POSCO FLOW

This January, POSCO Terminal was relaunched as a logistics arm of the POSCO Group including POSCO taking responsibility for the integrated logistics business. The enterprise faced numerous issues as it was founded as a logistics subsidiary, then became a logistics division under direct control of the CEO, and later became a logistics arm of the POSCO Group as POSCO Terminal. However, what did not change was the need for a professional company dedicated to logistics for sustainability of POSCO. Still, there are many who express their concerns about the POSCO Group’s integration of logistics business through POSCO Terminal. Regarding the response in the market, POSCO Terminal says it all started from a misunderstanding. So, we met POSCO FLOW CEO Kwang-soo Kim who was appointed to the position this year and talked about the misunderstanding, the need to integrate logistics of POSCO, and his future plans.

“You cannot stay ahead of the competition if you don’t deliver specialized logistics services.”

The reason POSCO merged logistics into POSCO Terminal was its concern for sustainability. Kim believes that a business will not survive if you don’t go green or go digital through logistics. He emphasized, “If you fail to go green with digital transformation, the manufacturing business, the foundation of POSCO, will not survive.” Then, if green and digital technology is so vital, why did POSCO needed to combine logistics business and found a company specialized in logistics?

Being environmentally friendly is seen as an issue related to POSCO’s survival. Kim said, “The international logistics industry has already set carbon reduction targets of 40% by 2030 and 50% by 2050. The time will come when you won’t be able to use ships if you fail to meet these goals.” He went on to say that if POSCO becomes subject to cargo ship restrictions, it will be a devastating blow to POSCO. For POSCO to reduce carbon emissions, they must not only cooperate with shipping companies, but also ground transportation companies. However, if you operate logistics based on contracts signed by each subsidiary, you can’t manage them properly. As such, somebody must take the lead and work together with subsidiaries to reduce carbon emissions. Kim highlighted, “In order to cut down carbon in the transportation process, someone has to play a central role in working with shipping companies and ground transportation companies to schedule trips and orchestrate the sustainability initiatives. Someone has to prompt government support and request pertinent industries to develop necessary technology because you need the technology to go green together with business partners.” This means that if you just leave it to the market without making the center point, it will be tough to decrease carbon emissions. So, POSCO Terminal must play the central role in undertaking end-to-end logistics services. In fact, POSCO Terminal is making continued efforts to go green. Kim explained, “When it comes to freighters, POSCO Terminal is covering a part of expenses for LNG-powered ships with shipping companies. We are also getting government support and we will continue expand the effort in the future.” He added, “Land transportation will also convert to hydrogen or electricity. We have developed a plan to develop hydrogen trucks in the next seven years, and switch over 4,500 trucks with hydrogen trucks or electric trucks or LNG truck at least.” Accordingly, POSCO Terminal have produced 11 trucks that run on LNG last November and they are currently being tested by transport companies. By looking at the data and issues identified in the test, they will decide which technology to use to reduce carbon emissions. Kim stressed, “If POSCO, as the large shipping company that transport cargoes that weigh between 150 million tons and 160 million tons, cannot meet international environmental standards, we might as well face a crisis of suspending the business altogether. This is why we think we are obliged to oversee the move to greener options, encourage our partners to join us, while sharing necessary costs. We will continue to strive to accelerate the progress.”

Digitalization is another identity of POSCO Terminal that will be managing the integrated logistics service. Kim underlined, “I believe logistics is not about the cargo, but rather data. I tell employees that we will not become a logistics company, but an IT company. We will work like an IT company that is run like an IT company.” He also said that he underscores to employees that in five years from now, POSCO Terminal will become a logistics company that runs on IT, or a fourth-party logistics (4PL) company. He continued saying digitalization is an essential element for POSCO Terminal in achieving sustainability for POSCO. When explaining the background, he pointed to the changing needs of the market and customers. While in the past, what gave manufacturing business a competitive advantage was quality and price, now it is logistics. Kim said, “Making quality products at low prices was what gave you an edge in the past but when we look at the needs of our customers and the market, whether they can get what they need when they need it

