Kun Soo Park
Department of Industrial Engineering, Seoul National University
Case Studies on the Regulatory Challenges Raised by Innovation and the Regulatory Responses
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6. Case 5. Regulatory challenges brought by technologies and business models for smart logistics
Abstract
Safely deploying drones in delivery services requires testing and experiments in various service environments. However, the number of facilities where the experiments can be conducted is still too small and the authorisation process is complicated. The development of robotics and IoT technologies, in turn, has led to the creation of various express delivery services. This case study concludes that it may be beneficial to consider relaxing existing regulations in Korea so offline retailers can compete with online retailers on equal terms. In a similar vein, there is a need for standardising technical components for truck platooning technology, as well as for undertaking regulatory reform in areas such as the use of pedestrian image and object location information, while taking better account of autonomous driving’s implications.
Kun Soo Park is an associate professor at the Department of Industrial Engineering at Seoul National University, Seoul, Korea. He holds a Ph.D. in operations research from Columbia University and has worked at KAIST College of Business in Korea as a faculty member and at Bloomberg L.P. in New York as a quantitative researcher.
Introduction
In this chapter, we introduce relevant technologies and services for smart logistics and discuss future directions for regulatory policies in South Korea. To this end, we first explain the role of key technologies for smart logistics. Then, we explore the market size and prospects of services based on these technologies. This resulted in three main topics emerging in the field of smart logistics: drone delivery, express delivery services, and autonomous trucks with platooning.
Smart logistics overview
Smart logistics can be broadly defined as an intelligent logistics system to control, manage, and operate all logistics activities in real time through integration with newly emerging technologies such as Information and Communication Technology (ICT), Artificial Intelligence (AI), robotics, etc. We start this section by introducing the concepts and key technologies with a market outlook.
Concepts and key technologies of smart logistics
Smart logistics are available with the rapid development technologies that can be applied to the transportation of goods and services securely, automatically, and more efficiently without human labor. Below, we summarise eight key technologies that constitute smart logistics.
Artificial intelligence (AI)
AI provides opportunities to save time, reduce costs, and increase productivity and accuracy. AI-based predictive information is used to enable the proactive operation of logistics activities.
The use of artificial intelligence is expected to reduce physical labor in smart logistics significantly. In other words, by combining AI-powered robots, computer vision systems, interactive interfaces, autonomous vehicles, etc., it is possible to add convenience to human labor in logistics operations. Intelligent robots can efficiently and quickly sort out shipments in the form of letters, parcels, and pallets and sort and scan millions of shipments that have been handled by existing personnel.
Robotics
One of the most formidable challenges facing the logistics industry today is the availability of labor. With the development of e-commerce, the volume of shipments has increased along with a corresponding rise in the demand for logistics workers to handle the increased volume. It is expected that a decrease in the size of the available working population will occur due to a decrease in population. Robotics is emerging as a countermeasure to solve this problem in an effective manner, and robots deployed in logistics will take the form of “eyes, hands, feet, and brains”
Augmented reality
Augmented reality can fuse the boundaries of the digital and physical worlds to provide new perspectives on logistics planning, process execution, and transportation.
Big data analysis
Innovation in logistics systems can be implemented through new ways of data collection, analysis, and forecasting. With digitisation, vast amounts of data are collected as part of numerous logistics processes. Therefore, data-based analysis can be utilised to derive new business models based on the optimisation of logistics capacity, improvement of customer environment, and risk management using big data.
Internet of Things
The Internet of Things (IoT) has the capability to connect all things to the Internet and accelerate data-based logistics. Everyday objects can transmit, receive, process, and store information, which can be used for autonomous and event-driven logistics processes.
Next-generation networks and communication technologies are the basis for the implementation of IoT technology in the overall logistics environment. In the field of logistics, next-generation intelligent networks can improve cost efficiency, connectivity, and localisation. Logistics with transparency and traceability is becoming increasingly popular in the logistics and supply chain with new Low-Power Wide Area Networks (LPWANs), 5G, and low-orbit satellites that have emerged as next-generation communication technologies.
