Invest KOREA

With the prolonged COVID-19 pandemic, the spike in global energy prices due to the Ukraine-Russia war, and the US-China trade dispute, the supply chain has been disrupted and society as a whole has been experiencing drastic changes. Across the distribution industry, a digital transformation is underway. The entire industry is faced with major changes caused by the Big Blur phenomenon, which is obscuring the boundaries not only between the distribution industry and other industries but also between buyers and sellers, and of the channels within the industry.

Coinciding with the Big Blur, offline distribution is changing its nature and evolving into the 'space business,' and the new business model, 'quick commerce,' is spreading as distribution, logistics, and tech industries are being combined, and the boundaries between online and offline are collapsing due to COVID-19. Also, the 'Local platform' is emerging as a result of the blurring of boundaries between distribution and IT, online and offline, and buyers and sellers.

Amid these changes, companies that seek to preoccupy dominant priorities in the e-commerce market strive to secure competitiveness and maximize economies of scale through M&A. At the same time, the distribution market is reshaped around deep-pocketed e-commerce companies.

The exponential growth of the e-commerce industry, and the increasing adoption of automation solutions at logistics sites according to advanced robotics and automation facilities, are the main factors driving the growth of the logistics automation and robotics market.

The rise of logistics automation and robotization requires the economic and social background factors as follows:

First, as with the disruptions in a division of labor structure by intergovernmental rows and the rapidly expanding reshoring movement, automatization and robotization have been adopted to solve the difficulty of securing skilled workers and addressing labor shortages.

Second, there is a move to prevent the lockdowns incurred by aggravating non-face-to-face situation and workers' infection in the COVID-19 pandemic.

Third, it has become more challenging to manage Gig Workers2. Recently, Gig Workers²⁾ have been voicing their demands for social insurance access. In other words, a flexible and resilient response to supply and demand, the perk of the Gig Economy, has become hard to manage.

The fourth is the aging population, labor shortages, and rising labor costs. The staffing shortage has led business owners to realize the need for automation and robots in logistics as the price of automation and robots is expected to fall at a faster pace than the increase in wages, further expediting their spread.

In response to changes in the distribution environment, the government released a plan to rev up the digital distribution competitiveness for responding swiftly to the transition to contactless and online platforms. The plan would enable the spread of private-led innovation and ESG governance to create digital innovation and a sustainable growth ecosystem, and expand e-commerce's entry into overseas markets.

In the meantime, through the National Logistics Master Plan3³⁾, the government has announced and implemented six goals and five strategies to facilitate Korea’s leap forward as a leading country in global logistics by fostering smart and digital innovation in the logistics industry and creating a co-prospering ecosystem.

The distribution industry, which has shown exponential growth thanks to the spread of contactless purchases after COVID-19, is predicted to have a tougher year on the back of worsening consumer sentiment from rising interest rates, deteriorating profitability due to fierce competition among companies, declining contactless purchases due to the return to normalcy, and possible regulation of online platforms.

Meanwhile, the logistics industry will be affected by the overall domestic industry, which is forecast to stagnate from bearing the brunt of high oil prices, high-interest rates, and high exchange rates, resulting in languish cargo volumes, while restrictions on carbon emission, ESG governance, and digital logistics transformation are likely to go into full force.

The rearrangement of the market and emergence of new businesses across the distribution and logistics industry are expected to continue as a consequence of changes in the external (geopolitical) and business environment and the intensification of the Big Blur. Moreover, the transition to digitalization, automation, and robotization of distribution and logistics sites is likely to progress rapidly because of the aging population, labor shortages, and enhanced work environment and safety under ESG governance.