CJ betting on logistics business

Group joins bidding to take over Korea Line, STX Pan Ocean

By Park Si-soo

CJ Group is flexing its muscle to make headway toward its ambitious goal of breaking into the top five of global logistics services provider by 2020.

The mid-tier conglomerate is the undisputed leader in Korea’s food and entertainment industries. It is now shifting its sights to new segments in search of future growth engines, one of which is international logistics.

This is in line with CJ’s “Vision for 2020,” declared early last year, under which the combined annual sales of its logistics arms CJ Korea Express and CJ GLS will reach 25 trillion won and they will see operating profit of 1 trillion won by the target year.

The group said last week it will merge its two logistics affiliates under one roof although approval from shareholders is needed to put the plan into practice. Major shareholders of the companies are set to meet on Feb. 28 and, if endorsed, the merged entity with sizable assets valued 4 trillion won ($3.7 billion) will be launched in April.

“CJ Korea Express has held a competitive advantage in the domestic market, while CJ GLS is stronger in cross-border logistics,” said CJ spokesman Lee Young-pyo. “The merger will tighten the company’s grip on the domestic market, while bolstering its overseas operations.”

On another front, the group is trying to inch closer to taking over domestic shipping company Korea Line Corp. (KLC). CJ is among five contenders trying to buy the nation’s seventh-largest shipping company by sales, which is currently under court-ordered receivership.

Other bidders are SK Shipping, Donga Tanker, private equity fund operator Hahn & Company and operator of special purpose vessels Zenith Partners.

“Though KLC is currently in trouble, it’s unlikely that the hard times will continue for long because the company’s financial health is getting back in shape quickly,” an industry observer said. “It has long-term shipping contracts signed with POSCO, state-run power company KEPCO and other export-driven Korean firms. The company’s stagnant sales will rebound dramatically when the global economic slowdown ends.”

The demand for international shipping services has slipped to a record low in recent years in the aftermath of the prolonged downturn. Experts said its rebound hinges on the economies of the United States and European countries, predicting the global shipping industry will see an increase in demand from later this year or next year at the latest.

In addition to KLC, CJ reportedly has a keen interest in buying STX Pan Ocean, Korea’s third largest marine transportation company owned by STX Group.

Cash-strapped STX Group is taking initial steps to sell its controlling stake in the shipping company under the supervision of Morgan Stanley and Standard Chartered Bank as part of effort to improve its financial health.

The CJ spokesman denied allegations that the company is looking to buy the two shipping companies at the same time. “Our attention is wholly focused on KLC,” Lee said.

Yet industry insiders haven’t ruled out the possibility that CJ could join the race for STX Pan Ocean should it fails in its bid for KLC.

“One thing that’s clear is CJ wants to establish a foothold in the shipping business,” an industry official said on condition of anonymity. “Its primary target should be KLC because its financial condition is better than STX Pan Ocean’s. If the bid fails, however, the firm may bid for the secondary target.”

Among companies that have reportedly expressed interest in the STX deal are Hyundai Motor’s logistics arm Hyundai Glovis and Samsung Group’s two subsidiaries in charge of group-wide logistics, Samsung Electronic Logitech and Samsung SDS.