South Korea’s trailer market

Over the past half century, the Republic of Korea has achieved a remarkably high level of economic growth, moulding it into a modern and fast-paced nation with a distinct technology edge.

That rapid transformation of South Korea from dictatorship to vibrant democracy and war-torn, impoverished backwater to Asia’s fourth-largest economy is a source of great national pride and rightly so – but it has been spoiled recently when a ferry capsized on a routine journey from Incheon on the mainland to the southern holiday island of Jeju. 

Usually South Koreans are not easily knocked off kilter – having spent decades living with a volatile, unpredictable neighbour in North Korea – but the April tragedy has wounded the national psyche unlike any other event in the past decade or so. According to newswire AFP, the disaster was the result of “cut corners, regulatory violations, poor safety training and a woeful lack of oversight” and threw a negative light on the nation’s economic miracle.

After all, modern South Korea still has deep Confucian roots which, while stressing filial piety and obedience, also insist on each parent – and by extension the state – earning that obedience by acting as an ever-watchful and loving guardian.

“The sense that this Confucian contract was broken may partly explain why national grief over the Sewol has largely been expressed in terms of guilt, apology and remorse, as well as anger,” AFP wrote in report a month after the 6,825-tonne ferry capsized with 476 people on board.

As a result of the tragedy, a self-imposed moratorium on leisure-time spending came into effect, which not only hit the entertainment and retail industry, but also the commercial road transport market. More importantly, it could have changed the nation’s view on progress and technological advancement as a whole.

“The Sewol tragedy has called into question all our great achievements … (and) it feels like the country may never be the same again,” novelist Kim Young-Ha wrote in an op-ed piece for the New York Times. “We are awash in self-reflection. Has all of our progress been a facade? Are we, in fact, an advanced country?”

From a statistical point of view, Young-Ha has nothing to worry about. In welcome news for the South Korean economy and, by extension, the country’s freight industry, South Korea reported the fastest increase in industrial productivity in more than four years during December 2013, according to data from state-run Statistics Korea.

However, chances are that regulatory reform is being sped up in the future, also in the transport equipment sphere, to ensure any form of safety mismanagement will become a thing of the past. Already, the market is following a high international standard, with Daimler AG, Scania, Volvo and MAN occupying some 55 per cent of the heavy truck market, according to the Korea Herald. “The imported truck market has shown steady growth,” says local journalist, Bae Ji-sook. “According to the Korea Customs Office, $129 million worth of trucks were imported to Korea in 2009 and imports jumped to $213 million in 2013, a 64 per cent increase.”

Going forward, it will become even more competitive, as import tariffs are prone to drop. After South Korea’s global competitiveness ranking dropped from 22 to 26 in 2014*, the country recently agreed on free trade agreements with both the European Union and the US, which will see the current 1.6/4 per cent tariff on imported European and US transport equipment scrapped from July and January 2016, respectively.

As a result, Volvo, Navistar, Daimler and Scania all celebrated a new product launch in March and April to push into the heavy truck market, which in turn is a key demand driver for articulated trailing equipment. Truck sales subsequently rose to 16,021 units in March from 13,416 in February.

The trailer market, which is traditionally lagging behind the motorised vehicle segment, could therefore see a surge in sales over the second half of 2014, especially since local Korean manufacturing is still focusing on the body building market first and foremost, according to the Korean Times. UK consultant Gary Beecroft, however, is sceptical the upswing will arrive this year. “It is currently assumed that the trailer market will suffer falls in demand and production in 2014,” he says.

Regardless of when the next sales increase will arrive, the combination of added international competition and the post-Sewol push for best practice in the transportation industry could lead to a quality boost in the trailer segment, with advanced safety technology becoming a key selling point.

In line with that assumption, Volvo mentioned that durability and efficiency are ranking highly on the decision-making agenda when unveiling its new Asian range in Seoul. “As customers use the truck as the foundation of their businesses, the vehicle means a lot. They value not only durability but also fuel efficiency,” a spokesperson said – revealing that added value could become more important than ever in bringing the Korean market on par with nearby Australia or Japan.

Already, South Korea is a serious economic and, increasingly, road transport power. According to Forbes Asia’s Andrew Salmon, “the nation’s physical infrastructure bears comparison with any nation’s and is better than most … and high technologies are deeply embedded and widely utilised.”

Long gone are the days when price alone decided on a sale, even though a truck is still worth more than an apartment to many a Korean. Yet there is a structural deficit to it, and that may also be the reason why the Sewol tragedy has led to such ‘self-flagellation’, as Salmon puts it. “In business terms, the country boasts a plethora of world-class manufacturers, but no world–class service firm,” he explains – a situation also affecting the road transport industry.

At the moment, most transport businesses are still family-operated one-man, one‑truck operations, with the wife often the president on paper and the person who handles business inquiries while the husband is on the road; but with multi-national corporations urging into the market, the industry is becoming more professional by the day.

Interestingly, the added competition does not necessarily mean the owner-driver market is under threat – in fact, the relationship between that vast sub-contractor community and multi-national logistics businesses will have to be renegotiated as early as January 2015, when a new regulation prohibiting the use of sub-contractors below more than one layer down will come into effect. “The rationale behind the idea is to support smaller truckers from being unfairly treated by larger brokers,” says Mark Seo, Country Manager, DHL Supply Chain Korea – predicting that the new model will see the customer outsource to a 3PL specialist, who may sub-contract to a small trucking company. “Under the new regulations, the trucking company must now handle all volumes using its own fleet and not sub-contract any work.”

Additional sales are likely to follow suit, depending on industry’s openness to invest into additional “cargo transportation license plates”. To manage competition and support smaller truckers, these plates are tightly controlled in South Korea. “If any trucking companies want to increase the size of their fleet, they are normally required to pay a premium to purchase a plate from an existing trucker. If they choose to apply for a new license it is a very lengthy process before it is granted,” says Seo, who predicts plate sales will soar as businesses are unable to sub-contract work to smaller operators anymore. The consolidation that could go hand in hand with that process is likely to further boost service levels across the nation.

In the wake of the Sewol disaster, small and medium-sized business are also likely to face more regulation regarding business procedures, vehicle design and specification – including real time visibility for deliveries using GPS and smartphone integration. Ironically, President Park Geun-hye oversaw a seven-hour meeting during which she urged officials to slash red tape strangling business just before the tragedy occurred.

Luckily, though, Korea is not facing the challenge unprepared – in fact, few countries are better equipped to handle change. Salmon: “One of the overall strengths of Korea’s social culture is that, in a country that has moved so far so fast, the ability to encompass change remains a constant.”

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