line passing through North Korea. And then Japan is also enabled to connect the Continent of Asia by the train-ferry system linked to Korea. The train-ferry system can be a starting point of the northeast Asian business community, and it is expected that the logistics costs between Korea, Japan and China be reduced on a large scale and economic cooperation be revitalized.

3. Trade status of Korea, Japan and China The trade volume of Asian economic bloc has increased gradually. The trade volume of Asian economic bloc was 5,922 billion dollars in 2005 and sharing about 27.9% of the total world trade volume. Among the trade volume of Asian economic bloc, the trade volume of the northeast Asian economy consisted of Korea, Japan and China was 2,672 billion dollars and sharing about 14.4% of the total world trade volume. According to rapid growth of the economy in China, the importance of the northeast Asian economy has increased steadily in an international market and it is expected that the northeast Asian economy grows the economic volume of the world with North America and Europe in the future.

3.1 Trade status between Korea and China Due to the rapid growth of trading volume between Korea and China, China comes as the largest exporting country of Korea. Dependence on China of Korean export rose from 3.5% in 1992 to 19.6% in 2004 and then it reached 21.8% in 2005. Korea exported 28.2% of intermediate products and 26.2% of raw materials to China in 2004.

Unit : million of US dollars Year Korea to China China to Korea Trade Balance 2002 28,581 15,508 13,073 2003 43,135 20,096 23,038 2004 62,250 27,818 34,431 2005 76,874 35,117 41,757 2006 89,818 44,558 45,300 Note : Chinese Customs Table 2: Trade status between Korea and China

According to growth rate of 20~30% recently, the export volume of China to Korea was 44.5 billion dollars in 2006. And the import volume of China from Korea had increased three times for 4 years from 28.5 billion dollars in 2002 to 89.8 billion dollars in 2006. Therefore, the trade deficit of China to Korea has increased every year and reached 45.3 billion dollars in 2006. The leading export items from China to Korea are electronic products, steel products, machinery, mineral fuel, clothes and so on. And the leading import items from Korea to China are electronic products, optical instruments, machinery, organic compounds, and plastic goods, etc. According to development of industrial structure in China, trade relationship between Korea and China is changing from supplemental to competitive relationship and from vertical to horizontal division. For this reason, the export and import items between Korea and China are similar.

3.2 Trade status between Korea and Japan Recently, the trade volume from Korea to Japan has also increased. The export and import volume of Korea to Japan were 27.3 billion dollars and 50.2 billion dollars, respectively. From 2004 to 2006, Korea recorded 22~23 billion dollar trade deficit with Japan continuously.

Unit : million of US dollars Year Korea to Japan Japan to Korea Trade Balance 2004 22,068 44,282 -22,215 2005 24,420 46,651 -22,231 2006 27,319 50,258 -22,939 Note : Japanese Customs Table 2: Trade status between Korea and Japan

The leading export items of Japan to Korea are flat displays, semiconductors, computers, steel products and plastic goods, etc. And the leading import items of Japan from Korea also are semiconductors, steel and plastic products and so on. As the trade between Korea and Japan in parts field are active, the trade deficit of Korea to Japan has increased continuously according to extension of trade volume between them.

4. Linkage of railroad and shipping The northeast Asian logistics system which links railroad and shipping is recommended for Korea to play an important role as logistics hub in northeast Asia, to cut down logistics cost and to reinforce national competitiveness. The first element of the system is the linkage between Korea and China. The transportation system by railroad that transports export volume and transhipment volume from Busan and Gwangyang port to China via the west coast of Korea can be planned. Considering the distance from China, Incheon and Pyeongtaek port are expected to be main ports in this system in Korea. And Dalian and Yantai ports are expected to be the main ports in this system in China in view of its accessibility to Korea, connection to TCR and other facilities for train-ferry. Incheon port can be applied to the existing facilities, but inland transportation by railroad is hard for insufficient railroad capacity. Pyeongtaek port is the absence of service line. But Pyeongtaek port is good to use the whole railway network in Korea and has good hinterland so that it might be the most suitable candidate for train-ferry system. By constructing a train-ferry system connecting Pyeongtaek port (or Incheon port) in Korea and Dalian and Yantai port in China, many kinds of benefits are anticipated such as decreases in transportation costs and transportation time by shortening the transportation distance between Korea and China and by abolishing the transshipment process. Another important role of train-ferry system is the alternative route between Korea and trans-continental railway. Since the connection of railroad in Korean peninsula has many obstacles to get through, the train-ferry system is the realistic way to connect to trans-continental railway. The second part of the northeast Asian logistics system is the linkage between Korea and Japan. The following transportation system can be planned: inland transportation by railroad in Korea for export volume to Busan or Gwangyang port, the train-ferry system from Busan or Gwangyang port to Hakada port in Japan, and then inland transportation by railroad in Japan from Hakada port to inland area. As Busan port was designed for container terminal and already had been too many routes, it is hard to enter the additional train-ferry service at Busan port. Therefore the line connecting Gwangyang port to Hakada port is suitable for the train-ferry line between Korea and Japan. Korean Railroads and JR Freight started the container transportation service that connected Seoul, Busan and Tokyo using the linkage of railroad and shipping. This multimodal transportation service is consisted of inland transportation by a railroad in Korea (between Uiwang ICD and Busanjin CY), marine transportation by container ships between Busan port and Hakada port, and inland transportation by a railroad in Japan. The more efficient multimodal transportation system is expected to be the train-ferry system which can reduce the transhipment time at ports in Korea and Japan.

Figure 4: The northeast Asian logistics system which linked railroad and shipping

The train-ferry system will contribute to revitalize the freight transportation by railroad and develop the multimodal logistics system as the geographical conditions and supplemental trade structure of Korea, Japan and China and the rapid growth of economy in China. The construction of a train-ferry system is expected to play an important role for Korea as the centre of multimodal transportation system connecting Korea, Japan and China and as a logistics hub in Asia.

5. Conclusions In this paper, the operation status of train-ferry, the trade status of Korea, Japan and China and efficient linkage of railroad and shipping to save the logistics cost and improve national competitiveness were discussed. The logistics system connected to Korea, Japan and China using the train-ferry system is very efficient in the aspect of combination with a short-distance shipping and a long-distance railroad which is the characteristic of train-ferry. Therefore the efficient linkage of railroad and shipping was suggested to save the logistics cost and improve the national competitiveness. The train-ferry system can be a starting point of the northeast Asian community and it is expected that the logistics cost between Korea, Japan and China should be reduced on a large scale and economic cooperation should be revitalized. To introduce the train-ferry system, we should consider the followings: demands, facilities such as port, train-ferry ships, charge systems, systems to pass the border and so on.

References [1] J.H. Min, K.C. Lee, J.K. Yoo. “European train ferry operation case study”, The 2003 Autumn Conference of the Korean Society for Railway, pp. 305-310, (2003). [2] J.K. Yoo et al. “Study on development multimodal logistics system connected northeast Asia”, Korea Railroad Research Institute (2003). [3] J.K. Yoo, S.Y. Lee, E.Y. Han. “A study on train-ferry system between Korea and China”, The 2002 Autumn Conference of the Korean Society for Railway, pp. 272-280, (2002). [4] S.Y. Lee, H.L. Rho, B.H. Chung. “Study on freight transportation with train ferry between Korea and China”, The 1999 Spring Conference of the Korean Society for Railway, pp. 41-51, (1999).