Virtual reality
Virtual reality in logistics has evolved in the areas of manufacturing, distribution, and supply chains. By allowing users to design, simulate, and evaluate environments in 3D, logistics providers can make better informed decisions to optimise logistics flows and monitor processes.
Drones
Drones are not only utilised for the first and last delivery, but also for production logistics and surveillance. Drones will not become a substitute for traditional land transportation but will be valuable in places where access is dangerous or where delivery is required remotely. Drones are not subject to traffic jams, and can be an effective tool to ensure on-time delivery services. Drones’ delivery distances are usually quite restricted due to their limited battery size. However, by co-operating with trucks that can hold and charge drones, the distance of drone delivery services can be significantly expanded.
Blockchain
Blockchain technology ensures transparency and traceability within the supply chain. In addition, it supports rapid and concise international trade logistics, contributing to the process automation of logistics. In international trade logistics including procurement, transportation management, tracking, customs co-operation, and trade financing, the expedited documentation and handling of freight with blockchain can reduce time and costs significantly.
We introduce five representative facets of smart logistics (transportation, storage, information, connectivity, packaging, and unloading) in Table 6.1.
Table 6.1. Facets of Smart Logistics
|
Type |
Definition |
Technology cases |
|---|---|---|
|
Transportation |
Carrying cargo to the destination by using various transportation methods |
|
|
Storage |
Activities to store and manage goods indoors and outdoors such as yards, warehouses, and houses |
|
|
Unloading |
Loading and unloading and the transporting of cargo in logistics facilities that handle cargo, such as cargo terminals |
|
|
Packaging |
Activities to protect the quality and value of cargo, to facilitate storage and handling, and to promote product sales, from production to consumption |
|
|
Information |
Information technology to effectively process various data generated and traded in the logistics process, and to support the organic flow of information disconnected from the logistics supply chain. |
|
Source: Ministry of Land, Infrastructure and Transport, Korea.
Market outlook for smart logistics
Smart logistics systems are evolving thanks to the integration of ICT technology. Since it is difficult to distinguish an independent market for smart logistics, in this section, we estimate the market demand for smart logistics in terms of the market outlook for closely related sub-fields.
First, we consider the size of the Third-Party Logistics (3PL) market as a specialised logistics industry. As shown in Figure 6.1, the global 3PL logistics market is expected to grow from USD 8.7 trillion in 2017 to USD 16.4 trillion in 2026 (CAGR 7.3%). In particular, demand related to e-commerce has witnessed a steep increase. The demand for improved inventory management, delivery systems, and freight forwarding is expected to drive growth in the overall logistics market.
Next, we estimate market outlooks for smart logistics with the market outlook for technologies closely related to smart logistics, including Automated Guided Vehicles (AGVs) and Drones.
Market outlook for AGVs
Automated Guided Vehicles (AGVs) refer to a system that assists transporting items in manufacturing facilities, warehouses, and distribution centers without any permanent conveying system or manual intervention. The global AGV market was valued at USD 3.39 billion in 2020, and CAGR is expected to be 13% from 2021 to 2028 (Grand View Research, 2021[1]).
Figure 6.1. Global logistics market size forecast (trillion USD)
According to the market research institute Markets and Markets, the global market for Unmanned Ground Vehicles (UGVs) for industrial self-driving land vehicles is expected to grow to USD 2.3 billion in 2020 to USD 4.5 billion by 2030 due to increasing use in commercial sectors. (Markets and Markets, 2020[3]).
Global market size for commercial drones
The global market for drone transportation and logistics was estimated at USD 12 Billion in the year 2020 and is projected to reach a size of USD 45.5 Billion by 2027, growing at a CAGR of 21% from 2020 to 2027. Specifically, the global commercial drone market is projected to record 22.1% CAGR and reach USD 33.6 Billion by the end of 2027. According to the United States Federal Aviation Administration (FAA, 2019), the number of commercial drones registered between 2019 and 2023 is expected to triple. For the calendar year 2018, more than 175 000 commercial owners/operators registered their equipment. By the end of 2018, there were more than 277 000 non-model aircraft registered since registration opened. FAA projected the non-model SUAS (Small Unmanned Aircraft System) sector will have over 835 000 aircraft in 2023 (Global Industry Analysts, 2021[4]) (Federal Aviation Administration, 2019[5]).
