ANALYSIS Labor issues may hamper Coupang's sustainability
A delivery worker poses with a parcel in front of a vehicle at Coupang's fulfilment center in Seoul in this 2019 file photo. Courtesy of Coupang
By Kim Jae-heun, Kim Yoo-chul
Korea's top e-commerce company Coupang is seeking to raise up to $4.08 billion in its U.S. initial public offering (IPO) after increasing its target price.
In a filing with the U.S. Securities and Exchange Commission (SEC), the company and its current shareholders said they plan to offer 120 million ordinary shares at $32 to $34 apiece ― an earlier forecast was $27 to $30. At the high-end target price ― $34 ― Coupang could be valued at $58 billion based on the number of outstanding shares. Coupang will be traded under the ticker CPNG from March 11.
Investors and stock market analysts say Coupang's business sustainability depends upon a detailed assessment of its labor conflicts, because the company's core competency lies in the intensity of its logistics network. The company's business model is unique in the e-commerce space, in that it operates end-to-end logistics.
This strategy has so far paid off because it is said to have transformed the company into one of the leading private sector employers in South Korea, according to reports. Its total workforce has doubled to 50,000 employees over the span of the last year and it plans to double this again by 2025.
But more importantly, like Amazon, Coupang has drawn scrutiny for the working conditions in its warehouses. Of major concern is that it has continued to run a windowless warehouse, even after workers tested positive for COVID-19. Some Coupang employees have also unionized. Coupang claims unionization could hurt its business, with investors and analysts saying its labor conflicts may chill the attention being paid to the company, given the fact that ESG (environment, social and corporate governance) management has emerged as a key issue among global investors.
Recently, a Coupang delivery driver surnamed Lee was found dead in his single-room accommodation in Songpa-gu, Seoul. Police found no suicide note at Lee's place and an autopsy will be conducted to reveal the cause of his death.
Lee's wife said the driver had frequently complained about his arduous job, especially working in the early morning. As a follow-up measure, the Taekbae Union, which represents couriers here, held a press conference in front of Coupang's headquarters in Songpa, Monday, and denounced the company's poor working environment.
The union said that Lee earned about 2.8 million won per month, which is just a little over minimum wage. “His salary was too small for the hard work he did.”
Lee was his household's breadwinner, so he could not quit his job. He started as a contract worker last year before being made a full-time worker.
Coupang Fulfilment Service CEO Joseph Nathan Nortman answers questions from lawmakers during a hearing held by the National Assembly Environment and Labor Committee, Feb. 22. Korea Times file
However, Coupang said Lee's workload was not heavy, compared to that of delivery workers' average workload last year, which was six days per week and 71 hours in total.
“Coupang expresses its deepest condolences to the deceased and the bereaved family members first. Lee had worked about four days per week, for 40 hours, during the last 12 weeks. The number is much lower than the 60-hour workweek recommended by the social organization formed by representatives from labor unions, government officials and consumer groups,” Coupang said in an official statement.
Plus, Coupang wrote of the potential ramifications from such incidents. “We have been and will continue to be subject to inspections, investigations, disputes, and litigation relating to these labor and employment laws and regulations.”
Soaring industrial accidents
The problem is that, as demand by ESG criteria-based management has increased, investors also have their own standards for these factors.
Coupang admitted in its listing report submitted to the Securities and Exchange Commission, that its business in Korea involves “special risks” to a certain point. It mentioned the possibility of company executives having to take responsibility for any crimes committed. The government has recently pushed for a legislation imposing heavy penalties on company executives for industrial accidents that occur while workers are on the job.
Last October, a 28-year-old employee named Jang Deuk-joon died from a heart attack after working 62 hours a week in the lead up to his death. Jang had worked an average of 58 hours a week during his 16 months working at Coupang's “fulfillment center.”
Many Coupang workers argued that there was no heater to keep the temperature up in the winter nor any air conditioner to reduce the heat during the summer. They also had to receive permission to go to the bathroom, while managers calculated their daily workload with UPH gadgets in real-time.
Such poor working conditions led Coupang to become one of the firms with the most industrial accidents in the past two years. According to Rep. Lim Jong-seong of the ruling Democratic Party of Korea (DPK), the number of industrial accidents that occurred at Coupang's fulfillment centers increased from 48 cases in 2017 to 224 cases last year.
The National Assembly Environment and Labor Committee summoned Coupang Fulfillment Service CEO Joseph Nathan Nortman last month to question him about his company being reluctant to acknowledge the number of industrial accidents that took place at its worksites.
“I thought the company had supported our employees and properly recognized the number of industrial accidents that have occurred at our worksite. However, as of today, I heard about the figures, which I will take into consideration to improve the situation,” Nortman said.
On the day the hearing was held on Yeouido, the union urged the firm to withdraw its new commission fee system, reducing riders' standard delivery fee from 3,100 won to 2,500 won. Coupang said that delivery workers are not full-time workers, and so, such requests to cover extra expenses for various reasons cannot be reflected immediately. However, it agreed to talk with the delivery workers union in the future.
But the bottom line is that Coupang's harsh working conditions are cited as the top reason, leading it to a “higher than average turnover.” Therefore, analysts say this continued high turnover, combined with a tightening labor market, amid the emerging labor shortages, could gravely affect its business.