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City distribution: Courier service in Korea

Introduction

South Korea is a peninsula surrounded by sea on the east, west and south side and sharing a border with North Korea. Due to this unique environment, Korea is not connected to other countries by road or railroad. This divides the Korean logistics industry into simply two types: overseas logistics by airplane and cargo ship; and domestic logistics by road. In case of overseas logistics, the Korean government has been supporting the industry in several ways to overcome geological disadvantages especially to compete with China and Singapore. However, in case of domestic logistics, the market has been growing remarkably without any attention or investment from the government. Nowadays, it is a disappointment for customers if a product that you ordered online does not arrive within a day. This is possible because of the combination of relatively low cost of labor, IT technology and service-oriented mindset. Therefore, the demand for domestic logistics between big cities or within city is constantly growing and it has become a significant industry in Korea.

Details

When the e-commerce boom hit Korea in the early 2000s, the online and TV home shopping markets were created. In 2011, ten years after the first statistics was published, revenue of online shopping overstepped revenue of offline shopping for the first time. This continuous boom triggered the great growth of domestic logistics industry especially courier service which is a door-to-door delivery service. Courier service has relatively low market entrance so many companies started the business at the beginning of the boom but these days only those who developed themselves through the combination of IT technology and various services could survive. What also helped the industry to grow was the new perception on the logistics industry. Traditionally in Korea, the only focus of the logistics was increasing efficiency in the process of delivering raw materials for production and delivering end product to customers. Therefore, logistics was considered as a supporting industry to the manufacture. In the past ten years, it slowly changed and now the industry is in the spotlight considered as a new growth engine.

- Current status

The total quantity of parcels transported by courier service in 2012 is 145,980,000. The number shows that courier service has been used 33 times per capita over 15 years of age and 56 times per economically active population in 2012. The market size was 2.4 billion Euros in 2012. 5 big companies (CJ Korea Express, CJ GLS, Hanjin, Hyundai Logistics and ePost) take up 71% of market share.

- Services

As competition among companies heated up, a price-cutting race evolved. Soon after, the companies learned that they needed to find another way to survive. The next solution was developing IT combined services for shipper (sender), receiver and shipping company itself to improve convenience, privacy, security, efficiency and diversity of services.

1. Convenience store courier service 3 major Korean convenience store brands started CVSnet (Customer Value Service Network) to provide a new courier service that a customer can drop or pick-up parcel at convenient store. To send a parcel, normally a customer needs to make a reservation for a delivery person to come and pick up the box. Using convenient store as a drop/pick-up point, customer can visit nearby convenient store at anytime without waiting. The parcel can be tracked online as soon as it is registered at convenience store. To receive a parcel from online shopping, customer can select a nearby convenient store when ordering it. Text message and email will be sent to the customer when the parcel is arrived at the selected convenience store.

Figure 1. Postbox by CVSnet has a scale to weigh parcel

Figure 2. Process of Postbox system

2. Privacy protection Hyundai Logistics developed a virtual phone number system to prevent an exposure of customer’s phone number on waybill. A virtual phone number generated by an encryption program will replace a phone number of customer on a waybill. When a delivery person dials to virtual phone number, it will be connected to the real phone of customer. The virtual number will be deleted when the delivery is completed.

3. QR code CJ Korea Express eases courier companies’ work by developing a delivery track system using QR (Quick Response) code. By scanning QR code on a waybill attached to a parcel, it will be automatically registered to the system. This resulted in a significant cost reduction and shortening of working hours. It is also expected to minimize possibility of loss.

4. Smart Digital TachoGraph (DTG) Smart DTG developed by SK Telecom is a wireless smart digital operation record system that enables shipping companies to record real-time location data and status of trucks. Real-time monitoring on location maximizes the efficiency of delivery and allocation. It also analyzes operation time, distance and region of each truck and driver so that it can be used for checking and managing performance. By recording a sudden acceleration, sudden breaking, speeding and idling, fuel efficiency can be improved.

5. eTruck service Hanjin has developed an online cargo-vehicle matching system called eTruck service. eTruck allows a direct dealing between shipper (sender) and empty trucks based on the information of cargo via its website or smart phone application. On the website or smart phone app, information on real-time location of empty trucks and driving paths are available. A company that needs to ship cargo can book an empty truck via the online application. The application is expected to increase bundling and reduce the number of empty trucks.

Figure 3. Hanjin eTruck service

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- Government policy and countermeasure of industry

Most of major Korean manufacturing companies have their daughter companies to handle their own logistics. This is called second-party logistics (2PL). 2PL has an advantage because of its specialty in a certain product. However, it slows down the improvement on scale, efficiency and competitiveness. Therefore, the Ministry of Land, Infrastructure and Transport (MLIT) promotes the conversion into third-party logistics (3PL) to advance logistics industry. To encourage shipper, MLIT supports consulting service when a shipper likes to change from 2PL to 3PL. Meanwhile, MLIT limits the revenue of a daughter company coming from their mother company up to 30% of its total revenue. These efforts resulted not only in several M&A between companies, but also a conversion to 4PL that includes solution and consulting service. The environmental restriction of the government is accelerating the logistic companies to work on a throughout system from control and management to an energy solution. Also a government policy on improving distribution structure of agro-fishery product is also affecting the domestic logistics industry. Specialized logistics companies for fresh agro-fishery products are expected to appear in the market later this year under the support of the government. Furthermore, the government encourages and supports various R&D projects of companies on checking real-time location of parcels, improving reliability and speed of product classification and censoring dangerous substances.

Resources

Ministry of Land, Infrastructure and Transport (MoLIT) – http://english.molit.go.kr/intro.do Korea Logistics News - http://www.klnews.co.kr/ (only in Korean) GyotongN - http://www.gyotongn.com/ (only in Korean) Hanjin - http://www.hanjin.co.kr/Global_html/us/en/index.jsp CVSnet - http://www.cvsnet.co.kr/ (only in Korean)