At Busan’s new port on the southern tip of the Korean peninsula, a huge blue crane is loading containers on to a large ship docked at the waterfront while big yellow cranes are sitting nearby, ready to offload and stack containers as soon as new ships arrive.
Port officials boast the state-of-the-art facilities have slashed labour costs and boosted efficiency by 30 per cent with the driverless cranes able to stack containers in empty slots automatically.
But many of the cranes are sitting idle at this spacious new terminal. Few ships are calling here and mountains of empty containers are stacked all over the place. South Korea built the new port three years ago as Busan’s old terminal, the world’s fifth-largest container port, became congested.
But the new port, at the heart of Seoul’s ambition to make Busan a logistics hub of north-east Asia, has been suffering from chronic overcapacity since its opening in 2006. The port has seen 14 new berths open as part of the $8.6bn project, which originally planned to have 30 berths operating by 2015. The fall in cargo volumes has prompted the authorities to delay the expansion.
“Terminal operators are suffering big losses as the stiff competition to attract more cargo has resulted in sharply lower charges,” says Choo Yeon-gil, vice-president of Busan Port Authority. “We plan to delay the construction of five new berths beyond 2015 because of serious overcapacity.”
The number of ships calling at the new port has been well below expectations despite Busan’s geographic advantage of being the first port of call on the way across the Pacific to China and the last on the way to the US.
The Busan port was hit harder this year as container volumes plunged 15 per cent in the first 10 months. The new port handled only 1.6m twenty-foot equivalent units (teu) last year, well short of its capacity of 2.4m teu. The overcapacity will only worsen this year as container volumes in 2009 are expected to reach 1.8m teu, while the new port’s capacity should reach 5.6m teu.
DP World, which has a 25 per cent stake, operates nine of the berths. Hanjin Shipping, Korea’s largest shipping line, started operating four berths this year with Hyundai Merchant Marine and Hyundai Development Company planning to start operating four new berths each in 2010 and 2011, respectively.
In an effort to overcome the financial problems, the new port recently sold three berths to a consortium of PSA of Singapore and Hanjin Corp of South Korea for Won488bn ($422m).
“The sale has significantly improved our financial status. If we can secure a stable amount of cargo, there won’t be many difficulties in management,” says Davis Kang, general manager at the new port. The port is expected to report a loss of Won40bn this year compared with a Won100bn loss last year.
To counter the country’s falling origin and destination traffic, Busan port authorities are trying to attract transshipment volume by forming links with other ports in the region such as Niigate of Japan, Dalian of China and Nakhodka of Russia.
Busan is already a large transshipment port, with 45 per cent of its business made up of this type of traffic. But those volumes are falling as it loses out to the the new port of Yangshan, near Shanghai in China.
Port officials hope that all these efforts, together with an economic recovery, will help lift cargo volumes. But they admit that unless there is a strong economic recovery, the problems will not go away.
Mr Kang cautions that overcapacity at Busan could actually worsen in coming years due to the government’s plan to build new ports across the country. “The government wants to build more ports for many other cities for political purposes. It seems to think the new ports are geese laying golden eggs but they are likely to end up sitting idle, just like under-used provincial airports,” he says.