Emerging topics in smart logistics
Based on the key technologies and market outlook for closely related sub-fields of smart logistics, we observed that the key features of smart logistics include drone-based delivery, automation (without human labor) in terms of new technology, and reliable and high-speed delivery services in terms of new business models. Thus, this section focuses on three major topics that are emerging in the area of smart logistics: drone delivery, express delivery services, and autonomous transportation with truck platooning. We investigated the roadmap for technological development regarding each topic. Further, we examined the current and future regulatory status as well as planned changes. Last, we identified regulatory challenges where the planned or current regulations may have room for improvement in order to incorporate new technologies and business models. A brief summary of the three topics is provided below, and the topics will be discussed in detail in the next sections.
1. Drone delivery: Recent developments in technologies for motors, robotics, and telecommunication are opening an era of drone-based transportation as a mode of smart logistics.
2. Express delivery services: Based on Online-to-Offline (O2O) technologies, the boundary between online and offline has blurred, and logistics companies are now capable of providing express delivery services with smart logistics.
3. Autonomous trucks with platooning: Advances in autonomous driving techniques have enabled (semi)-automatic transportation through the platooning of trucks, which can support the majority of ground transportation logistics.
Smart logistics with drones
Attempts to utilise drones for delivery have gained momentum worldwide. Delivery volume and the speed of delivery facilitated by drones have emerged as the competitive power for many business models. Therefore, most companies are in the process of increasing their workforces and equipment investments in the area. However, the return on these investments has decreased due to the limited on-ground capacity. As increased costs of logistics mostly drive the cost for the last mile delivery, drone delivery services can be a viable solution to increase the efficiency of last mile delivery services.
Delivery using drones can be classified into two categories: i) direct delivery by drones and ii) the collaboration of drones with trucks. In areas with sufficient logistics centers, drones can be utilised to ship directly from warehouses to consumers. If the delivery distance is long, carrying a drone on a truck may be suggested. When co-operating with trucks, drones are transported to a flyable distance, from which they complete delivery and return to the truck.
Drone-only delivery
The advantage of using drones for delivery is that it can reduce costs and delivery time, is more environmentally friendly, and is free from road conditions. However, drone delivery involves the issues of safety, noise, and accessibility because the delivery takes place by air. Accordingly, commercialisation has been limited due to various regulations regarding aviation.
Starting with Google’s affiliated company Wing, companies such as Amazon and Uber have also been trying to obtain permissions from the various aviation administrations. The service has been started or tested mainly in small cities or suburban areas. Due to the limitation of battery capacity, the delivered packages mostly weigh less than 5kg and the flight range is mostly within a radius of 10 kilometers. While drones are currently used to mainly deliver small items, as technology evolves, they will be equipped to accommodate more weight and will become the future version of last mile delivery. Examples of the most up-to-date drone delivery technologies are introduced in the following paragraphs.
Drone delivery by Google Wing
In April 2019, Google's affiliate Wing started operation and this was recognised as the first commercial application of drones in the United States by the Federal Aviation Administration. It launched its drone delivery service in Christiansburg, Virginia, USA on 18 October 2019. The US aviation authorities did not insist on regulating drone delivery, but opened the way for the ‘drone delivery’ business with a regulatory solution that applied an existing charter license.
So far, long distance commercial delivery using drones has not been permitted in the United States. The US drone regulations that were enacted in 2016 prevent commercial drones from flying out of the pilot's sight. Long-range drone flights were only allowed for testing purposes. Because of this, Wing was authorised to ship commercial drones in Australia, instead of the United States.
