Warehousing that’s a home from home

Busan Port Authority is going ahead with the construction of a 50,000㎡ logistics zone in Rotterdam’s Maasvlakte Industrial Park
Busan Port Authority is going ahead with the construction of a 50,000㎡ logistics zone in Rotterdam’s Maasvlakte Industrial Park
Busan is looking to better connect itself with Rotterdam
Busan is looking to better connect itself with Rotterdam
Rotterdam has established many facilities to support its role as Europe’s gateway
Rotterdam has established many facilities to support its role as Europe’s gateway
Industry Database

At least one port authority is taking it upon itself to help out manufacturers trying to break into a new market. Stevie Knight reports

Ports have long been looking overseas to broaden their prospects. But for Busan, entwined with the more usual terminal operation, port consulting and management service offerings there’s a new strand: overseas warehousing.

It started, says Jinsun Shin of Busan Port Authority, with a series of gripes. “Over the course of a two-year stay in Rotterdam I heard a lot of complaints from Korean manufacturing companies who would like to advance into the Europe market... but they told me they were encountering difficulties in finding suitable warehousing,” says Ms Shin. The issues were fairly broad, covering everything from finding somewhere willing to handle fairly small volumes to high logistics costs and communication difficulties.

She explains that BPA, being both a state-owned entity as well as a commercial enterprise, “recognised that it’s our responsibility to provide a foothold for Korean companies, whether these are importers or exporters”.

Consequently, Busan Port Authority is going ahead with the construction of a 50,000-square metre logistics zone including 34,000 square metres of warehousing and supporting facilities, located in Rotterdam’s Maasvlakte Industrial Park. Commercial operations are predicted to begin in the summer of 2021.

According to Ms Shin, the pairing is entirely natural: “Rotterdam is not just a port for the Netherlands but a gateway for Europe. Likewise, Busan is not just a Korean port but a Northeast Asian transhipment point — so I would like to connect these two hubs, the one in Europe and the one in Northeast Asia.

“It’s early days,” she says, but so far the plans are that Rotterdam will support the site’s administrative procedures required for construction and running, while BPA will draw up business plans, facility designs, and business models. “Though obviously in terms of selecting the tenants there will be several conditions that will need to be met, it’s really open to all Busan’s clients.”

Value proposition

It makes sense to Drew Davis of Establish Inc who sees this move as a value proposition. It could mean that customers “get favourable rates and guaranteed space at this compound... and that equals more freight through Busan”.

Busan is also looking at replicating the experiment further afield. According to Ms Shin, if this venture yields enough returns in the way of custom or reputation “we’d like to do the same in Poland”: a European manufacturing base which poses rather similar issues for Korean manufacturers.

However, she doesn’t expect the initiative to stop with Europe: BPA is also investigating possibilities from Africa to South America “and Russia too”. In fact, it seems as if Busan is looking at most places with a budding hub and a promising economy “although we are looking for commitment to development”, she says.

But is port warehousing the best option? There are obvious benefits accruing to certain hub ports with free trade zones in their backyards, but bonded warehouses are only a tiny part of the story as the advantages only apply to transhipment goods.

“From the client’s perspective it’s typically better to have distribution closer to the customers,” says Mr Davis.

Brian Templar of Davies & Robson adds: “It’s all about the stem mileage.” He explains: “A lot of companies will want to keep their goods in the shipping container where it’s all tightly packed in and get it closer to a more strategically positioned warehouse before opening it. That’s generally easier than breaking it up and shipping fragmented orders out from the arrival port which leaves you with multiple, long road legs before you get into the main delivery area.”

Despite this, Mr Davis points out “if you’re struggling to find warehouse space, you’ll take what you can get”.

However, this approach can lead to problems, as short-term solutions might be at the cost of long-term viability. “Warehousing has to be strategically sound, rather than tactically convenient,” says Mr Templar.

“What you don’t do is start with deciding where the warehouse will be. You first ask where the optimum solution is: it’ll fail if it’s not in the right spot as it won’t be cost effective.” He goes on to say: “I’ve seen it in the past, someone comes into the country with a quick and dirty fix, then recognised that they’re with the wrong supplier, in the wrong place. Then you either stick with a suboptimal solution or go through the whole process again.”

Port proximity

Having said all that, there are exceptions, says Mr Davis. “I’ve seen strategic location projects where, because of the freight terms, product type and business model, shippers are better off being near a port.”

He continues: “Some shippers don’t pay for their outbound freight as that’s down to their clients: for example in the US, the big retailers have their own networks and contracts which pick it all up.” In these situations he argues that “being near a port could be the best financial decision as it minimises your inbound costs”. Likewise, “If you’re importing frozen or perishable goods, being near a port helps prolong the shelf-life.”

There are other challenges with flexibility being high on the list.

For it to work well, says Mr Templar, “they’ll need to realise that most people with a new venture will be trying to avoid high fixed costs”. He adds: “Common sense demands making it as flexible as possible, not tying people into 10-year contracts but telling them they can have a space on a six-month rolling basis or whatever. The more tailored they make it, the more attractive it’s likely to be.”

However, while BPA won’t be operating the warehouse themselves, it will be looking at a certain level of commitment to make the venture commercially feasible.

That could be a sticking point, says Mr Templar. “If the cost-base of your operation ends up higher than that of the locals’, then the competition will only go one way.”

Culture call

Mr Davis says that culture has a part to play: “Having worked through finding warehouses for clients across the world, the various regions and countries have very different ways of doing things...and it’s sometimes a challenge to merge expectations,” he says.

“Having a warehouse space operated by the same country of origin as the client is a plus. That said, the warehouse must still be capable of shipping and working with the local market.”

Mr Templar echoes this point and goes one step further: “I am fairly sceptical of making it too much a ‘Korean embassy’,” he says. “It might – initially – all seem rather convenient: for example in the UK, FedEx used to think that it would get a leg-up from US companies already here.”

“But if you are going to compete, you have to learn the language, rules and business culture of that marketplace. Trying to stay on a campus might seem appealing, but I am not sure how good an idea it is longer term: you have to ask yourself, ‘are our competitors out there, finding local connections and people to work with?’ So, it might be a good way to start off, but I’m not sure about it going forward.”

Moreover, he adds: “Most businesses are highly competitive, and if you want to compete, you have to do it with the locals.

Still, Mr Davis says: “If Busan’s clients are having a hard time finding warehouse space, they are just trying to help them out. Good on them.”


There are other issues at playing in the Busan–Rotterdam warehousing plan. “Currently, South Korea is landlocked by North Korea, so apart from air, ports are the only shipping method out," says Establish Inc’s Drew Davis. “That said, take a look at the news and you’ll find that it’s just a matter of time until the Koreas agree on a railroad to connect South Korea to the Trans-Siberian railway, which will enable rail freight to the European market. If this happens, Busan’s European exports through the port will decrease, potentially significantly.”

It’s still a largely unknown quantity, and — at least for Busan — it may heighten the reasons for co-operation.

Davies & Robson’s Brian Templar admits that “Rotterdam itself is a special case, as the Dutch have made a big point about putting in lots of facilities to support its role as Europe’s gateway”, but “that still doesn’t necessarily mean you should put your warehousing there too”.

But, as Mr Davis concludes: “This space in Rotterdam is worth money. It may just be a good investment overall.”


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