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U.S.-Korea free-trade agreement could fuel cargo growth

By control on October 13, 2011

The U.S. Congress has passed separate free-trade agreements between the U.S. and South Korea, Panama, and Colombia. According to a statement released by the White House, the FTAs will help President Obama achieve his goal of doubling American exports. Both houses of Congress passed the bills on October 12, one day before South Korean President Lee Myung-bak arrived at the White House for a state visit. The FTAs now await the president's signature.

For Korean exporters and airlines alike, the great hope is that the U.S. free-trade agreement and a pending FTA with Europe will prove to be a huge boost for Korea’s international trade. By some estimates, an FTA deal with the EU could increase trade with this market by $4.7 billion annually until 2015, with airfreight volumes rising 6.1 percent.

In the second quarter, Korea’s economy grew 3.4 percent, the slowest growth in seven quarters, and predictions for the second half of 2011 points to a further decline as a result of anemic demand in the country’s major European and North American markets. A recent survey of Korean exporters by the nation’s Chamber of Commerce and Industry showed two-thirds of respondents expecting not to meet their targets for this year, owing to weaker demand and high volatility.

At this point, both Europe and North America lag behind earlier growth projections by Korean Air and Asiana, representatives from both carriers have declared.

“This year’s business has decreased because of economic circumstances in the eurozone and North America. Korea’s exports and imports are not as strong as last year because demand in the U.S. and EU has been getting weaker,” noted Kee Chul, vice president of cargo sales at Asiana.

In response to the dismal core markets, Korean carriers are looking at other destinations and routings to improve load factors and yields. Korean Air has added a string of second-tier cargo markets — Qatar, St. Petersburg, Istanbul and Zaragoza — to its freighter network in recent months. At the beginning of September, Asiana extended its freighter reach in the U.S. to Miami and Portland, Ore.

Kee acknowledged that Miami is a move to tap into the flows between Asia and Latin America, which have been strong, thanks to robust demand in Brazil and its neighbors for goods made in Asia. Korean Air already runs six freighters a week to Miami, but it is looking to expand its footprint in Latin America. Having mounted passenger flights to Sao Paulo earlier this year, the carrier is now mulling over the viability of operating freighters to the Brazilian city, a spokesman for the cargo division said.

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