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Prof. YONGHWA PARK

Does Incheon Airport DevelopAir Logis tics Hub in Northeas t As ia?

13-14 October 2004

ASIA PACIFIC SCHOOL OF LOGISTICS

INHA UNIVERSITYINCHEON KOREA

International Seminar on

Strategies to Deve lop Incheon as a Logis tic s Hub in Northeas t As ia

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1. Introduc tion

The potential & real throughputs had shown enormous for the last yearsHigh pop. density, strong economic growth, improving political stability, gradual free

market environment through open-skies etc.China has been fastest growth rate in the world for last decade

Air cargo demand in Asia had the highest growth rate for the last 5 yrs, even if some negative factors; economic crisis and SARS

In Northeast Asia, the most salient trend is the emergence of regional airfreight hub serving neighboring countries and other continentsWell-functioning air cargo hub will be brought a positive economic impact on the

entire region + on the host country by enhancing economic performances

Korea’s initiatives air cargo hub at ICN in the NEA regionStrong potential circumstance geographically & economicallyBut, its success depends on capability of attracting a critical mass of global logistics

service providers

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2. Changes & Importanc e of Air Cargo

Air cargo has been significant interests, due to a change in int’l trade patterns + customer needsExpanding mass markets for uniform, common, standardization of products ⇒ int’l

trade ↑ ⇒ creating alternative transport demandOpen trade regime + global integrated networks have made Air Cargo Services in

general and Air Express in particular

Int’l air cargo demand will be gradually expanded to much efficient int’l linksAir cargo tariff ↓, global production system ↑, e-commerce ↑

The role of Int’l Distribution Center + Global Logistics Company have become important to enable speedy and economical delivery of goods to customers

The enlargement of the cargo handling capabilities is currently on progress for providing comprehensive value added logistics services by the global logistics affiliates

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2.1 Changes of Air Cargo Indus try

Strategic Alliances in Air Cargo Services

Likewise air passenger services, air cargo carriers are co-operating

SkyTeam Cargo: launched in Sep. 2000, AeroMexico, AF, Delta, KE ( + Czech, Alitalia )

WOW: launched in April 2000 (LH, SQ, SAS) + JL (Oct. 2002)

Innovation Technology

Discussions on paperless trade and global e-business focus as important agenda in WTO and APEC

IT based air cargo community systems need to be developed to tracing cargo and providing detailed information to integrators in real time

Emerging Integrators

Providing seamless logistics, cut-down time and costs, just-in-time services, etc ⇒ Air Cargo Integrators

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2.2 Importanc e of Air Cargo Indus try

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

High values versus WeightHKG (2000): air cargo accounted for only 1% by weight, but its value share was 23%ROK (2000): air cargo accounted for about 0.34% by weight, but its value share was

32%, 26% (2001)USA (1998): air cargo accounted for over 32% of the value of intercontinental trade

26.1739,2730.35374Air

73.83110,81499.65106,290Sea2001

Share (%)Million $Share (%)Thousand Ton

ValueWeightModeYear

Table 1. Compare Air & Sea Cargo in Korea (2001)

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3. Trends of Air Cargo in NEA

Air Cargo Volumes (Country)Japan was shown the highest traffic volume in the NEA regionChina and Taiwan have been achieved rapid growth in air cargo services for last

decade

19.31,82029.0 66Taiwan

4.01,872 0.7431Korea

6.61,710-N/AChina

7.42,267-N/AHong Kong

5.62,927 4.1930Japan

Growth rate (%)Volume

(000 tons)Growth rate

(%)Volume

(000 tons)

International TrafficDomestic Traffic

Nation

Table 2. Air Cargo Volume in Northeast Asia (2001)

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Air Cargo Traffic (Airport)HKG recorded the highest air cargo volumeAlmost airports in the region has highly increased in the first half of 2002 compared to

year 2001.

3 9.91,0345 13.01,6814 4.91,933NRT

1313.2 76716 1.61,1901614.51,209TPE

218.71,3603 7.42,100213.42,268HKG

26 6.8 3472824.3 5872567.5 774PEK

6 9.9 97915-1,197513.21,874ICN

World Rank

Rate(%)

Volume(000 ton)

World Rank

Rate(%)

Volume(000 ton)

World Rank

Rate(%)

Volume(000 ton)

2002 (January ~ July)20012000

Airport

Table 3. Air Cargo Volume of Major Airports in Northeast Asia (2001)

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4. Deve lopment of the NEA Logi- Hub

Air transport and logistics hub + int’l business hub would inevitably require;

Offering Infrastructure to the excellent inter-connectivity of transport modes and

integrated logistics facilities

Eliminating institutional and legal barriers

Serving systematic and customer-oriented administration to stimulate FDI

Requiring database for extensive logistics and trade-related information

Allowing the minimum or none of charge for usage of land and facilities

Balancing O-D cargo volume & high rate of transfer cargo volume

Creating co-operation among neighboring countries to integrated air transport market

in the region

4.1 Co n c e p tu a l F ra m e wo rk o f th e HUB

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Airport:Air cargo hub

InternationalBusiness

TourismLeisure

LogisticsDistribution center

Free trade zoneCustom free zone High-tech

R&D

SeaportSea-and-Air

NarrowConcept

Airport City as Hub

4.2 Deve lopment Strateg ie s for Air Logi- hub

It is assumed that the air logistics hub can be achieved by “Airport City”.

