In Pursuit of Low-Cost, High-Efficiency Logistics Industry

The government plans to nurture the industry to advance the national economy

The government is aggressively striving to advance the local logistics industry by invigorating such logistics sectors as third party logistics, said Kwak In-sup, deputy minister of the Ministry of Land, Transportation and Maritime Affairs (MLTM). Under the policy of advancing the logistics industry as a national economic growth engine, the government is concentrating on realizing the so-called green logistics paradigm, advancing the logistics industry to the levels of advanced countries, building an efficient logistics system and normalizing the logistics industry, which is suffering from economic difficulties, at the possible earliest date, he said. The following are excerpts of an interview between NewsWorld and Kwak, who touched on the status and prospects of the industry and government policies to nurture the industry.
Question: Will you tell our readers about the current status of the Korean logistics industry?
Answer: In the past, the local logistics industry only transported and stored goods as well as assisted manufacturing firms. Manufacturing companies themselves were engaged in logistics or delegated it to subsidiaries rather than commissioning it to specialized logistics companies, since they feared exposing their business secrets to others. The industry is now emerging as a core industry designed to optimize the supply chain management (SCM) ranging from the production of products to their consumption, and it has become a subject of global attention as a value-added, new growth engine industry.
The value of the global logistics industry was estimated at $2.725 trillion as of 2008, 60 times the size of the global semiconductor market. If the industry continues to increase at the current rate, it is forecast to grow to $3 trillion by 2012.
The Korean logistics industry saw its sales surge 11.2 percent during the three-year period between 2006 and the end of 2008, and it has the potential for high growth since Korea has built solid exporting and importing logistics means by ranking sixth and eighth in the world in terms of shipping and aviation, on top of such excellent logistics infrastructure as Incheon International Airport and Busan Port and advanced IT technologies.
Q: What achievements have government policies related to the logistics industry made?
A: The government’s diverse efforts to develop the industry have so far paid off greatly. In particular, since its inauguration in 2009, the MLTM has created synergetic effects by building an integrated logistics system for land, sea and air cargo.
It has implemented the Gyeongin (Seoul-Incheon) Ara Waterway Project in an efficient and swift fashion by connecting port construction and operation, logistics complex development plans, offshore transportation and inland water transportation. There was a lack of connectivity of countermeasures related to port operations and on-land transportation areas during a nationwide Federation of Unionized Truck Drivers’ strike, but swift, spontaneous responses under the integrated logistics system contributed to the early solving of similar strikes in 2008 and 2009.
The seamless linkage between pier construction projects and road, railway and other inland transportation plans have led to securing transportation networks to port backwater areas in a timely manner. The completion of the railway network to support Busan New Port, which broke ground in January 2006, has been advanced by one year from the original schedule of 2011 to this year.
The government is aggressively striving to advance the local logistics industry by invigorating such logistics sectors as third party logistics. Surveys of third party logistics consulting services involving 19 consortiums during the period between 2008 and 2009 showed that their corporate clients saw their logistics costs reduced by 14 percent. To name a few tangible outcomes, the integrated logistics companies designated in 2006 saw their sales and overseas revenues surge an average of 33.6 percent and 86 percent during the period between 2006 and 2009, respectively. Shipping companies and harbor loading and unloading firms have overcome the economic downturn caused by the financial crisis in late 2008 thanks to swift support measures. In particular, the shipping industry has been restructured with marginal firms forced out of the market. Ship purchase funds have been introduced so that shipping companies can purchase 20 oceangoing ships, a crucial measure found to have contributed to helping them tide over the worst situation and maintain their fleet.
Q: Will you tell us the status of the Korean logistics industry and its pending woes?
A: The reality is that the domestic logistics industry is facing a plethora of tasks that need to be addressed in order to make it competitive and help it create added values on its own. In particular, despite the government’s policy designed to improve the health of the industry, it is too insufficient to have an impact on reducing the number of corporate logistics consigners. Companies are found to shoulder higher logistics costs than their counterparts from advanced countries, requiring additional steps to be taken for reducing logistics costs.
Compared to the manufacturing field, the domestic logistics market is smaller and there are few companies venturing into foreign markets for global competition. Due to their own logistics-oriented structure, Korean corporate shippers’ rate of utilizing third-party logistics services stood at 48.2 percent in 2009, quite lower than a range of 70 percent to 80 percent for the United States and European countries. Such opaque practices as a multi-tier system of the freight transportation market are blamed for raising shippers’ logistics costs. Such logistics means as railway, offshore shipping, ports and airports have a high cost and less efficient structure, requiring an overhaul. A report released by the World Bank this past February indicated that Korea ranked 23rd in terms of logistics competitiveness among 155 countries, still lagging behind the size of the Korean economy, which is 12th in the world.
Q: Will you elaborate on the vision of the Korean logistics industry and major policies the government will implement during 2010?
A: Under the policy of advancing the logistics industry as a national economic growth engine, the government is concentrating on realizing the so-called green logistics paradigm, advancing the logistics industry to the levels of advanced countries, building an efficient logistics system and normalizing the logistics industry, which is suffering from economic difficulties, at the possible earliest date.
