Why Did POSCO Venture Into the Logistics Industry?

Board Meeting Scheduled for the 8th... Expected to Discuss Establishment of Logistics Subsidiary

[Asia Economy Reporter Hwang Yoon-joo] The main reason POSCO is pushing to establish a separate logistics subsidiary is understood to be an effort to consolidate the logistics channels scattered across its group companies and reduce logistics costs, which amount to trillions of won annually.

According to industry sources on the 8th, POSCO's annual logistics expenses last year were about 6.7 trillion won, equivalent to 11% of its total sales. POSCO explains that integrating the logistics operations of group companies such as POSCO International and POSCO Terminal can increase efficiency and reduce costs.

From POSCO's perspective, which has been seeking cost reductions amid downturns in upstream industries and the COVID-19 pandemic, the long-standing cartel revealed earlier this year in the logistics industry is also analyzed as a trigger for exploring entry into the logistics business.

In 2001, POSCO changed its method of selecting steel product transportation service providers from direct contracts to bidding. Then, the Fair Trade Commission's investigation revealed that logistics companies such as CJ Logistics, Sebang, and Dongbang colluded to prevent transportation unit prices from falling due to bidding competition. Over the past 18 years, the total sales generated by eight domestic logistics companies from 19 bids amounted to 931.8 billion won. The Fair Trade Commission imposed fines exceeding 40 billion won on these logistics companies earlier this year.

An industry insider in the steel sector commented, "POSCO was blindsided by logistics companies it had dealt with for nearly 20 years. Unlike large corporations with their own logistics networks, POSCO, lacking an owner and having a strong public character, had been reluctant to establish a logistics subsidiary, but it seems that the cartel incident prompted it to directly enter the logistics business."

This is not POSCO's first attempt to enter the logistics business. During Chairman Kim Man-jae's tenure, it acquired Geoyang Shipping (formerly Daeju Shipping), but after failing to see the expected effects, it sold it to Hanjin Shipping. Later, it attempted to acquire Daewoo Logistics (2009) and CJ Logistics (formerly Daehan Logistics, 2011) but faced setbacks.

POSCO is a major player in the shipping and logistics industry, importing 83 million tons of steel raw materials annually and exporting 10 million tons of steel products overseas. This accounts for 10-20% of the total shipping volume. While some criticize this as large corporations 'taking away work' from small and medium-sized enterprises, internally POSCO expects not only cost reductions but also increased efficiency through the integration of logistics operations across its affiliates.

A POSCO official said, "Chairman Choi Jeong-woo, a finance expert, has emphasized the importance of cash flow amid the global economic downturn, which also influenced the establishment of the logistics subsidiary. This is not about receiving toll fees through a logistics company like an owner-operated business, but about organizing costs that have unnecessarily leaked out so far."