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Yong Hwa Park


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Yong Hwa Park

  1. 1. International Seminar on Strategies to Develop Incheon as a Logistics Hub in Northeast Asia Prof. Y ONGHWA P ARK Does Incheon Airport Develop Air Logistics Hub in Northeast Asia? 13-14 October 2004 A SIA P ACIFIC S CHOOL OF L OGISTICS INHA UNIVERSITY I NCHEON K OREA
  2. 2. 1. Introduction <ul><li>The potential & real throughputs had shown enormous for the last years </li></ul><ul><ul><li>High pop. density, strong economic growth, improving political stability, gradual free market environment through open-skies etc. </li></ul></ul><ul><ul><li>China has been fastest growth rate in the world for last decade </li></ul></ul><ul><li>Air cargo demand in Asia had the highest growth rate for the last 5 yrs, even if some negative factors; economic crisis and SARS </li></ul><ul><li>In Northeast Asia, the most salient trend is the emergence of regional airfreight hub serving neighboring countries and other continents </li></ul><ul><ul><li>Well-functioning air cargo hub will be brought a positive economic impact on the entire region + on the host country by enhancing economic performances </li></ul></ul><ul><li>Korea’s initiatives air cargo hub at ICN in the NEA region </li></ul><ul><ul><li>Strong potential circumstance geographically & economically </li></ul></ul><ul><ul><li>But, its success depends on capability of attracting a critical mass of global logistics service providers </li></ul></ul>
  3. 3. 2. Changes & Importance of Air Cargo <ul><li>Air cargo has been significant interests, due to a change in int’l trade patterns + customer needs </li></ul><ul><ul><li>Expanding mass markets for uniform, common, standardization of products ⇒ int’l trade ↑ ⇒ creating alternative transport demand </li></ul></ul><ul><ul><li>Open trade regime + global integrated networks have made Air Cargo Services in general and Air Express in particular </li></ul></ul><ul><li>Int’l air cargo demand will be gradually expanded to much efficient int’l links </li></ul><ul><ul><li>Air cargo tariff ↓ , global production system ↑, e-commerce ↑ </li></ul></ul><ul><li>The role of Int’l Distribution Center + Global Logistics Company have become important to enable speedy and economical delivery of goods to customers </li></ul><ul><li>The enlargement of the cargo handling capabilities is currently on progress for providing comprehensive value added logistics services by the global logistics affiliates </li></ul>
  4. 4. 2.1 Changes of Air Cargo Industry <ul><li>Strategic Alliances in Air Cargo Services </li></ul><ul><ul><li>Likewise air passenger services, air cargo carriers are co-operating </li></ul></ul><ul><ul><li>SkyTeam Cargo: launched in Sep. 2000, AeroMexico, AF, Delta, KE ( + Czech, Alitalia ) </li></ul></ul><ul><ul><li>WOW: launched in April 2000 (LH, SQ, SAS) + JL (Oct. 2002) </li></ul></ul><ul><li>Innovation Technology </li></ul><ul><ul><li>Discussions on paperless trade and global e-business focus as important agenda in WTO and APEC </li></ul></ul><ul><ul><li>IT based air cargo community systems need to be developed to tracing cargo and providing detailed information to integrators in real time </li></ul></ul><ul><li>Emerging Integrators </li></ul><ul><ul><li>Providing seamless logistics, cut-down time and costs, just-in-time services, etc ⇒ Air Cargo Integrators </li></ul></ul>
  5. 5. 2.2 Importance of Air Cargo Industry <ul><li>In general, yield of air cargo services is higher than pax. due to cargo transport does not require complicated process; in-flight, ground and transfer services </li></ul><ul><li>High values versus Weight </li></ul><ul><ul><li>HKG (2000): air cargo accounted for only 1% by weight, but its value share was 23% </li></ul></ul><ul><ul><li>ROK (2000): air cargo accounted for about 0.34% by weight, but its value share was 32%, 26% ( 2001 ) </li></ul></ul><ul><ul><li>USA (1998): air cargo accounted for over 32% of the value of intercontinental trade </li></ul></ul>Table 1. Compare Air & Sea Cargo in Korea (2001) 26.17 39,273 0.35 374 Air 73.83 110,814 99.65 106,290 Sea 2001 Share (%) Million $ Share (%) Thousand Ton Value Weight Mode Year
  6. 6. 3. Trends of Air Cargo in NEA <ul><li>Air Cargo Volumes (Country) </li></ul><ul><ul><li>Japan was shown the highest traffic volume in the NEA region </li></ul></ul><ul><ul><li>China and Taiwan have been achieved rapid growth in air cargo services for last decade </li></ul></ul>Table 2. Air Cargo Volume in Northeast Asia (2001) 19.3 1,820  29.0 66 Taiwan  4.0 1,872  0.7 431 Korea 6.6 1,710 - N/A China  7.4 2,267 - N/A Hong Kong  5.6 2,927 4.1 930 Japan Growth rate (%) Volume (000 tons) Growth rate (%) Volume (000 tons) International Traffic Domestic Traffic Nation