First, we strive to shift the logistics paradigm into one of “green logistics for low-carbon, green growth.” The government is working to reduce greenhouse gas emissions by having cargo and automobile transportation firms set emission goals while seeking to implement diverse policies, including a system for subsidizing changing cargo transportation means to environmentally-friendly railways and offshore ships instead of roads and the improving of transportation systems. A green port building plan calls for ports’ introduction of offshore wind power, photovoltaic power and other power plants. Diesel-fueled transfer cranes have changed into ones powered by on-land electricity. Technologies changing diesel-fueled small, coastal ships into LNG-fueled ones are under development, and efforts are being made to facilitate the self-purification of the sea by changing solar buoy lights into ones with a hybrid system using photovoltaic power, wind power and wave power.
Firms’ voluntary participation is a precondition for reaping tangible results in realizing the green logistics plans. Government, corporate circles and civic organizations are seeking to form a joint consultative forum designed to share information and push the development of green logistics projects.
Second, in an effort to advance the domestic logistics industry to the standards of advanced countries, the government is striving to step up logistics firms’ global competitive edge by providing to logistics firms such incentives as the supporting of third-party logistics consulting services, keeping corporate tax reductions in place and improving the certification of integrated logistics companies.
The government is seeking to pass a revision bill of the Act on Freight Vehicle Transportation Business, now pending at the National Assembly, and a cargo transportation logging management system will be built in time for the revision of the law.
It plans to shore up the home delivery business. In a bid to prevent a flood of home delivery start-ups, a new home delivery business permit will be installed, while such policies as the expansion of an unmanned home delivery goods storage container system and the establishment of an integrated home delivery call center will be pushed. Third, in order to build an efficient logistics system, logistics hubs in the central region sphere and the Gyeongsang region sphere will be inaugurated with three logistics complexes within this year to facilitate the joint handling of import, export and regional cargoes, while radio-frequency identification (RFID)-based logistics hub information system will be expanded to support the real-time tracking of cargo and enhance the productivity of operating logistics hubs.
A cargo information network between logistics firms and cargo vehicle transportation business alliances will be widened in order to cut down on the rate of operating cargo vehicles without freight, now standing at 31 percent.
Finally, we’re throwing our heart and soul into putting the shipping and port logistics industries on the right track at the earliest possible date.
The government is all out to ramp up the competiveness of the shipping industry by continuously putting it in a restructuring mode.
By revamping the government’s 2009 steps to float the beleaguered industry, large-sized shipping companies will be encouraged to sign debt payment rescheduling agreements and SMEs deemed with high chances of survival will be provided with ample financial support while restructuring will be simultaneously accompanied to some extent. It plans to shore up shipping financing by revamping operating conditions of shipping funds for restructuring and expanding guarantees for ocean-going shipping companies.
The government is making all-out efforts to make shipping-related companies bigger and more specialized while striving to build a cooperative regime between Korean resources developers and shipping companies by conducting a survey of the status of Korea’s natural resources explorations abroad including coal and iron ore. It plans to operate programs designed to cultivate highly specialized manpower including manpower manning offshore platforms and working in shipping financing and other fields.
We’re making concerted efforts to make ports value-added and more competitive.
The government is redoubling efforts to improve the facilities of Busan and Gwangyang ports as international logistics ports. It is expanding investments into supporting the creation of cargoes by expanding backwater areas of Busan New Port and Gwangyang Port, linkage railways and backwater area roads.
In keeping with the global economic recovery, the government plans to launch a massive marketing offensive designed to attract cargoes from Japanese firms and Chinese companies from northern China. It is striving to enhance the value of Busan New Port and other new ports by attracting global logistics players and manufacturing firms into their emerging logistics backwater areas.
It is seeking to overhaul the operation and management of ports. In an effort to ramp up the international competitiveness of loading and unloading cargoes, the existing intelligent port logistics system will be expanded and container pier companies will be merged. The tentatively named Yeosu and Gwangyang Bay Port Corp. will be established to ensure the efficient operation of Yeosu and Gwangyang ports.
The intelligent port logistics information system, which has already been exported to Malaysia, will be exported to such developing countries as Libya and Tanzania. It is striving to lay a foundation for Korean companies’ forays into foreign countries by finalizing development cooperation projects like the development of the Banana Port in the Democratic Republic of the Congo.
Q: Would you comment on the creativity and imagination of logistics companies?
A: It is essential to build logistics infrastructure and logistics systems in order to nurture the logistics industry. In reality, it is logistics companies that create added values. Korean logistics companies cannot compete with foreign juggernauts, but one of the most important things is the difference of creativity. Agility, which was established in 1997 and posted $6.8 billion in sales, was once just a midsize logistics company, but it came from strength to strength in 10 years to evolve into the global top eight third-party logistics provider through aggressive M&As. The global economy is turning around, opening up new opportunities for globalization. We expect Korean logistics companies to evolve into world-class logistics providers in the not-too-distant future by making aggressive forays into foreign markets on the basis of an aggressive, creative mindset and imagination. nw

Kwak In-sup, deputy minister of the Ministry of Land, Transport and Maritime Affairs

The government is going all out to advance the logistics industry as a national economic growth engine.