Google Wing delivered more than 100 of Walgreen’s orders via drones that day. James Ryan Burgess, CEO of Wing, said, “Christiansburg, a small town with a population of 22 000, is easy to fly in drones because it doesn't have many high-rise buildings and obstacles. The goal is to deliver items with a maximum weight of 1.5kg as soon as they are ordered”.
The Wing drone with a wingspan of 1.5m and a weight of 4.5 kg is capable of carrying objects weighing up to 1.5 kg and flying at a speed of up to 113 km per hour. It is equipped with an additional motor to prevent falls and all flights are supervised remotely by the pilot. There are plans to expand the flight radius from four miles (about 6.4 km) to more than 12 miles (about 19.3 km). Amazon’s experiment on drone delivery
One of the companies that experimented with delivering goods by drone is a part of the global e-commerce company, Amazon. In July of 2016, Amazon launched a drone delivery service called Amazon Prime Air. Amazon attracted attention by completing delivery via drone to customers living near Cambridge, England. All of the delivered goods weighed more than two kilograms, including TV set-top boxes and popcorn. At that time, delivery took about 13 minutes.
Given that the delivery time for the existing “Amazon Prime” delivery service is about two hours, delivery service through drones is expected to significantly shorten that time. The industry expects that delivery via drones will account for more than 80% of all deliveries in the next five years, especially since fast delivery services are gaining popularity.
Drone-truck co-operation for delivery
Long distance delivery with drones is being made possible by loading drones onto trucks. This compensates for the drawback of drones for long distance delivery. It can also overcome the inefficiency of truck deliveries owing to geographical conditions that restrict ground transportation.
Drones are loaded with cargo in autonomous trucks, and the drones are dispatched to deliver goods to their final destinations as they move around the shipping area. After delivery, they return to the autonomous truck and their battery starts recharging. Drones check addresses and deliver packages to the final destinations automatically.
UPS’s drone truck co-operation
On February 20, 2017, the UPS tested a hybrid electric autonomous truck and a drone to transport cargo. The test was conducted in Tampa, Florida, where the population is low, reflecting the characteristics of drones that are unsuitable to fly over long distances. The UPS explained that drone delivery would provide faster and cheaper shipping. Unmanned aerial vehicles also save fuel and time because there are fewer stops.
The UPS claims that reductions of up to 1.6 km per day per delivery could save up to USD 50 million a year. They could also enhance the efficiency of delivery and reduce the costs of redundant operations. Unmanned aerial vehicles also save fuel and time because there are fewer stops.
However, regulations are holding back development of this technology. Under the Federal Aviation Administration (FAA) regulations, it is difficult for UPS drivers to monitor the drone's flight status at all times, which reduces the mileage and delivery time of drone-truck co-operation.
Amazon’s patent on drone-truck co-operation
On 24 December 2019, Amazon registered a unique drone-related patent (registration number: US10514690) with the United States Patent and Trademark Office (USPTO). The patent describes how to build a system to support co-ordination between unmanned autonomous vehicles and drones.
Both ground vehicles and drones are managed by a central system. The ground vehicle is dispatched for delivery after completing the loading and unloading in the warehouse, and starts the deliveries in order. When the ground vehicle arrives near the customer's address, the drone does the other part of the service that used to be the driver’s job. The drone loads the goods from the vehicle and places the order in front of the customer's front door, on the balcony, or at a designated location.
With this system, drones do not need to travel long distances. This is because the ground vehicle approaches a point that is at least three meters away from the destination. The drone does not fly the long distance from the warehouse to the destination, so there are no battery concerns. The risk of accidents is reduced and the probability of noise problems is low, as it does not pass over people or private property.
The ground vehicle also charges the drone. This is a great advantage for drones with limited flight times. Ground vehicles do not have to be cars. They can be anything from small mobile robots to large trucks.
While it is not yet certain, it is highly likely that the patented technology will be implemented in the near future. Amazon started investing in electric vehicle startup Rivian and autonomous startup Aurora this year, which are expected to accelerate its utilisation of autonomous driving technology.
