Glovis Co Ltd is Korea’s most extensive and critical player in integrated third-party logistics services. Its logistics business unit includes the intermediation of inland or ocean and air transport, storage, loading, unloading, and packaging, which collectively contributed 56 percent of its consolidated revenue in 2008. Leading logistics companies in South Korea provide such logistics services, including cargo carriage, warehousing, handling, multi-modal transportation, and value-added logistics. Among them are an impressive number of global logistics companies, which are DHL, Schenker, Kuehne & Nagel, and Kintetsu World Express (Korea International Logistics Council 2009).
These companies offer logistics services in South Korea and have close-knit logistics networks in Northeast Asia, enabling them to provide speedy assistance to shippers at an affordable cost both in the region and throughout the rest of the world. Major Logistics Companies in South Korea.
Most specialized logistics companies are subsidiaries of large conglomerates (or business groups) incorporated in Korea. These conglomerates laid the foundation for growth based on sales from other subsidiaries within the same business group and have tended to develop into third-party logistics companies. These business groups are actively pursuing the expansion of businesses to overseas markets through subsidiaries’ globalization based on their logistics subsidiaries. Even though the country’s logistics business has earned 92.5 trillion for the year 2004, the proportion of first and second-party logistics, in that the producer’s transport goods using their automobiles or vehicles of their affiliate companies. In 2006, the industry share of third party logistic companies (3PL) stood at 38 %, less than the equivalent proportions of 76% to 91% in the US and European countries, where producers focus on production and outsourcing logistics and supportive services specialized.
Weight of the logistics industry in Korea’s economy as of 2007.
During the year 2004, the logistics industry contributed about 60 trillion KRM or an equivalent of 7.7% of the Gross Domestic Product. Over the years until 2008, this has seen tremendous growth in the logistics contribution to the country’s economy. The table below shows the figures for the logistics contribution to the economy—source: 2009 Logistics Industry Comprehensive Collection, Korea Logistics News Co.
Size of South Korea’s Logistics Market.
Based on industry sales revenues in 2007, Korea’s logistics industry ranked eighth, following distribution (retailing and wholesaling), construction, electronics, automobiles, chemicals, primary metals, and coke/refined petrochemical products and nuclear fuel. It represented 4.4% of the national economy. The added value to sales scored 35.83%, far higher than the 22.7% recorded for the manufacturing industry, though falling behind retail and wholesaling, at 38.39%. It is regarded as an industry that can create high added value for the economy in employment. The logistics industry was still in its infancy until the 1990s in Korea. In the early 1990s, large companies recognized the logistics industry as the last stage in ensuring market competitiveness through cost savings and improved customer service based on efficient logistics.
Since the late 1990s, the Korean government has driven various policies to develop the industry as one of the core national industries of the 21st century.
As of 2006, the national logistics cost, an indicator of the total cost consumed for Korea’s logistics activities, was KRW 106 trillion. In real terms, it grew 4.44% annually. Given the potential and current market for logistics, total sales hovered around KRW 82 trillion in 2007. Hence, the logistics industry can still double its current size in light of ripple effects in related industries (Korea International Logistics Council, 2009).
The main stakeholders in the logistics industry in Korea are Hyundai Motor Co., Korea Express International Logistics, LG Electronics, Samsung Electronics Logitech, Hanjin Business Group, CJ Group, Geumho Tire, Lotta Group, and Hansol Papers. Out of this list, only three, Lotta Group, Hansol Papers, and Hanjin Business Group, engage in automotive activities.
Auto-active logistics providers can provide simple transportation, warehousing, loading or unloading, and value-added services. Logistics diversify to other services such as logistics information, logistics real-estate, logistic financing, and logistic consultancy. Auto-active logistics service providers have Information Technology and strong technical skills in logistical services and can provide varied services across nations (Jae-ho & Sang-yeong, 2009).
There are distinctive service features of the auto-active LSPs that make them different from other industries. These include: LSPs have an integrated management model for sourcing products from many regions and transport them from many areas. This business model aims to reduce logistics overheads and reduce the lead time for delivering many goods in small quantities directly to each region via a feeder network well established within Korean ports and the Asian areas.
Land transport through destination points in major ports in Korea engages a lot of hassle, including an increase in distribution costs when delivering goods, environmental pollution, and traffic congestion. Thus this concept is applied to reduce distribution costs and also provides an environmentally friendly distribution channel through environmentally friendly water transportation. Through this model, logistics firms cut on transport costs, indirect taxes, and administration fees, by as much as KRW 200,000 to KRW 300,000 per TEU on average through the Free Trade Zones within Korea and land distribution costs within Asian countries (Mishra & Shah 2009).
Another distinctive feature of the auto-active logistics service providers in the marine and air logistics management approach. This approach is used to ensure a steady supply of cargo and products to deliver within a short lead time, considering cost-efficiency. This approach is designed for firms that handle highly valued or seasonal products, such as fiber, electronics, etc. The firms can complete the timely delivery of products that require mid-term product delivery periods (approximately one week) by conventional air carrier transportation and additional distribution cost savings by utilizing this business approach.