  7. 7. <ul><li>Air Cargo Traffic (Airport) </li></ul><ul><ul><li>HKG recorded the highest air cargo volume </li></ul></ul><ul><ul><li>Almost airports in the region has highly increased in the first half of 2002 compared to year 2001. </li></ul></ul>Table 3. Air Cargo Volume of Major Airports in Northeast Asia (2001) 3 9.9 1,034 5  13.0 1,681 4 4.9 1,933 NRT 13 13.2 767 16  1.6 1,190 16 14.5 1,209 TPE 2 18.7 1,360 3  7.4 2,100 2 13.4 2,268 HKG 26 6.8 347 28  24.3 587 25 67.5 774 PEK 6 9.9 979 15 - 1,197 5 13.2 1,874 ICN World Rank Rate (%) Volume (000 ton) World Rank Rate (%) Volume (000 ton) World Rank Rate (%) Volume (000 ton) 2002 (January ~ July) 2001 2000 Airport
  8. 8. 4. Development of the NEA Logi-Hub <ul><li>Air transport and logistics hub + int’l business hub would inevitably require; </li></ul><ul><ul><li>Offering Infrastructure to the excellent inter-connectivity of transport modes and integrated logistics facilities </li></ul></ul><ul><ul><li>Eliminating institutional and legal barriers </li></ul></ul><ul><ul><li>Serving systematic and customer-oriented administration to stimulate FDI </li></ul></ul><ul><ul><li>Requiring database for extensive logistics and trade-related information </li></ul></ul><ul><ul><li>Allowing the minimum or none of charge for usage of land and facilities </li></ul></ul><ul><ul><li>Balancing O-D cargo volume & high rate of transfer cargo volume </li></ul></ul><ul><ul><li>Creating co-operation among neighboring countries to integrated air transport market in the region </li></ul></ul>4.1 Conceptual Framework of the HUB
  9. 9. 4.2 Development Strategies for Air Logi-hub <ul><li>It is assumed that the air logistics hub can be achieved by “ Airport City ”. </li></ul><ul><ul><li>Which is a comprehensive and complex concept through airport’s vicinity development including several functions </li></ul></ul>Airport: Air cargo hub International Business Tourism Leisure Logistics Distribution center Free trade zone Custom free zone High-tech R&D Seaport Sea-and-Air Narrow Concept Airport City as Hub
  10. 10. 4.3 Competitive Factors <ul><li>The competitive advantage of an airport depends on the following factors; </li></ul><ul><ul><li>Spatial factor </li></ul></ul><ul><ul><ul><li>Refers to the level of regional development of the surrounding the airport cite, e. g. int’l trade zone, logistics & convention centers, aviation-related complexes, etc. </li></ul></ul></ul><ul><ul><li>Facility factor </li></ul></ul><ul><ul><ul><li>Related to the level of airport facilities and their expandability </li></ul></ul></ul><ul><ul><li>Demand factor </li></ul></ul><ul><ul><ul><li>Level of O-D demand and sufficient transit & transfer traffic volumes for hub-and-spoke network </li></ul></ul></ul><ul><ul><li>Service factor </li></ul></ul><ul><ul><ul><li>Mainly consists of level of service to users, type of airport operations, and level of airport charges </li></ul></ul></ul><ul><ul><li>Managerial factor </li></ul></ul><ul><ul><ul><li>Refers to economical considerations, such as airport operating costs, productivity, revenue structure, revenue scales per provision space, etc. </li></ul></ul></ul>
  11. 11. 5. Overview of ICN <ul><li>During 1990s, average annual growth rate had reached app. 9.6%, which was much higher than pax. </li></ul><ul><ul><li>The leading export commodities via air; </li></ul></ul><ul><ul><ul><li>Electronics & semi-conductor, Machinery, Jewelry, optical & instrumental machinery, and garments & accessory </li></ul></ul></ul><ul><ul><ul><li>There are 56% share in weight, but 91% in value in 2001 </li></ul></ul></ul><ul><ul><li>The leading import commodities via air; </li></ul></ul><ul><ul><ul><li>Electronics, machinery, jewelry, optical & instrumental machinery, chemical products </li></ul></ul></ul><ul><ul><ul><li>There are 41% share in weight, but 86% in value term </li></ul></ul></ul><ul><li>Air Cargo Networks </li></ul><ul><ul><li>Korea-US air routes were the highest (499,000 tons), followed on Korea-Japan (406,000 tons), and China (281,000 tons) </li></ul></ul><ul><ul><li>64% of total volume served by Korean flag carrier; KE and OZ </li></ul></ul>5.1 Cargo Traffic at ICN
  12. 12. 5.2 Airport Facilities - 20 years 12 years 12 years 20 years 20 years Terms - Incheon Air Cargo. Ltd. Asiana Air Cargo Incheon Airport Foreign cargo Co. Asiana Airlines Korean Air Owner 2,260 - - 520 710 1,030 Cap. (000 ton) 185,143 11,596 2,133 63,801 41,702 65,911 Total 237 - - - - 237 Other 22,235 - - 6,459 7,966 7,810 Agent 162,671 11,596 2,133 57,342 33,736 57,864 Ter Floor space 30 - - 10 10 10 Land 55 - - 15 15 25 Air Canopy (m) 204,953 21.840(10%) - 44,100 28,350 37,800 Sub-total (m 2 ) 420  105 Total 30  105 UPS 60  105 FDX 120  102 AAS 1,050  105 (A, B, C in total) 39  280 2 buildings 3 buildings 210  105 KAS 270  105 360  105 Area (m) Total Inter-modal Storage Terminal D Terminal C Ter B Ter A Classifications
