Shipping ■ The role of Marine Transportation

This section shows tthe role of marine transportation and the world marine transportation routes, etc.

■ The Marine Transportation of Korea

1.The Amount of Trade and Tonnage

(1) The Status of Marine Transportation in Korea Few people have any idea on how much Korean marine transportation industry developed in the past 20 years. Korea's gross tonnage occupies the ninth place in the world, and the quantity of transport by sea holds the 6th place in the world. Considering Korea's size of foreign trade amount or GNP, which is ranked as the 11th or 12th place in the world, the industry of marine transportation certainly possesses an importance status in Korean industry.

Gross Tonnage Korea's gross tonnage was 19.5 million DWT (Deadweight Tonnage) at the end of 1994, taking the 9th place in the world, which shows the rapid growth of the Korean marine transportation industry from the 20th place 20 years ago. The revenue from freight charge that the national liners earned reached 6.6 billion dollars, which accounted for 29.3% of Korea's earnings on invisibles. The increase of demand on marine transport from the rapid industrial development and the government policy to expand the number of vessels used in overseas service led to rapid increase in Korea's gross tonnage.

Container Transportation Capacity Due to the trend of transporting more general cargo in containers, the rate of using container ships is on the rise in international marine transportation. At the end of 1994, container ships of Korea shipped 174,000 TEU (Twenty Equivalent Unit), taking 4.2% of the total container shipping capacity of the world (4.1 million TEU) and the 6th place in the world. In the Pacific routes (between Asia and North America), Korea's shipping capacity by container ships is 131,000 TEU, taking the first place in the world, while in the European routes (between Asia and Europe), it takes the third place with the capacity of 58,000 TEU next to Japan and Denmark. Based on the transport capacity of the fleet of container ships, Korean shipping companies such as Hanjin, Hyundai, and Joyang have developed into world-class shipping companies, which provide the around-the-world routes and the pendulum service.

Marine Mobilization The quantity of import and export cargoes of Korea transported by sea in 1994 was 354 million tons, taking 3.9% of the world total (9.12 billion tons) and the 6th place next to the U.S.A., Japan, the Netherlands, Australia, and Great Britain. Especially the quantity of goods transported by the container ships of Korean flags in 1994 was 3,212,000 TEU (based on the quantity of containers transported from . The statistics of 1996 CIY), which took 3% of the world total of the container-transported goods (124,963,000 TEU), and Korea became the 10th nation in the quantity of container transportation capacity in the world.

Employment of Seamen The seaman is one of the three elements in marine transportation with vessels and cargo. The number of Korean seamen employed at home and overseas was 68,000, taking the 6th place in the world, after China, the Philippines, Russia, Indonesia, and Turkey. Korean seamen were renowned for diligence and quality. In 1987, the number of Korean seamen employed overseas reached 42,000, and currently, Korean seamen working for overseas marine companies number 12,000.

Container Handling Record of Busan The container throughput at Busan Port was 351,000 TEU in 1976, only the 14th place in the world, however, the throughput jumped to 3,212,000 TEU in 1994, becoming the 5th in the world. The rise in the quantity of containers handled at Busan Port, which handles over 90% of Korea's import and export container cargoes, was possible as the size of trade increased due to the rapid industrial development of Korea. The expanded facilities of Busan Port like the exclusive container terminals of Jaseongdae Wharf and Sinseondae Wharf as well as the optimized port management such as the efficient round-the-clock loading and unloading system helped Busan to become a major container handling port.

Shipbuilding Capacity The development of shipbuilding techniques lies behind Korea's growth as the 9th country in the world in the tonnage. In 1994, Korea constructed 118 vessels of 4,086,000 tons, taking 21.5% of the total shipbuilding of the world (18,966,000 ton). Korea was the second next to Japan, and the quantity of shipbuilding order was 144 vessels of 5,733,000 tons, accounting for 21.9% of the total world shipbuilding order, next to Japan. Recently, Korea succeeded in building the LNG tank ship, which required advanced technology and cost more than 150 million dollars, and proved to possess the equal shipbuilding technology to Japan, France and Norway.

2.The History of Korea's Marine Transportation

(1) Marine Transportation Marine transportation is a key industry which supports Korea's economy and national security. Marine transportation is the most important means of transporting the import and export cargoes of Korea, whose three sides are surrounded by sea: 99.7% of import and export cargoes is transported by sea. The freight income earned from marine transportation amounted 8.6 billion dollars in 1995, and contributed to improving the international balance of payments. As shown in the case of the Gulf War, marine transportation can serve as the fourth army, which transports strategic materials in case of emergency.

