Outsourcing Logistic Services Increasing
By Kim Hyun-cheol
Staff Reporter
Local shipping firms are expanding their boundary to the new growing business of third-party logistics (TPL), a one-stop service of outsourced logistics in companies' supply chain management.
Adding to Korea Express and Hanjin Shipping, which are already gaining most of their sales from the outsourcing services, several others are gearing up to join the trend.
Hyundai Logistics has recently set up an independent TPL division within its organization, by combining its existing subdivision with bulk shipping and harbor loading businesses.
Dongbu Express, a shipping affiliate of the Dongbu Group, plans to expand its warehouse network to strengthen its TPL business. It established logistics centers in Miryang in South Gyeongsang Province, and Paju in Gyeonggi Province, last year and will set up more this year.
CJ GLS also plans to join the competition by capitalizing on businesses with specialized needs, including the food and pharmaceutical industries.
TPL refers to the use of an outside company to perform all or part of the firm's materials management and product distribution.
Its providers offer multiple logistics services such as transportation, warehousing, cross-docking, inventory management, packaging and freight forwarding for use by customers, preferably in an integrated, or ``bundled'' manner.
Such logistic services have huge potential for growth here, as the Korean market is less developed than most advanced countries, according to industry watchers.
Estimated to be some 1 trillion won ($8.7 billion) in size, the Korean TPL market has been posting double-digit growth over the last few years.
A growing number of Korean companies are depending on outside providers for logistics. Last year, 49.2 percent of them used TPL, up from 46.3 percent in 2008 and 42.2 percent in 2007.
However, the figure is still well behind advanced markets such as the United States, Japan and the European Union, which post 70 to 80 percent. Over half of Korean firms carry their own freight, or through their shipping affiliates.
The TPL share in local industries is likely to rise further as logistic costs are reduced when outsourcing, and the government is also backing the system as part of its low-carbon growth agenda.
The Ministry of Land, Transport and Maritime Affairs supports 50 percent of consultancy costs for firms that consider consigning logistic operation to TPL providers. It is also reportedly mulling over a tax incentive for such companies.
An economic slump contracted the overall TPL market in the Asia-Pacific region, but signs show that the business will capture a bigger share of overall logistics spending.
For Asia-Pacific TPLs, three-year growth projections fell from 23 percent in 2008 to 16.7 percent in 2009, according to an annual study by the Georgia Institute of Technology.
However, expenditure on outsourcing as a percentage of total logistics costs is forecast to grow to 65 percent by 2011 and 70 percent by 2014.