  13. 13. 6. Perspectives of ICN as Logi-Hub <ul><li>“The Winged City” </li></ul><ul><ul><li>This concept is the image of new ICN, reflecting its ambition and flight into the future – the whole ICN complex flying ahead of the competition in the global airport industry </li></ul></ul>6.1 Physical Conditions <ul><li>Location at the geographical limits of long-range transport a/c </li></ul><ul><ul><li>East-coat of the US and Trans Siberian routes for Europe bound </li></ul></ul><ul><ul><li>ICN can be linkage the intercontinental routes and major markets like China and Japan </li></ul></ul><ul><li>Over 40 neighboring cities within 2 hours itinerary from/to ICN </li></ul><ul><ul><li>Over one million population </li></ul></ul><ul><ul><li>The region has 197 million population and with a GDP of $1.7 trillion </li></ul></ul>
  14. 14. 6.2 Hub-and-Spoke Network <ul><li>This positive conditions have been stimulated push to ahead the portion transfer freight handled at ICN </li></ul><ul><li>ICN is likely t designated as a hub in terms of airfreight handling </li></ul>100 50% 30 20 40 Transfer rate 150 200 250 Volume(000 Ton) LHR FRA AMS SIN HKG NRT KIX ICN
  15. 15. 6.3 Demand Factor 6.4 Facility Factor <ul><li>ICN serves Seoul metro area </li></ul><ul><ul><li>Which accounts for app. 40% of Korean GDP and 90% of its int’l flight demand </li></ul></ul><ul><ul><li>It means solid induced air demand can be generated by economy strengthen of airport hinterland </li></ul></ul><ul><li>ICN has the greatest capability for expansion among the airports in the region; NRT, KIX, TPE </li></ul><ul><ul><li>It has fully developed airport space of over 40Km 2 </li></ul></ul><ul><ul><li>Target number of flight is 530,000 operations per annum </li></ul></ul><ul><ul><ul><li>Pudong 28Km 2 and 320,000 a/c operations </li></ul></ul></ul>
  16. 16. 6.5 Spatial Factor <ul><li>It has multi-use development plans as Airport City or the Winged City </li></ul><ul><ul><li>Incheon Metro City has been established an ambitious project, so-called Penta-port; </li></ul></ul><ul><ul><ul><li>Airport, Seaport, Businessport, Leisureport, Teleport </li></ul></ul></ul><ul><ul><li>The CFZ will be completion in 2005 for business specializing in loading and unloading, warehousing, sales, and simple processing </li></ul></ul><ul><ul><ul><li>The CFZ is intended to help the airport serve as a logistics hub </li></ul></ul></ul><ul><li>KE & OZ are world leaders in terms of air cargo handling </li></ul><ul><ul><li>KE was ranked 2 nd position to LH in terms of int’l air cargo in 2001 </li></ul></ul><ul><ul><li>Both Korean flag carriers continue to expand air cargo network through ICN as the hub airport </li></ul></ul>6.6 Major Carrier’s Competitiveness
  17. 17. 6.7 Int’l Aviation Policy <ul><li>Korea’s aviation policy regime is widely open policy rather than Japan and China </li></ul><ul><ul><li>The proactive int’l aviation policy will be helpful to stimulate inducing air cargo traffic to handle at ICN by expanding 5 th and 7 th freedom rights </li></ul></ul><ul><li>ICN would need to create sufficient O-D and transshipment freight by positioning itself as a global trade center and for int’l logistics </li></ul><ul><li>The Winged City as a long-term strategy of ICN require prior to air cargo logistics hub itself, and then airport vicinity development to integrate various functions; int’l business center, IT services, Telecom, R&D, manufacturing, leisure, and logistics-related functions </li></ul>Major Issues
  18. 18. 7. Conclusion <ul><li>In the NEA region, air cargo market will be much higher rate than the other regions’. </li></ul><ul><li>China has numerous potential with scale of population, geopolitical importance of the location in Asia, the fastest economic growth, leading high-tech innovation, and other positive externality </li></ul><ul><ul><li>The Chinese potential power will likely play a key role in air transport market </li></ul></ul><ul><ul><li>The nations in the region have to co-operate build up integration air transport market for taking win-win strategy </li></ul></ul><ul><li>For ascending as a competitive major int’l hub, the co-operation and co-ordination with the NEA air transport entities are essential to figure the solution to carry on altogether prior to uncertainty in aviation industry </li></ul><ul><li>ICN ought to plan for the seamless procedures to incorporate with government, authorities, air carriers, other air transport affiliates to provide upscale envision for the future </li></ul>