The Change in Gross Tonnage Owing to the economy structure heavily relying on export, Korea developed into the 12th largest exporting country in the world, and 99.7% of its trade goods is transported by sea. The gross tonnage of Korea in 1975 was only 16 million tons, or 0.5% of the total world gross tonnage. However, the past 20 years saw the increase of 7.3 times in gross tonnage thanks to the policy of augmenting oceangoing vessels registered in Korea and the escalating demand of cargo transportation supported by the growing economy. By the end of 1995, the gross tonnage of Korea was 116 million tons, or 2.4% of the world tonnage. Korea was inducted into the marine transportation sector of OECD in 1995 and was elected as an executive country of IMO, playing a key role in world marine transportation.

Gross Tonnage by the Category Compared with 1975, the registered passenger boats of Korea increased 5.1 times in 1995, while freight ships increased 9.2 times. Container ships showed the increase of 119.2 times and tankers, 3.1 times, and other types of vessels, 6.8 times. The number of container ships showed a remarkable increase, while tankers were slowly increasing in number. Container ships and freighters will continue to increase in number due to the rising demand on containers and the tendency of using a large- sized exclusive vessels in the future. But the international environment is not likely to help increase the number of tankers, for tankers require a double body and are being converted to more economic types of vessels.

Oceangoing Vessels of Korea The registered tonnage of oceangoing vessels in Korea was 1,320,000 DWT in 1975, and most of them belonged to small- and medium-sized fleets commissioned in the Japan and Southeast Asian routes. The government's positive policy to increase registered oceangoing vessels led to the rapid rise of vessels to 3.8 times by the end of the 1970's. By the end of 1995, the registered tonnage was 10,570,000 DWT, increasing 8 times. The slow rise in tonnage since 1985 can be explained by the fact that old vessels were replaced with new ones and the qualitative improvement of vessels was emphasized. The registered oceangoing vessels are expected to increase slowly in the future.

Coastal Vessels The gross tonnage of coastal vessels increased 5.1 times from 1975 to 1995, owing to the increase of cargoes and passengers and the popularity of the sea transportation as an alternative to land transportation. Coast liners are expected to increase in number and be modernized because the limited land transportation and the extended trade with North Korea will create more demand on sea transportation.

Cargo Transportation by Sea The total quantity of cargo transported by sea increased 11.8% each year on the average from 1975, and in 1995 the total quantity reached 5,335 million tons, which showed the increase of 9.4 times. Among them, imported goods took 59%, and exported goods took 17%, while the coastal cargo took the rest 24%. For these 20 years, imported cargoes showed the increase of 9 times, while exported cargoes increased 8.8 times. The coastal cargo increased 10.9 times, and the cargoes transported to a third country by the Korean flag carriers showed a remarkable increase of 35 times from 33 million tons in 1975 to 1,155 million tons in 1995. This means the pattern of Korea's marine transportation is shifting to the pattern of advanced countries, which transport more cargoes of other countries than those of their own.

Cargo Transportation by the Regions In 1975, Korea's transportation of import and export cargoes was limited to the regions of Japan, Southeast Asia and America. But the government policy to diversify the country of trade led to the different routes to various regions of the world, including Oceania, Central and South America, and Africa. Especially, the rapid economic development of China and Southeast Asian countries led to the steady rise in cargo transportation to these regions, and this trend is expected to continue in the future. On the other hand, the cargo shares of Middle East and Europe remain rather steady. See the table below for the cargo transportation to other regions.

Routes/Regions 1975 1985 1995

Far East and 12% 24% 36% Southeast Asia

North America 14% 23% 12%

Japan 22% 12% 9%

Cargo Transportation by the Items In 1975, oils including crude oil, petroleum, and refined petroleum took the highest 41.2% of all cargoes because of the influence of the oil crisis and the emphasis on heavy chemical industry during the Third Economic Development Plan. Wood, cement, steel, machinery, grain, and raw ore followed oils. In 1985, while the shares of oil, grain, wood, and cement diminished, those of ore like iron ore, steel and machinery increased. In 1995, oil took 36.5%, iron ore and other ores, 11.5%, and steel and machinery took 9.2%. Wood, grain and cement followed them. Except that the raw materials for the heavy chemical industry took 72.9% of the total cargoes in 1995, which shows steady increase since 1975, other cargoes have an even share because the items of import and export goods are being diversified.