Logistics Service Providers adopt a quality logistics service approach that is unfamiliar to other industries. This approach is aimed to foster services by offering flexible responses to consumer specifications. The import of price-competitive consumer goods manufactured in the Asian countries to the rest of the world has received enormous growth, but as a result of difficulties in meeting Korea’s rigorous quality management criteria, customer complaints have been frequent. Asian agricultural and fishery products, whose safety status has not been confirmed, go through a state-of-the-art quarantine system within the Port Free Trade Zone in Korea, designed to quarantine goods which need thorough quality check and the shortest possible delivery period. Export to Japan as well as distribution for domestic consumption in Korea can be significantly enhanced through a well-organized feeder system. An additional amount of value can be created through service promotion and superior product management through increased product reliability (Mishra & Shah 2009).
There are regulations and environmental legislation directed specifically to the LSPs. Legislations and policies governing the development of the logistic industry are administered through various state agencies; for example, the Construction Transportation Ministry administers the Cargo Logistics Promotion Law and Logistics Complex Development Promotion Law while the Commerce Industry Energy Ministry administers the Logistics Industry Development Law.
The South Korean government has appreciated the logistic services as a major national economic contributor; thus, it has established a National Logistics Master Plan composed of 5-year phases. Under this plan, the government aims to encourage the logistics sector as a new growth engine with the aim of creating global value-added, in line with the overall goal of raising logistics value-added to 11 percent of the country’s GDP by 2020. At the same time, five major strategies are being implemented to ensure that corporate logistics costs will account for 6 percent of sales to build low-cost, high-efficiency national logistics systems and to enhance the global competitiveness of key national industries.
The government is striving to develop South Korea’s logistics system into the world’s best so as to enhance the country’s competitiveness while effectively supporting corporate activities. Domestic and foreign companies can take advantage of a range of support policies concerning facility location, taxes, and finance to build optimal logistics systems. In 2006, the Korean Government enacted legislations on the certification system for the Logistics Service Providers, which was aimed at solving rampant shortages and small scale structure of the specialized logistics companies (Korea International Logistics Council 2009).
The Korean government is planning to expand third party logistics for cost efficiency and specialization via logistics rationalization to develop firms in the industry and enlighten on the advancement of cargo transportation markets in a systematic way. It also plans to newly develop northern and southern inland logistics bases within the central location to regenerate collection and distribution chains. Furthermore, the government plans to continuously expand IFT (Integrated Freight Terminals), ICD (Inland Container Depots), inland logistics facilities and complexes while extending logistics complexes under operations in three sites to 39 sites by 2012.
The Korean government is also planning to build a national logistics general information center by 2012 to link and integrate the logistics information network while constructing an RFID based information system for the country’s logistics facilities, including airports and ports.
There have been major changes in Korea’s logistics industry for the past five years in terms of new players in the industry, increased sales returns, and also handling capacity. This has been done so in order to cope with the increase in demand for transport goods around the world. In addition, manufacturers in the transport industry have produced unique products which have made the handling of them, both inbound and outbound products, more demanding and challenging than prior manufactured goods.
Therefore due to the increase in inbound and outbound goods and the unique features of the manufactured goods, it has resulted in a continuous flow of just-in-time goods in order to ensure that production plants are still producing goods automobile and no bottleneck develops that will result in unwanted expenses. Due to this, logistics providers have had to change significantly and become more specialized in their automobile services as their customers also became more specific in what they demanded from them.
Due to the rapid change of the automobile industry, the logistics suppliers have had to bring together the logistics and automotive know-how in their services. In addition, logistics suppliers have resulted in out sourcing services of other suppliers who possess the expertise of certain logistical matters, for example, geography of a given region (Svensson 2000).
10. Most of the inventory in the supply chains is managed and produced using the normal patterns that have been in use over the years. By continuing to do so, the ASC does not take into account any incidences of unexpected events occurring in the supply chain. When such unplanned events occur in the ASCs, they usually affect the flow of raw materials such as automobile components. This has led to a high vulnerability of the supply chains. These vulnerability factors usually cause by defective components, affecting the supply chains can result in the disruption of normal supply chains leading to grave consequences to the business or even lead to the winding up of the companies.
In addition, due to the increase in manufactures automobiles, there is bound to be constraints in the handling of the goods. There two types of constraints the ASC is bound to expect. Due to these constraints, the ASC is expected to be vulnerable to changes in the manufacturing industries and in supply chains.
However, there are various ways through which the constraints and vulnerability of the ASCs can be overcome. This can be done so by the manufacturers reducing the number of defective or defective components, and thus management of abnormalities will be reduced Business (Monitor International 2009).
Reference list
Business Monitor International 2009, South Korea Freight Transport Report Q1 2010. Part of BMI’s Industry Survey & Forecasts Series, Business Monitor International, Seoul.
Korea International Logistics Council 2009, Logistics in Korea. Ministry of Land, seoul. Transport and Maritime Affairs (MLTN), Seoul.
Jae-ho, L. & Sang-yeong, S. 2009, Direction for Korean Logistics Industry’s Development’, Korea focus, Web.
Mishra, A. A. & Shah, R. 2009, ‘In union lies strength: Collaborative competence in new product development and its performance effects’. Journal of Operations Mangement, 27, pp. 324-338.
Svensson, G. 2000, ‘A conceptual framework for the analysis of vulnerability in supply chains’. International Journal of Physical Distribution & Logistics Management, vol, 30, no, 9, pp. 731-749.