April 22, 2021
Solving a capacity crisis
This blog article is part of our South Korea market insight series, exploring opportunities for parcel carriers and offering insight and comparison to other parcel markets around the world. Download your free copy of our South Korea market report here.
South Korean parcel volumes have grown by 12.7% (CAGR) over the past five years, with more than 2.5 billion packages shipped in the most recent year for which figures are available. But just how sustainable is that growth? With home delivery as the preference of an impatient customer base and, as we discuss below, complications in the employment landscape, something will have to change.
In many markets, adding more capacity would be an obvious and easy fix to this issue. Where there is a large working population and low relative wage costs, hiring more people is the simplest approach. Where there are struggles getting items from A to B, adding more distribution centres can help. But none of that applies in South Korea.
Upwards of 60% of ecommerce orders are placed by the 25 million or so people living in and around Seoul. Around 70% of people live in apartment blocks in densely populated urban areas. Thanks to its ageing population and low fertility rates, South Korea has a shrinking working population. Consequently, there is limited scope to add more pickers, packers, drivers and so on into the mix. Indeed, in the near future, it’s likely that just about every role in fulfilment could become a costly challenge to fill as the pool of potential applicants gets ever smaller.
Currently, such roles are typically filled by gig economy workers. But of late, South Korea’s delivery sector has found itself mired in much the same gig-worker controversy as several other countries. And while this model has helped keep costs low and increase flexibility, there are indications that change is on the way.
Rising costs on the horizon
According to a Reuters’ report published in November, most of the country’s 54,000 delivery workers are classed as self-employed. They aren’t entitled to the same benefits and protections as regular employees and this is drawing the ire of trade unions. It’s a situation that has been amplified by the COVID-19 pandemic, which union spokespeople claim has led to the deaths of a number of workers in the retail fulfilment sector.
It is also attracting the attention of policymakers. Labour Minister Lee Jae-kap has hinted that changes are overdue, saying: “Policy, infrastructure and technology hasn’t kept up with the pace of growth of the delivery industry and the burden has manifested in long hours and heavy workloads.”
Setting aside the rights and wrongs of employment classification, this all adds up to a future in which the carrier industry will find itself facing rising labour costs. On top of that, with such a dense urban environment, the cost of securing new sites for distribution and sorting centres is extremely high compared to other mature ecommerce markets in larger nations like China and the US.
Delivering high quality service without new costs
The luxury of convenience suits shoppers, clearly. But for carriers, it’s a very different picture. Finding ways to continue to delight customers with high levels of service, with convenience on tap, while simultaneously coping with growing demand is a headache.
Bringing a PUDO network to fruition will provide exponentially more capacity into the network. But there are already lockers available in many downtown locations and they have failed to capture the public’s imagination. An alternative to lockers is a must-have, it would seem. While there needs to be a long-term effort to make alternative PUDO options more appealing, carriers will have to take short-term action to avoid being squeezed between costs and convenience.
Amazon is showing elsewhere in the world that this is possible. In many of its markets, the logistics/retail giant has been actively encouraging its customers to increase their usage of pickup and dropoff locations, with discounts for shoppers who select Amazon Hub (their PUDO brand) delivery locations. They’ve even run homepage promotions to raise awareness of the delivery option.
They’re pushing PUDO in markets like the UK for reasons that apply pretty well to South Korea: costs of delivery are rising, capacity is being stretched to the limit, and it’s increasingly expensive to buy and build the distribution centres and warehouses required to deliver the constantly-growing volumes of parcels.
To find out how Doddle can help you to expand your out-of-home delivery capacity and performance, and shape your strategy for the future, get in touch today.