South Korean manufacturers are having to adapt to a world of lower-cost competition, forcing project logisticians and multipurpose shipping lines to take stock. However, there are still opportunities as the coal-dependent nation redraws its energy mix. Chris Lewis reports.
South Korea has developed into a global industrial powerhouse in areas such as electronics, heavy machinery, ocean vessels, automotive, minerals and construction. However, like its heavyweight neighbour China, South Korea faces challenges such as rising competition from other Asian countries and changing global demands.
While some industries, such as shipbuilding, offshore vessels, heavy equipment, machinery and automobiles, may remain rooted in South Korea due to the high level of specialisation, the country’s traditional manufacturing verticals are losing their lustre to other low-cost Asian countries.
That shift to lower cost countries is inevitable, although Felix Schoeller, commercial director at multipurpose carrier AAL Shipping, believes the impact on its services will be limited.
High-value project cargo
“It will undoubtedly have an influence on the market for general cargo. However, South Korea will remain a powerhouse in the high-value project cargo category that most multipurpose operators are seeking,” he said.
South Korea is home to some of the world’s major engineering and procurement (EPC) companies, including the likes of Samsung Engineering, Hyundai Engineering and Construction, and Daewoo Engineering and Construction. Their business models have shifted over time, the former strategy of securing FEED projects developing into more of an EPC approach.
“Nearly half the projects in the pipeline now under South Korea’s EPCs are in the downstream vertical,” Schoeller said, “and somewhat more than half the project values are split throughout Indonesia, Saudi Arabia, and Qatar. This makes South Korea a key actor in project cargoes in the Asean and the Middle East regions. Their project geographical location profile will be ideal for operators in the Asia-Europe trade.”
Meanwhile, the winds of change are sweeping across South Korea’s energy sector. Presently, renewable energy makes up just 8 percent of its power generation mix, along with nuclear (27 percent), gas (29 percent) and coal (34 percent), with roughly 2 percent from hydro and petroleum.
Power mix targets
The country’s COP 28 pledges could reduce the country’s share of LNG in the power mix to 24.4 percent by 2030. According to the Institute for Energy Economics and Financial Analysis (IEEFA), that is something that would likely exacerbate an underlying issue of under-utilisation of existing and proposed LNG import terminals.
IEEFA found that the country has invested USD8.7 billion in LNG infrastructure to secure energy, despite having among the lowest utilisation rates in the world for regasification terminals. As well as being detrimental to long-term net-zero targets, the country risks being tied to fossil fuel imports, impeding what could be a swifter transition to more affordable and domestically sourced renewable energy.
Nearly half the projects in the pipeline now under South Korea’s EPC’s are in the downstream vertical- Felix Schoeller, AAL Shipping
The country has long-been dependent on coal for its power requirements, although there is little sign that fuel will be abandoned from the mix soon. However, 28 coal-fired power facilities are expected to be dismantled by 2036 and there is approximately USD18 billion in authorised offshore wind projects, most of which are slated to begin operations in 2027/28.
The immediate effect on the freight market will likely be limited, though. “With the transition to green energy and a reform to South Korea’s industries such as automotive, the impact on the project freight market is not being felt immediately. We could only start having actual offshore wind shipments from Europe to South Korea and intra-Asia from 2025 onwards,” said Schoeller.
Although, South Korea is home to three of the world’s five largest electric vehicle (EV) battery manufacturing companies – LG Energy Solutions, Samsung SDI, and SK On – most of their actual production capacity is in China and Europe. The expansion of EV production in South Korea may result in increased shipments of batteries from China to South Korea.
But whatever the changes in the pipeline, AAL still sees South Korea as a key market and has ensured a strong local presence and regular port calls in major ports over the past 20 years. “South Korea remains an important export hub for locally booked and internationally controlled heavy and sophisticated project cargo. As such, AAL Shipping revamped commercial representation in South Korea two years ago, with the very experienced team of Wallem Korea appointed to represent AAL exclusively. This move allows us to have a strong local presence with excellent expertise servicing our local customers both commercially and operationally. AAL is looking forward to being a main player in project cargo exports from South Korea for many more years to come,” Schoeller explained.
South Korea-headquartered shipping specialist Pan Ocean, meanwhile, is positive about the prospects for its heavy transport vessels. Since 2017, SAL Heavy Lift has been acting as the commercial agent for two of its deck carriers.
Offshore wind optimism
Alexis Kang, commercial manager at Pan Ocean, said two of its semi-submersibles are already working for various offshore wind farms in Taiwan, the UK and the USA. He added: “We are optimistic that offshore and floating wind in South Korea will be the next big opportunity for heavy lift vessels. Top shipbuilding and steel companies, wind tower and subsea cable manufacturers are already here to support the offshore wind industry.” He added that South Korea’s manufacturing capacity can also support other markets in the Asia-Pacific (APAC) region, highlighting Japan, the Philippines and Australia, which will create even more transportation needs.
