Lessons for Korea's logistics industry

2013-05-19 : 10:15

By Lee Dong-geun, Executive vice chairman of the Korea Chamber of Commerce and Industry

The wall paintings in the royal tombs of Goguryeo, one of the ancient Korean kingdoms that spanned from the central part of the Korean Peninsula to the southern reaches of Russia’s Primorsky Krai from 37 B.C. to 668 A.D., show the daily life of the hunter-gatherer, including a large number of wagons. One of the characteristics of royal tomb wall paintings in the Goguryeo era is the depiction of the livelihood of the tomb’s owner.

The number of wagons represented on these tombs reflects the substantial usage of wagons in this era. Historical records show that the people of Goguryeo sometimes used more than 1,000 wagons simultaneously to transport large amounts of freight. Using wagons as a means of transport, Goguryeo exported heavy steel to the neighboring Shiwei and Khitan peoples, thereby accumulating wealth and winning those foreigners over to Goguryeo’s side.

Located in between nomadic countries in the North and agricultural countries in the South, Goguryeo knew that logistics mattered. By constructing and improving roads that would enable wagon travel, they were able to conduct large-scale trade with neighboring countries. The wealth earned from commercial trade, combined with a subsequent increase in military strength, made Goguryeo a major dynasty in those days in Northeast Asia.

In the Unified Silla era about 1,200 years ago, Jang Bogo, a powerful maritime figure, effectively controlled Korea’s West Sea in terms of commerce and military for several decades and was granted the official office of Maritime Commissioner of the Cheonghaejin Garrison on Wando, an island off Korea’s southwestern tip. Jang not only protected Silla merchants’ activities from pirates but also served as an arbiter of West Sea commerce and navigation. In a modern perspective, he can be likened to the successful CEO of a logistics company whose businesses include trade, passenger and freight transport, shipbuilding and repair, the construction of ports, and the establishment of trade systems.

With his leadership and keen insight, Jang developed the Cheonghaejin Garrison into a major maritime hub in East Asia through intermediary trade with present-day China and Japan, developing it into a gateway for Asia’s transport needs to the rest of the world. In doing so, Jang established an innovative logistics network for the commodities trade that went well beyond Southeast Asia to India and Persia.

Data from 2012 shows Korea as the world’s eighth-largest trading country, posting more than $1 trillion dollars in annual trade volume. Korea’s electronics and auto industries are global leaders but, in terms of logistics, an industry essential for trade, Korea only ranked 21st in the 2012 Logistics Performance Index composed by the World Bank, far behind its competitors in Asia such as Singapore (ranked 1st), Hong Kong (2nd), and Japan (8th).

It is assessed that Korea’s logistics infrastructure, including shipping, air transport, and ports, is globally compatible and competitive, but there are no Korean logistics companies on the international stage as active as FedEx or DHL. Among Korean logistics providers, only about 22.3 percent are handling international logistics services, and the rest are focused on domestic delivery services.

According to the most recent data, Korean logistics companies make up only about 2.1 percent of the global market share. Considering that transport volume in Korea accounts for about 9 percent of the international transport volume, Korean logistics providers are not even able to cover the transport needs of the domestic market.

The international third-party logistics market is expected to grow to $3.3 trillion by 2013, on the back of the rapid economic growth of emerging countries including China and India. Some argue that if Korean logistics companies could develop their international market share to match Korea’s transport volume, per-capita national income would soon reach $40,000.

To foster global logistics providers, Korea can draw lessons from Goguryeo, a country that built up strength utilizing its geographical advantages, and Jang Bogo who once controlled the transport hub in Northeast Asia. To start, Korean logistics companies should nurture experts to strengthen their global networks and capabilities. At the same time, they should make efforts to increase investments for developing ports and inland logistics bases in emerging countries. Manufacturing companies and logistics service companies should also make efforts to establish an environment conducive to cooperation with each other. Partnerships between these two, which usually require great volumes of international shipping of materials and products, would develop their global market presence. Furthermore, the government, for its part, should continue support for the logistics industry, such as funding to support the establishment of logistics bases and M&A and the expansion of programs to train global logistics personnel.

As descendants of Goguryeo and Jang Bogo, Korean logistics providers should heed the call of history to build up capabilities and emerge as global logistics leaders.