1ST ISSUE OF WEEKLY EDITION SPOTLIGHTS SOUTH KOREA

1ST ISSUE OF WEEKLY EDITION SPOTLIGHTS SOUTH KOREA

The Asian financial crisis and its impact on trade flows will have a major impact on the air cargo industry this year.

In this inaugural issue of the new weekly edition of AirCommerce, we spotlight South Korea, with stories by Ian Putzger on how the crisis is affecting the Korean air cargo market and the nation's two big airlines. In addition, John Davies takes a look at plans for the new airport at Inchon, a port city best known to many readers as the site of the successful U.N. troop landing in mid-1950, led by Gen. Douglas MacArthur, that crippled the North Korean invasion of the South.

SOUTH KOREAN ECONOMY

COULD GROW THIS YEAR

Despite the chronic threat of a new invasion from the North, South Korea emerged in the 1980s as one of Asia's most vibrant economies, racking up double-digit growth year after year, before slowing to about 8 percent in recent years. The economy grew about 6 percent in 1997, and even this year it might grow, but probably no more than 1 percent. The sudden collapse of the won, the battering of its stock markets and the bankruptcy of several leading chaebol, or conglomerates, have shaken a proud people.

But Koreans have overcome greater adversity in the past, including oppressive regimes that showed little tolerance for dissent. President-elect Kim Dae-jung, who takes office Feb. 25, was a political prisoner for many years.

Look for Korea to re-emerge as a powerful force in the global economy by 2000 or 2001, if not sooner.

The financial woes of Korea, Indonesia and Thailand, as well as the continued stagnation in Japan, will sharply curtail exports to those markets. But exports from markets such as Thailand and Malaysia should rise dramatically, according to Brian Clancy, a principal in Arlington, Va.-based MergeGlobal Inc.

ASIA'S TRADE SCORECARD: EXPORTS

SURGE AS IMPORTS MODERATE

He notes that shipments from Asia to the United States rose 21.1 percent in the first nine months of 1997, with Japan, China, Taiwan, Korea and Malaysia, among others, scoring handsome double-digit increases. The outbound market to Asia, however, rose only 3.2 percent, with exports to Japan, Korea and Thailand all down sharply.

One reason the crisis will not have that severe an impact on air cargo, Mr. Clancy said, is the distinction between the financial economy and the trading economy, which involves the actual movement of goods. Obviously, currency fluctuations are a product of the financial markets and have enormous implications for trade, but stock markets and economic growth do not necessarily move in sync.

In an address last Thursday to the Air Cargo Association at New York's John F. Kennedy International Airport, Mr. Clancy also warned that forwarders may be facing a sharp rise in freight rates before too long if trade growth continues to outpace the expansion of air cargo capacity. Carriers are increasingly reluctant to invest in freighter aircraft, especially new planes like the $160 million 747-400, because the returns simply do not warrant such high investments, he said. Moreover, with the international passenger market only expected to grow 5.4 percent annually over the next five years, carriers will not be adding much belly capacity.

Carriers, forwarders and shippers, however, should all be happy with the new bilateral agreement between the United States and Japan last Friday. The additional flights will provide much more capacity not only to and from Japan, but to other points in Asia.

Our plan for AirCommerce is to focus on a specific topic each week, though we may have additional stories on unrelated subjects. Our goal is to be more timely than the monthly format permitted. We also will include personnel announcements and a calendar of upcoming events in the air cargo industry. We look forward to hearing from you. Our fax number is (212) 837-7005 or you can send e-mail to barmbruster(AT)mail.joc.com.