Nonghyup faces calls to nix delivery service
The National Agricultural Cooperative Federation, Nonghyup, faces growing pressure to scrap its planned entry into the country’s already-crowded parcel delivery market.
Along with existing parcel delivery companies, the Ministry of Land, Infrastructure and Transport is also voicing caution against the proposed enterprise.
CJ Korea Express Corp., Hyundai Logistics and other parcel delivery firms, hail the ministry’s stance, saying that its entry to the market would make things go from bad to worse for all delivery companies.
They issued a joint statement Tuesday, calling on Nonghyup to abort its plan to deliver parcels for farmers.
In response, Nonghyup said it has not yet finalized whether to advance into the parcel delivery business, but argued that its entry would not cause harm to existing players. It said local parcel delivery firms will see their profitability continue to deteriorate due to intensifying competition, with or without its presence.
In addition, the Ministry of Agriculture, Food and Rural Affairs, which oversees the operations of Nonghyup, has been backing the plan, saying that the company has to meet increasing shipping demand from farmers who sell their products directly to consumers.
On Wednesday, the transport ministry said it conveyed concerns of logistics companies to the agriculture ministry, asking it to take a cautious approach toward Nonghyup’s advance into the delivery industry.
“It is illegal for Nonghyup to deliver parcels without obtaining a license from the government,” a ministry official said. “But it can acquire an existing parcel delivery firm and start the business. Although we do not officially oppose Nonghyup’s plan, we asked the agriculture ministry to hear opinions from logistics firms and other concerned parties before making a decision on the matter.”
Those who want to deliver parcels have to get a license from the transport ministry. Ministry officials are concerned that if Nonghyup enters the market, the cost of delivery will further go down and worsen the bottom lines of delivery firms due to intensifying competition.
The parcel delivery service industry grew to 4 trillion won in 2014 from 3.7 trillion won in 2013 and 3.5 trillion won in 2012.
The average cost of delivery has fallen to 2,400 won per piece. The price has been declining since early 2000 when it cost 4,700 won to deliver a parcel after Korea Express went into the business.
The Korea Integrated Logistics Association, which represents the interests of logistics firms, held a press conference Tuesday, denouncing Nonghyup’s plan to transport parcels.
“If Nonghyup enters the delivery market, it will drive all existing players into a corner,” the association said in a statement. “Its entry will further slash the cost of delivery and hit existing firms hard. We take all possible measures to force the agricultural cooperative to retract its plan.”
However, Nonghyup refuted the association’s claims, saying that its advance will not damage existing players.
“We are still considering whether to advance into the parcel delivery business or not,” a Nonghyup official said. “Nonetheless, we strongly disagree with the association. We don’t think our entry would cause harm to other players. With or without us, the cost of delivery will continue to decrease because of already excessive competition.”
He said Nonghyup would account for only 3 percent of the market because it would primarily deal with fresh livestock and agricultural products for farmers.
“Korea Post’s decision not to deliver parcels on weekends left us no choice but to offer delivery service for farmers. We only want to serve agricultural producers who need to send fresh products to consumers in a timely manner.”