"Government Considers Switching Container Handling Fees to Regulated System Amid 'Shinhang' and COVID-19 Cutthroat Competition"

[Asia Economy Reporter Kwon Haeyoung] The government is considering switching container handling fees from the current notification system to an approval system. This is because, while maritime cargo volume has decreased due to the impact of the novel coronavirus disease (COVID-19), new terminals at Busan Port, a key domestic port hub, have been opening one after another, potentially intensifying cutthroat competition among port operators. The government plans to stabilize the fee structure through a revision to the handling fee approval system if necessary.

According to the government on the 27th, the Ministry of Oceans and Fisheries recently announced a research project to establish a "Container Handling Fee Reform Plan."

An official from the Ministry of Oceans and Fisheries said, "With the opening of new terminals at Busan Port, facilities are oversupplied relative to cargo volume, and cargo volume has decreased due to COVID-19, raising concerns about wasteful competition and market instability. Depending on the research results, if it is deemed necessary to switch to an approval system, we are considering implementing it in the first half of next year."

Currently, port operators report container handling fees to the local offices of the Ministry of Oceans and Fisheries, but if switched to an approval system, it is expected to be overseen by the ministry's headquarters. The ministry may set appropriate minimum handling fees or limit the rates of increase or decrease in handling fees.

Handling fees are charged by terminal operators to shipping companies. The fee is a fixed amount per 20-foot container, and the handling fee at Busan Port, which was at an appropriate level of 60,000 to 70,000 KRW, has dropped to the 50,000 KRW range. This is lower compared to port operators in Shanghai, China, and Singapore. Moreover, due to wasteful competition among port operators, some have started offering "half-price" handling fees, leading to overheated dumping competition.

The issue is that from May next year until 2026, more than three new terminals with a total of eight berths will open at Busan Port. Busan Port's handling capacity is expected to increase by more than 40% compared to the current level within five years, likely intensifying destructive competition among port operators. Especially since Busan Port accounts for 75% of domestic cargo volume, the impact on port operators will be significant. Last year, nationwide port cargo volume decreased by 8.9% year-on-year to 1,497.35 million tons due to the global trade contraction caused by COVID-19, marking the first decline in 11 years and worsening market conditions. In fact, at Gwangyang Port, handling fees dropped to around 30,000 KRW, causing difficulties for port operators, and two companies merged last year. Ultimately, this cutthroat competition is criticized for benefiting only foreign shipping companies with large-scale cargo handling capabilities.

Through this research project, the Ministry of Oceans and Fisheries plans to analyze ▲the current status and issues of the container handling market ▲cases of countries applying the approval system ▲handling fee rates at neighboring countries' ports ▲handling costs and appropriate handling fee rates at ports subject to the approval system.

However, if the container handling fee approval system leads to fee increases, the logistics cost burden on import and export companies may rise. Shipping companies charge import and export companies for handling fees, inspection and cleaning, freight, and other costs, so if handling fees increase, overall logistics costs are likely to rise as well.

Meanwhile, the government previously implemented a temporary container handling fee approval system from 2014 to 2018. After the notification system was introduced in 1999, competition among port operators lowered handling fees, but as cutthroat competition intensified, the system was temporarily switched to approval to stabilize fees.