comes before price.” In other words, it means customers want data that shows you where it has been when, and how it is currently being shipped, and predicts when it will arrive at their door. Against the backdrop, POSCO was unable to provide such services with the existing system. In the past, when the customer placed an order with POSCO, POSCO would manufacture the products and warehouse them in the storage. The work stopped at this stage. The next steps were handled by local shipping and transport companies that have signed contract with POSCO. Kim pointed out that, “From the customer’s point of view, they order the product based on their trust in POSCO but since we were only responsible for production and did not handle shipping directly, we had communication problems with our customers. For instance, it was impossible for them to find out whether the product has arrived at a port in LA after the ship has departed from a port in Korea, or whether there was an accident or delay in the process without contacting the marine transport company directly.” This has made POSCO customers continue to deal with the hassle while they had a strong need to manage all data in real-time. To address the problem, it became necessary to handle not only logistics, but also data on products that are in the logistics stage. Kim stressed why you need a company specialized in logistics, saying, “POSCO Terminal intends to connect information on products from the moment they are manufactured with raw materials, including logistics, until the moment the production is complete and enters the warehouse of customers as data. And we’ll take a step further and provide customers with data on their inventory volume. If these issues are not resolved, we cannot guarantee the future of POSCO.” To work out the problem, POSCO began developing a platform that gives customers real-time insights into all information used from the raw materials stage down to the end customer stage since last year, when the company began integrating the group’s logistics business. Kim said, “We are preparing an integrated logistics system that applies AI to be completed by December 2023. It will be a platform where all stakeholders can share information with one another.”

“POSCO lacks justification to enter into the marine transport business.”

Outsiders had adverse views on POSCO during the time when the company was merging logistics of the POSCO Group. This was because there was prejudice against POSCO that the company could disrupt the market based on the enlarged volume of cargo as POSCO integrates logistics. Regarding the bias, Kim drew the line saying, “This is misjudgment caused by a lack of understanding in POSCO.” This issue was raised when the business was integrated not through an in-house logistics division, but rather in a form of 2PL. Kim explained that “POSCO has never used 3PL services for steel products or raw materials. We conclude contracts with shipping companies directly as we have always done, instead of signing contracts with shipping or transport companies through a logistics company.” In other words, the premise is not in line with the story. He said, however, that they are handling some container cargo through forwarders. He added, “We are working with 40 forwarders to process 60,000 TEU of containers that weigh about 1.3 million tons, and we plan to continue doing so.”

The biggest controversy over POSCO’s news that it is making a logistics company within the group was the rumor that the company is entering the maritime transport business. Regarding the issue, Kim drew the line saying, “We are clearly not entering the ocean transport business.” POSCO needs approximately 170 ships monthly, and they only travel one way due to the nature of freight services. He also added that it is completely inefficient for POSCO without expertise in sea transport to directly operate ships. The same goes for land transportation. He asserted that “Transportation companies that deliver POSCO products have 4,500 25-ton cargo trucks, and operating them directly does not help us at all cost wise or management wise. POSCO Terminal is already running at its full capacity acting as the integrated logistics service provider for POSCO subsidiaries.”

Some argued that POSCO will lower the unit price of shipping companies by taking advantage of its huge volume of cargo, but Kim explained that this also does not make sense. He believes that they will instantly understand if they look at POSCO’s contract structure. He said, “POSCO is the only company in Korea that has a transparent bidding system. We are also one of the few large companies in Korea to have adopted a bidding system with cap on the lowest bid.” Plus, as POSCO Terminal integrated logistics, other evaluation indicators apart from price were included, so it will be unlikely for POSCO to simply lower the unit price. Kim explained, “If the price accounted for 100% (of evaluation standards) of the previous bidding system with cap on the lowest price, we added an eco-friendly and safety index that amounts to 20% last year.” This means that POSCO will not choose companies just by looking at the price. He said, “Actually, this increased the pure unit price of freight, but I think is it right to give companies that meet environmentally friendly and safe transport standards a chance, which POSCO supports. This year, we plan on increasing the share of index on nature-friendly and safe practices to 30%.”

“We seek to become a righteous logistics company, rather than a competitive logistics company.”

Kim laid out the future direction of POSCO Terminal like this. About the righteous logistics company, he said, “It is about building a sound logistics ecosystem that is future-oriented, while developing competitiveness.” To that end, POSCO Terminal is focused on optimizing the logistics of the POSCO Group.

The company is at the last stage on merging the logistics of five POSCO subsidiaries since they have set out the task last year. This year, POSCO Terminal will integrate logistics of all subsidiaries. Kim, however, thinks that it is not desirable to integrate the business unconditionally. He said, “You won’t achieve synergy just by combining logistics business of all POSCO subsidiaries. What you need to do is to find the optimal solution. It could be more advantageous for some companies to not integrate the business at all.” He explained it is because the format of logistics differs by company due to the nature of POSCO that handles a variety of goods. Nevertheless, the group is consolidating the business with overall optimization in mind. Kim explained, “Things will become clearer as we find answers to the question on what the optimum solution will be even if POSCO Terminal would have to suffer a loss.” POSCO Terminal plans to concentrate on service integration for the next three to five years. After that, the company is making a roadmap on offering inclusive logistics services for SMEs based on the integrated logistics platform it is currently developing. The ultimate goal is to mature into a 4PL company. At the end of the interview, Kim emphasized that “The basic idea is to develop POSCO Terminal into a desirable company that can contribute to Korean logistics industry. We will definitely contribute to the sector as POSCO rightly should.”

Source: Korea Logistics News (http://www.klnews.co.kr)