The Change of Share in Coastal Cargo Transportation Among the total quantity of transported cargoes of 521,697,000 tons in 1975, the road transport takes up the highest portion, while the transportation by railroad decreased gradually. On the other hand, the sea transportation showed rapid increase. The sea transportation increased 2.9 times during the period between 1975 and 1985, and 3.4 times during the period between 1985 and 1994. This increase was caused by the shift in the mode of transporting mass cargoes such as oil, ores, and cement, which are now being transported by sea.

1975 1985 1994 by road 60.8% 62.5% 66.3%

by rail 30.714% 23.2% 11.1%

by sea 8.5% 13.3% 22.5%

Passenger Transportation In 1975, there was only one overseas route for passenger transportation between Busan and Shimonoseki, Japan. But in 1995, 4 vessels in Korea/Japan route and 5 vessels in Korea/China route were in service. The number of passengers in 1995 was 397,000, increasing 8.2 times from that of 1975. Coastal passenger transportation has increased steadily since 1975, reaching its climax in 1980. After some stable period, the number of coastal passengers increased to 8,702,000 in 1995. The reason the number of coastal passengers did not change much can be found in the decrease of the population living in islands and the construction of bridges connecting islands and land and the steady increase of tourists traveling to islands.

Transportation of Overseas Passengers In 1975, there was only one overseas route for transporting passengers from Busan to Shimonoseki, Japan. But in 1995, 4 vessels in Korea/Japan routes and 5 vessels in Korea/China routes were put into service. For the past 20 years, the number of passengers increased 8.2 times, while the quantity of cargoes increased 14.1 times. The cargo transportation by overseas passenger ships increased 14.2% on the average since 1975, reaching 1,598,000 tons in 1995. This can be explained by the fact that six of the overseas passenger ships are car ferries, and the demand on container shipping to Japan and China increased. Particularly, the establishment of diplomatic relations with China increased the demand of cargo transportation. Though the opening of the airline between Korea and China in 1994 slowed down cargo transportation by sea, the sea transportation, which has more competitiveness than air transportation, is expected to increase steadily in the future.

Transportation of Coastal Passengers The passenger transportation on the remote island routes increased 7.6 times from 1975 to 1995. However, the passenger transportation on the ordinary coastal routes increased 45.3% from 1975 to 1985, but gradually decreased, showing 10% drop during the period from 1980 to 1995. This trend was caused by the fact that island residents moved out of islands and the bridges between islands and the land were constructed, and the number of car ferries increased. Consequently, the common coastal routes were closed and the vessels were put into the routes to remote islands instead. Especially, the disaster of Seohae Car Ferry in 1993 and other accidents must have deterred tourists from using the coastal passenger boats. On the other hand, the cargoes transported by coastal passenger ships increased 9.1% on the average annually from 1975 to 1995, because more car ferries entered service and the improved standard of living among island residents caused more freight transportation to islands.

Freight Income by National Flag Carriers The freight income earned by the national flag carriers from transporting import and export cargoes and the third country's cargoes increased 5.9 times from 1975 to 1980. The increase remained at 5.6% due to the world-wide depression in shipping industry during the period from 1980 to 1985. However, the merges and acquisition in shipping industry led to the increase of freight income 4.3 times since 1985. Thus the past 20 years saw 27.1 times of increase in the freight income, which amounted 8.6 billion dollars. The income earned from tripartite transportation also jumped up 37.1 times from 1975 to 1995. The percentage of the income from tripartite transportation of cargoes took 40.8% of 1975 and increased to 55.7% in 1995 after a slight decrease of 31.8% in 1980.

Foreign Exchange Earnings Invisible trade is comprised of freight and insurance, transportation, travel expenses, and return on investment. Among these, the earnings from shipping industry can be divided into freight earnings and earnings by overseas employed seamen. Foreign exchange earnings of shipping industry were only 400 million dollars in 1975, but reached 7 billion dollars in 1994. The earnings from invisible trade increased 25.7 times and the earnings from shipping increased rather slowly 19.3 times from 1975 to 1994, however, the earnings from shipping still take up an important part of the income from invisible trade. The slow increase of the earning from shipping was caused by the fact that income from travel and overseas investment increased as the size of economy expanded. However, the foreign exchange earnings from shipping and overseas employment of seamen contributed to maintaining the balance of payments, taking up about 30% of the total earnings from invisible trade since 1975.

