[Click eStock] "CJ Daehan Tongun, Competing on Service Quality While Improving Courier Workers' Conditions"

"Will Further Widen Gap with Competitors... Freight Rate Increase Is Inevitable"

Park Geun-hee, CEO of CJ Logistics, is bowing her head in apology on the afternoon of the 22nd at the Taepyeong-ro Building in Jung-gu, Seoul, regarding the death of a delivery worker. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Minwoo Lee] CJ Logistics is set to actively promote improvements in the treatment of delivery workers. With a solid market share secured, it is expected that the gap with competitors can be further widened through service quality.

On the 23rd, Korea Investment & Securities analyzed CJ Logistics' recently announced comprehensive measures to improve the treatment of delivery workers. Although additional costs are inevitable, it is viewed as a positive change that can firmly strengthen the gap with competitors.

CJ Logistics, which has been embroiled in controversy following consecutive deaths of affiliated delivery workers, announced comprehensive measures to protect delivery workers and couriers the day before. Accordingly, it plans to invest 50 billion KRW annually to increase sorting support personnel who assist with parcel intake to 4,000, set appropriate delivery volumes for delivery workers, and consider introducing an excess volume sharing system where excess parcels are shared among teams. Additionally, it will recommend that all delivery workers be enrolled in industrial accident insurance by the first half of next year and establish a 10 billion KRW mutual cooperation fund to enhance welfare.

These measures are expected to have a ripple effect on the delivery market. However, due to concerns over increased costs, the stock price closed at 170,000 KRW, down about 5% the previous day. With next year's company-wide operating profit forecast at around 400 billion KRW and the delivery division's operating profit expected to be 190 billion KRW, the 25 billion KRW cost (assuming half borne by agencies) is considered a significant amount.

However, the analysis suggests that competitors will face greater difficulties due to these measures. Since the market share gap is already sufficiently wide, a gap in service capabilities may also emerge.

Choi Go-woon, a researcher at Korea Investment & Securities, explained, "By appropriately adjusting delivery workers' working hours and delivery volumes, the focus will now shift more towards service quality," adding, "In the context of investments in fulfillment services (managing the entire process from order to delivery, storage, inventory management, exchanges, and refunds), CJ Logistics' direction is positively shifting from expanding scale to improving profitability." He continued, "The public apology and gaining social consensus on improving delivery workers' treatment is also important," but added, "Ultimately, the possibility of fare increases has risen again."

Against this backdrop, Korea Investment & Securities maintained a 'Buy' rating and a target price of 200,000 KRW for CJ Logistics.