Which is a comprehensive and complex concept through airport’s vicinity development including several functions

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4.3 Competitive Fac tors

The competitive advantage of an airport depends on the following factors;

Spatial factor

• 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.

Facility factor

• Related to the level of airport facilities and their expandability

Demand factor

• Level of O-D demand and sufficient transit & transfer traffic volumes for hub-and-spoke network

Service factor

• Mainly consists of level of service to users, type of airport operations, and level of airport charges

Managerial factor

• Refers to economical considerations, such as airport operating costs, productivity, revenue structure, revenue scales per provision space, etc.

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5. Overview of ICN

During 1990s, average annual growth rate had reached app. 9.6%, which was much higher than pax.The leading export commodities via air;

• Electronics & semi-conductor, Machinery, Jewelry, optical & instrumental machinery, and garments & accessory

• There are 56% share in weight, but 91% in value in 2001

The leading import commodities via air;• Electronics, machinery, jewelry, optical & instrumental machinery, chemical

products• There are 41% share in weight, but 86% in value term

Air Cargo NetworksKorea-US air routes were the highest (499,000 tons), followed on Korea-Japan

(406,000 tons), and China (281,000 tons)64% of total volume served by Korean flag carrier; KE and OZ

5.1 Ca rg o Tra ff ic a t ICN

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5.2 Airport Fac ilitie s

-20 years12 years12 years20 years20 yearsTerms

-Incheon Air Cargo. Ltd.

Asiana Air Cargo

Incheon Airport Foreign cargo Co.

Asiana Airlines

Korean AirOwner

2,260--5207101,030Cap. (000 ton)

185,14311,5962,13363,80141,70265,911Total

237----237Other

22,235--6,4597,9667,810Agent

162,67111,5962,13357,34233,73657,864Ter

Floor space

30--101010Land

55--151525AirCanopy(m)

204,95321.840(10%)-44,10028,35037,800Sub-total (m2)

420105Total

30105UPS

60105FDX

120102AAS1,050105(A, B, C in

total)

392802 buildings

3 buildings

210105KAS

270105360105Area (m)

TotalInter-modal

StorageTerminal DTerminal CTer BTer AClassifications

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6. Pers pec tives of ICN as Logi- Hub

“The Winged City”

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

6.1 P h ys ic a l Co n d itio n s

Location at the geographical limits of long-range transport a/cEast-coat of the US and Trans Siberian routes for Europe boundICN can be linkage the intercontinental routes and major markets like China and Japan

Over 40 neighboring cities within 2 hours itinerary from/to ICNOver one million populationThe region has 197 million population and with a GDP of $1.7 trillion

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6.2 Hub- and- Spoke Network

This positive conditions have been stimulated push to ahead the portion transfer freight handled at ICN

ICN is likely t designated as a hub in terms of airfreight handling

100

50%

30

20

40

Tran

sfer rate

150 200 250Volume(000 Ton)

LHR

FRAAMS

SIN

HKG

NRTKIX

ICN

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6.4 F a c ility F a c to r

ICN serves Seoul metro area

Which accounts for app. 40% of Korean GDP and 90% of its int’l flight demand

It means solid induced air demand can be generated by economy strengthen of airport hinterland

ICN has the greatest capability for expansion among the airports in the region; NRT, KIX, TPE

It has fully developed airport space of over 40Km2

Target number of flight is 530,000 operations per annum

• Pudong 28Km2 and 320,000 a/c operations

6.3 Demand Fac tor

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6.5 Spatial Fac tor

It has multi-use development plans as Airport City or the Winged City

Incheon Metro City has been established an ambitious project, so-called Penta-port;• Airport, Seaport, Businessport, Leisureport, Teleport

The CFZ will be completion in 2005 for business specializing in loading and unloading, warehousing, sales, and simple processing

• The CFZ is intended to help the airport serve as a logistics hub

KE & OZ are world leaders in terms of air cargo handling

KE was ranked 2nd position to LH in terms of int’l air cargo in 2001

Both Korean flag carriers continue to expand air cargo network through ICN as the hub airport

6.6 Ma jo r Ca rrie r’s Co m p e titive n e s s

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Korea’s aviation policy regime is widely open policy rather than Japan and China

The proactive int’l aviation policy will be helpful to stimulate inducing air cargo traffic to handle at ICN by expanding 5th and 7th freedom rights

ICN would need to create sufficient O-D and transshipment freight by

positioning itself as a global trade center and for int’l logistics

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

6.7 Int’l Aviation Polic y

Ma jo r Is s ue s

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7. Conc lus ion

In the NEA region, air cargo market will be much higher rate than the other regions’.

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

The Chinese potential power will likely play a key role in air transport market

The nations in the region have to co-operate build up integration air transport market for taking win-win strategy

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

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