The South Korean Third-Party Logistics (3PL) market is expected to register a growth rate of over 8% during the forecast period of 2020-2025.

South Korea is one of the top five 3PL markets in the Asia-Pacific region. The logistics industry in Korea has rapidly grown over the past ten years with multinational, major manufacturing, and wholesale companies concentrated on the internal and external efficiency and effectiveness of supply chains to reduce logistics costs.

Apart from the in-house logistics arms of major end-users, 3PL companies are expanding their bases in the country. The growth of e-commerce due to structural change is now expanding its growth to the online grocery market, fueling demand for a new type of logistics asset. At the same time, competitions to deliver groceries in good quality is making retailers seek logistics hubs in Greater Seoul area.

Key Market Trends

Domestic expansion leading to growth in 3PL market

The 3PL market in South Korea is a developed market with local and international players actively participating in the logistics of the country. The growth in the market is fuelled by the increasing mergers, acquisitions and expansion deals by the existing companies to facilitate better service at less cost and at the same time penetrate in the global market. Furthermore, the Korean Government proposed the construction of trade and logistics centres and free economic zone to create joint ventures for food processing, increasing the export capacity of Kyrgyzstan and export Kyrgyz organic products to other markets. The Korean company CJ Group was offered the construction of this trade and logistics centres and free economic zone.

The number of single households as a percentage of total households has also increased in recent years, rising from 24% in 2011 to 29% in 2018. This societal change, along with the increasing number of double-income families, is also generating strong growth in online grocery sales.

These demographic and social changes are prompting B2C e-commerce companies and 3PL firms to secure modern logistics centres with sophisticated supply chains and large storage spaces. In response to this, in October 2019, DHL Express announced its plans to invest 131 million euros to nearly triple the size of its package sort facility near Incheon International Airport in South Korea, to help keep up with the rapid rise of e-commerce shipments in the region increasing the total handling volume by more than 150% and increase its footprint from 20,000 sq. meters to 58,700 sq. meters, making the Incheon facility DHL Express’ largest gateway in the Asia Pacific region.

Developments in cold chain logistics

As the consumption trend of the food market changed, the demand for the delivery of fresh and convenience foods has been drastically increased. Fresh foods that are difficult to store were items that customers had to visit and buy in person, but the development of cold storage and logistics systems promoted online purchase of fresh foods. The recent growth of overnight fresh food delivery service enhanced the competition between retailers to strengthen their delivery capabilities by including the cold chain facilities for their deliveries.

The increasing popularity of Hon-sul (drinking alone) or Hon-bab (eating alone) has led to a rise in domestic wine consumption from 3.8 million boxes in 2016 to 4.1 million boxes in 2020. The ageing population and longer life expectancy is leading to a rise in illnesses and ailments associated with old age, resulting in higher consumption of healthcare products. The pharmaceutical market growth is generating strong demand for storing and transporting temperature-sensitive healthcare products.

As retailers put more emphasis on quality as well as delivery speed, last-mile delivery has become increasingly important. Recent years have seen the development of more sophisticated cold storage facilities that are used for last-mile delivery and must, therefore, handle frequent incoming and outgoing shipments. These properties are located in strategic locations; feature truck access on every floor; and are equipped with sophisticated temperature control systems to store various products. Newer facilities of this type also serve as fulfilment centres, handling every stage of cold chain logistics from incoming, to processing, to outgoing.

Competitive Landscape

The market is highly fragmented with a large number of local and international players such as CJ Logistics, Pants Logistics and Lotte Global Logistics as its key players. Steady economic growth and the rapid expansion of e-commerce retailers, such as Coupang, Wemakeprice, 11street, G-Market, and TMON; automotive and manufacturing companies and the drive to achieve carbon-neutral operations are leading to an increase in the demand for third-party logistics companies. The companies are focusing on inculcation of automation in its operations and updation of their energy sources, reducing their carbon footprint.

Among recent developments, the South Korean gas stations are collaborating with the courier service operators, subletting their facilities as logistics hubs, introducing a new dynamic to the local delivery industry. Hyundai Oilbank Co., a major refiner in South Korea, signed a strategic partnership with the e-commerce company Coupang Inc. on setting up a gas station-based logistics system. The gas stations will provide space to Coupang, who will use that space to facilitate its signature “Rocket Delivery” service that proposes delivery within 24 hours. SK Energy Co. and GS Caltex Corp., (South Korea’s two largest oil sellers), already have allowed their gas stations to delivery startup Zoomma Co., which runs an on-time parcel pickup service known as “Homepick”.

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