Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Shipping volume discussing topics including sources of finance, compliance initiatives and foreign court decisions within key jurisdictions worldwide.
1 What is the current state of the shipping industry in your country?
Due to its geopolitical location, surrounded by sea on three sides and North Korea is located in the north, South Korea has a very large proportion of foreign trade due to its industrial structure, and therefore relies heavily on sea transportation for trade of goods. Accordingly, the shipping industry is highly developed compared to the size of the country or its population. Even on a global scale, Korea’s trade volume is very high.
According to the data released in April 2021 (IMF World Economic Outlook), the national land area is 10,036,371.5ha, which is rather small, but as of 2019, the population of Korea is 51.7 million, which is the 27th biggest in the world, that is, Korea has a high population density. However, gross domestic product (GDP) in 2020 is US$1,806 billion, which ranks 10th in the world, and GDP per person is US$34,866, which is 26th in the world. Converted to GDP purchasing power parity, it is a strong economy, equivalent to US$44,292.
Korea’s economy is developing based on technology-intensive industries such as automobile and semiconductor manufacturing, rather than primary industries using natural resources. Development of the shipping industry is very important for the Korean economy as a whole.
The Hyundai Research Institute predicted that Korea’s annual exports this year will reach US$605.3 billion, an increase of 18.1 per cent from last year. This is an upward revision from the forecast released in October last year (US$564.3 billion). The revised forecast is the highest ever, exceeding the 2018 performance of US$604.9 billion, and the trade volume is expected to reach US$1.15 trillion.
The current account has been in the surplus for 12 consecutive months. This is because ship exports have been brisk recently and the service balance has turned to surplus due to the improvement of the transportation balance. The increase in dividend income also contributed to the increase in overseas investment. On the other hand, financial accounts turned to decline for the first time in 12 months due to the inflow of foreign securities investment funds.
According to the Comparison of Export Competitiveness by Major Items in 2020 announced by the Korea Institute for Industrial Economics and Trade, last year’s system semiconductor exports reached US$30.3 billion, a record high. Last year, total automobile exports amounted to US$35.6 billion, ranking fourth in the world after Germany, Japan and the United States, up one notch from the previous year.
In the case of displays, while maintaining the world’s No. 1 market share, exports of organic light emitting diodes (OLEDs), a high value-added item, reached an all-time high of US$10.9 billion. The proportion of OLED exports in displays also exceeded 60 per cent for the first time, maintaining the world’s no. 1 market share (85.8 per cent). The sales volume of automobile batteries rose from third place in 2019 to second place last year.
In the domestic maritime and fishery sector, the reconstruction of shipping has been regularised despite the aggravation of difficulties caused by the coronavirus, and efforts to prepare for a new future, such as making existing industries smarter and nurturing of new industries, full-scale promotion of the fishing village new deal, nurturing of non-face-to-face fisheries, and establishment of intelligent ports.
In 2021, along with the recovery of the global economy, economic indicators in the maritime and fishery sector are expected to improve overall. In the maritime sector, demand for marine leisure tourism has decreased due to social distancing, but it is expected to show a recovery trend if the covid-19 situation improves. Except for last year’s exports in the fishery sector, where the decline was relatively small, production, exports and consumption are expected to increase, and prices are expected to remain flat. In the shipping sector, shipping volume is expected to exceed the pre-covid-19 level due to increased freight rates and increased global trade, and key indicators in the port sector and shipbuilding sector are also expected to recover or exceed 2019 levels.
2 What are the prevailing shipping market trends affecting your country? What has been the impact of the covid-19 pandemic?
According to the Ministry of Oceans and Fisheries, the total port volume handled by trade ports nationwide in 2020 was 1.497.35 million tons, a decrease of 8.9 per cent compared to the previous year before the corona virus. The volume of imports and exports decreased by 10.8 per cent compared to the previous year, totalling 1.274.56 million tons, due to a decrease in imports of bituminous coal for power generation due to the policy to reduce carbon dioxide emissions and a decrease in trade in raw materials and consumer goods due to sluggish consumption in the EU and the US due to the prolonged covid-19. Container traffic has been on a downward trend since April, when the impact of covid-19 began, but since September, it has been on the rise due to the recovery of cargo volume due to a rebound in demand in the US and the government’s active support policies for export cargo such as temporary ships to the US and Southeast Asia to 29.8 million twenty-foot equivalent unit, a decrease of 0.5 per cent from the previous year.
Looking at the trend of transportation volume compared to the previous year for the past 15 years, it is the first year in 2020, when the volume itself decreased after the economic downturn caused by the financial crisis in the US in 2008 decreased (5.5 per cent) in 2009. A certain amount of trade volume is expected to recover this year, but it merely seems to have recovered compared to last year as the impact of covid-19 last year continued.
In 2021, as the global economy is expected to gradually recover due to the development of vaccines and therapeutics for covid-19, the volume of trade, which had contracted last year, is expected to recover. In particular, North American routes have shown a marked recovery since the third quarter compared to the same period last year.
Although the volume of imports and exports by weight decreased significantly last year, the volume of container traffic only decreased by 0.5 per cent due to the increase in trans-shipment cargo from the global trade contraction. As uncertainty is high, the Korean government actively supports the ongoing merger between terminal operators and reduce trans-shipment costs to increase operational efficiency, consult with the Port Authority to adjust the incentive system in place for the purpose of attracting cargo volume, and to attract more new routes.
The maritime and fisheries sector has presented the following policy tasks to overcome covid-19 and promote sustainable development. Promotion of marine leisure tourism popularisation, ecosystem-based marine management, establishment of a carbon-neutral realisation basis, strengthening of ability to respond to maritime rights and interests will be necessary. In the shipping sector, emphasis is placed on enhancing global shipping competitiveness, specialisation and stabilisation of shipping manpower, innovation in shipping finance, and establishment of a safe maritime transportation system. In the port sector, emphasis is placed on improving competitiveness and productivity of ports, creating eco-friendly intelligent ports and completing Korean smart port cities.
The Korean government extended various emergency support projects this year to support the coastal shipping industry, which is suffering from the covid-19 outbreak, this year as well as last year, providing…