The Employment of Seamen The number of seamen in Korea increased 2.1 times from 1975 to 1985, however, the difficult and strenuous nature of the occupation dropped the appeal of the service. Starting in 1985, the employed seamen gradually decreased and numbered 151,000, showing only 1.3 times of increase from 1975. The number of officers followed the same trend: From 1987 to 1990, the number of officers drastically fell. Then the number increased steadily, reaching 91,000 in 1995, because senior officers, who could not adapt to the ground work, are returning to their work on the sea. Though Korea does not run short of seamen and officers, it is already understaffed in low- class seamen. The foreign seamen are being employed to resolve the shortage.

The Shift in the Employment of Seamen The total number of employed seamen in both trading ships and fishing ships increased 5.3% annually on the average from 1980 to 1987. However, with the climax of 1987, the number fell 7.2% on the average till 1995. While the number of seamen employed in trading ships has been stable since 1987, the number of seamen working in fishing ships and overseas companies sharply decreased from the climaxes of 1990 and 1987 respectively. The overall number of seamen is also decreasing, starting from the late 1980's, because the overseas employed seamen left their job, and the number of crew members per vessel was adjusted due to the depression in shipping industry. The declaration of EEZ and the exhaustion of fishing resources in the coastal seas affected the number of seamen working in fishing ships negatively. The future prospect is that the number of coastal seamen will be on the slow rise, supported by the activated coastal shipping, but the number of overseas employed seamen will continue to drop. Therefore, the policy of supply and demand in seamen should be focused on stabilizing the number of seamen by job rank and on expanding the employment of foreign seamen.

The Seamen Employed by the National Flag Carriers The number of the seamen employed by the trade ships of national flag was on the rise from 1976 to 1980. After reaching the climax in 1981, the number continued to drop. The number in 1995 was only 74.4% of 1976. Especially the number of vessels and seamen sharply decreased in 1985. The depression in shipping industry in the 1980's led to the replacement of antiquated vessels, so the trend of using larger, automated vessels decreased the number of seamen per vessel. This trend is expected to continue and the employment of seamen will decrease. However, we have to keep in mind that this drop in the number of seamen per vessel can cause the overwork and fatigue of seamen, leading to a disaster at sea.

The Overseas Employment of Seamen The number of overseas employed seamen increased 3.7 times from 1975 to 1985, however, with the climax in 1987, the number began to decrease. The number in 1995 showed only 1.5 times of increase compared with 1975. The foreign exchange earnings of overseas employed seamen increased 11.1 times from 1975 to 1995. But with the climax in 1991, the earnings slowly fell, showing 8.3 times of increase in 1995 compared with 1975. The increase of earnings can be explained by the fact that overseas employed seamen earned higher payment than the domestically employed seamen or the workers on land, whereas the decrease of earnings can be explained by the evasion of marine service since the mid-1980's and the relative rise of payment in the jobs at home. With the loss of appeal in the occupation of seaman, the employment of foreign seamen at home, which was allowed from 1991 (2653 at the end of 1995), will outnumber the overseas employment of Korean seamen in the near future.

(2) Ports are an important infrastructure which connects marine transportation and land transportation. By ensuring smooth circulation of both import and export cargoes and coastal cargoes, the port reduces the cost of logistics, raises the international competitiveness of import and export cargoes, and contributes to the stabilization of price at home. The function of the port has shifted from the mere handling spot of cargoes to the synthesized physical distribution center in which distribution, financing, insurance, and information networks are interconnected. Consequently, the importance of the port is ever increasing. There are 45 ports designated by Harbor Act and 415 ports designated by Fisheries Act in Korea. The ports designated by Harbor Act are divided into 27 foreign trade ports, where the ocean-going vessels come and go, and 18 coastal ports, which the coastwise vessels use. The management, operation and construction of foreign trade ports are governed by the Minister of Maritime Affairs and Fisheries Office. The management of coastal ports are governed by the mayors or the provincial governors, while the construction of coastal ports are administered by the Ministry of Maritime Affairs and Fisheries.

Inbound Vessels The gross tonnage of vessels entering ports of Korea was 6,177,000,000 tons in 1995, increasing 8.9 times since 1975. More specifically, foreign flag carriers increased 10.3 times, while national flag carriers increased 4.7 times and the coastal vessels increased 10.6 times. The reason for foreign flag carriers increased more than national flag carriers was that the competition between domestic and foreign shipping companies became more intense with the faster increase of import than export and the increase of conditional bareboat charter. The expanded economic scale of Korea and the congestion of the ground transportation promoted the transportation of cargo by coastal vessels.