Access World Korea has historically focused on commodity warehousing and related freight services, but over the past five years it has been “working hard on diversifying our product range as well as developing standalone freight”, said Jihye Kwon, commercial manager. Since opening its new 50,000 sq m warehouse in Busan during April 2023, Access World has been “overwhelmed by demand for warehousing space for products ranging from bulk commodities, heavy machinery, secondary battery materials, finished products and ferrous alloys to general cargo”.
Through its global office network, covering 32 countries, Access World is able to offer customers turnkey freight and project forwarding solutions. Currently, it operates around 20 warehouses in Incheon, Busan and Gwangyang in South Korea, and provides further services in other locations such as Ulsan and Pyeongtaek with a team of around 50 employees; 30 are based in the Seoul office and around 20 in Busan, Incheon and Gwangyang.
While Access World provides logistics services for various types of cargo, it is actively expanding services in the renewable energy, infrastructure and industrial projects sectors in line with recent trends. Kwon noted an increase in exports to the Middle East, South America, China and Europe. “South Korea’s efficient wind turbine generators and solar modules contribute to increasing exports. Locally, such equipment is utilised in the construction of new power plants and energy transition projects,” she explained.
South Korean heavy equipment manufacturers themselves showcase a variety of industrial project equipment and have a strong reputation in the global market, recognised for competitive prices and quality in particular, Kwon added.
Access World Korea has been working hard on diversifying our product range as well as developing standalone freight- Jihye Kwon, Access World Korea
South Korean ports, too, offer state-of-the-art facilities, accumulated expertise, and the precise and swift handling of tasks – all “characteristics that align well with the Korean work ethic”, Kwon said. “We take pride in these aspects, considering them superior compared with ports worldwide.”
Attractive regional hub
Moreover, amid tensions between the USA and China, and conflicts such as in Ukraine, the relatively stable political situation and environment in South Korea, along with its proximity to China, the Far East and Japan, make it an increasingly attractive regional hub, Kwon commented. “Not only in traditional strengths like manufacturing and shipbuilding but also in the expanding sector of secondary battery-related businesses, we anticipate a contribution to the growth in both export and import volumes.”
Philippe Somers, head of energy projects for North Asia at Bolloré Logistics, does not see South Korea establishing itself as a regional hub, however. “Shipbuilding yards do not have much space and are constantly looking for storage areas in nearby ports. Soon, offshore wind and overseas electric vehicle projects will require even more space to consolidate,” he explained.
He noted that its oil and gas work – mainly in Africa and Caribbean – still goes partly to South Korea. Offshore and floating wind will bring some work for marshalling yards at the country’s ports.
He said: “South Korea still needs energy security and, therefore, will need to continue to import oil and LNG. However, the country has already put in place six hydrogen hubs and different offshore wind projects.” Unfortunately, though, these have been delayed due to political reasons.
Changes required
Notably, like many other countries, Somers feels that South Korea needs to make a concerted drive away from heavy industry. He expects 2024 to bring a few pilot or demonstration projects, but the bigger transition fuels and offshore (floating) wind schemes will not happen until 2025 at the earliest. South Korea will continue to participate in overseas projects in Southeast Asia, the Middle East, Australia, Africa, Canada and the USA.
Bolloré Logistics’ own South Korean projects office had some interesting spin-off work from its CLNG project as well as a shipbuilding project for an FPSO in Australia. The country is traditionally also a key supplier for many international EPC companies for projects worldwide. Bolloré’s integration with potential stablemate Ceva Logistics – itself a part of CMA CGM – could create critical mass, “which could translate into more and greater commercial opportunities,” said Somers.
South Korea still needs energy security and will need to continue to import oil and LNG- Phillippe Somers, Bolloré Logistics
Shipping, logistics and marine services group GAC also sees the potential of the market and has opened its first office in South Korea, in Seoul, to capitalise on what it says is a growing and dynamic market. “Having been a part of the South Korean maritime landscape since 1985, the time is now right to establish a stronger local presence to build solid relationships with customers,” said Daniel Nordberg, vice president – Asia Pacific and Indian Subcontinent. “GAC has plans to establish branch offices in Busan and Yeosu in the medium term,” he added.
GAC explained that while its core focus is on ship’s agency and related services, including dry docking support, husbandry and crew change services, the new office also enables it to respond to exciting opportunities in the renewable energy field, in particular offshore wind energy.
Growth trajectory
Looking ahead, South Korea’s economy is projected to continue on its growth trajectory hitting 2.3 percent in 2024. It is poised to continue reaping the benefits of China’s reopened economy, although 2023’s sluggish domestic consumer demand and weaker equipment investment dampened the mood. Nevertheless, the energy transition and a specialisation in high-value industrial cargo augur well for the the project cargo supply chain.