Cargo Handling by Major Ports In 1995, handled 127 million tons of cargo, and Gwangyang (108 million tons), (105 million tons) and Busan (94 million tons) followed Ulsan. Port of Ulsan was ranked first because it has oil refineries and petro-chemical industrial complex at its hinterland and handles large quantity of liquid cargo including oils. deals with not only oils but also large quantity of ores like iron ore and limestone and steels for Gwangyang Works of POSCO. On the other hand, import cargoes comprises almost 90% of the total cargoes handled at Port of Incheon, which has the advantage of closeness to the capital and China. handles a variety of cargoes like containers, grain and general cargoes. Most of container cargoes imported and exported are handled at Busan. Most of cargoes handled at Port of Pohang are ores and steel for POSCO.

Status of Container Handling by Major Ports Port of Busan, which deals with more than 90% of incoming and outgoing containers of Korea, is equipped with exclusive container terminals and container handling facility. On the other hand, Ports of Incheon, Ulsan, Gwangyang and Masan are used by small and medium container ships and general freighters transporting containers. In 1976, only Busan and Incheon handled containers, but starting with Masan in 1988, Ulsan also began to handle the containers of coastal lines in 1992, and Gwangyang followed suit in 1995. Port of Busan handled 351,000 TEU of containers in 1976, and the throughput increased 12.8 times in 1995, handling 450,003,000 TEU. The containers handled at Incheon Port increased 7.2 times in 1995 compared with 1976. In the future, the cargoes of Korea will be handled by the two-port system: Busan and Gwangyang, which have the container lines, will cover the majority of containers, while Incheon, Ulsan and Masan will handle the containers of coastal lines.

Coastal Cargo Handling by Major Ports In 1975, Port, which handled cement and anthracite coal, was the no.1 port in the handling of coastal cargo, and Busan, Ulsan, Yeosu and Incheon followed Mukho. The ranking in 1985 changed to the order of Incheon, Gwangyang, Ulsan, Pohang, and Busan. In 1995, Incheon handled the greatest share of coastal cargo, and Gwangyang, Ulsan, Busan and Donghae followed Incheon. Incheon has emerged as the no.1 coastal cargo handling port since 1985, as it handled oils, gas, petro- chemical products and construction material such as sand and cement to be consumed in the capital area. The share of 7 major ports in handling coastal cargo decreased from 83% of 1975 to 71% of 1985 and to 61% of 1995, because the investment in port facility across the nation improved the facilities of other small ports and the demand of coastal cargo transportation is steadily increasing in every region.

Cargo Handling Capacity and Cargo Handling Facility of Ports Korean ports were able to meet the increasing handling demand of import and export cargo and coastal cargo with the expansion of the facility supported by the Economic Development Plan since the early 1960's. The cargo throughput at the ports was 404 million tons of import and export cargo and 255 million tons of coastal cargoes in 1995. The annual cargo handling capacity increased to 285 million tons in 1995 from 32 million tons of 1975, showing the increase of 8.9 times, however, only 68% of required port facility (excluding oil) has been secured. In order to become competitive ports which handle cargoes and vessels smoothly without congestion, the port facility needs to be expanded timely and the efficient management of the ports and improved service should be guaranteed.

Cargo Congestion of Major Ports As the general logistics center of maritime transportation, ports play a vital role in determining the competitiveness of the country. The expenses for logistics in national economy took 15.7% of GDP and 17.1% of sales of manufacturing industry, and the issue of reducing the logistics expenses is a growing concern. The share of marine transportation was 22.4% of the total logistics expenses, amounting 694 billion Won. The share showed the annual growth of 11.4% for the past 10 years. The port congestion, caused by the lack of handling facility at major ports like Busan and Incheon, led to direct and indirect loss of 597.6 billion Won in 1995 alone. This well proves that the failure in timely transportation of cargo and the rise of logistics expenses can weaken the international competitiveness of the national economy. Thus, the early expansion of port facilities is more than necessary.

3.The Marine Transportation Companies of Korea Transportation Companies (1) Hyundai Merchant Marine Co., Ltd. (2) Dooyang Shipping Corporation (3) Hanjin Shipping