Regulations on drone-delivery services in Korea
Korea's current aviation laws strictly restrict drone flights. The Korean regulatory agency is mainly concerned about safety issues. There are various pilot projects in the island/mountainous regions, but strict regulations prohibit drone deliveries in densely populated areas. Furthermore, since most of the residential units in Korea are apartments, it is difficult to secure spaces for drones to take off and land. As residences are densely distributed in metropolitan cities of Korea, dense radio waves around the residential areas can disturb the signals controlling the drone and cause it to crash.
Current regulations
To use drones commercially in Korea, regulations require the registration of businesses operating ultralight flight devices under the Airline Business Act and subscription to insurance or deduction. Foreigners or foreign corporations cannot register a business in this area under the current law.
When the maximum takeoff weight of a drone exceeds 25kg, flight approval is required (not necessary for flying in a light aircraft special area) and safety certification must be obtained. Owners or operators of non-business drones exceeding 12kg in weight and all business drones shall declare the device, receive a declaration number and mark the drone. While drones with a maximum takeoff weight of 25 kg or less do not require flight approval in principle, flight approval is required to fly at altitudes of 150m or more. A pilot's certificate (a type of driver's licence) is required for drones with a weight exceeding 12 kg. For flying a drone and taking aerial shots, it is necessary to obtain aerial photography permission separately from flight approval. Lastly, in order to manufacture, sell or import new drones in Korea, radio certification must be separately obtained. Table 6.2 represents the summary of regulations in each country.
Regulation reform roadmap in Korea
Korea has not yet implemented regulations that are sophisticated or realistic enough to support commercial drone-based projects. The tryouts of modulating regulations such as allowing flights without prior approval and expanding the altitude range more favorably turned out not to be of much help for commercialisation. Accordingly, the Ministry of Land, Infrastructure and Transport in Korea has materialised regulatory issues through the Drone Regulation Breakthrough Roadmap with the goal of establishing commercialised drone delivery by 2025.
Table 6.2. Drone regulation levels (selected countries)
|
|
Korea |
United States |
People’s Republic of China |
Japan |
|---|---|---|---|---|
|
Report & Register |
For business or over 12kg |
For business or over 250g |
Over 7kg |
Over 200g |
|
Qualification |
Over 12kg For business* * 14 years old and older |
For business* * 16 years old and older |
Over 7kg |
Over 200g |
|
Altitude Limits |
Lower than 150m* * From ground, water surface or structure |
Lower than 120m* * From ground, water surface or structure |
Lower than 120m* * From observer or pilot |
Lower than 150m* * From ground or water surface |
|
Flight Zone Restriction (radius) |
Seoul (9.3km) Airport (9.3km) Nuclear Plant (19km) DMZ Area |
Washington (24km) Airport (9.3km) Nuclear Plant (5.6km) Stadium (5.6km) |
Beijing, Airport, Nuclear Plant Area |
Tokyo (All) Airport (9km) Nuclear Plant Area |
|
Flight Speed Limits |
Unrestricted |
Lower than 161km/h |
Lower than 100km/h |
Unrestricted |
|
Out of sight, Night flight |
Principle not allowed, but exceptions allowed * * Test flight, flight in pilot project area |
Principle not allowed, but exceptions allowed * * Per case through Waivable Regulations |
Principle not allowed, but exceptions allowed* * Cloud system access or separate report required |
Principle not allowed, but exceptions allowed |
|
Flight Above Crowd |
Principle not allowed, but exceptions allowed* * Dangerous flight prohibited |
Principle not allowed, but exceptions allowed |
Principle not allowed, but exceptions allowed* * Cloud system access or separate report required |
Principle not allowed, but exceptions allowed* * Keep over 30m away from people, vehicles, buildings, etc. |
|
Drone Usable Range |
Unrestricted* * Exclude projects that threaten the safety and security of the people |
Unrestricted |
Unrestricted |
Unrestricted |
Source: (MILT, 2019[6]).
Specifically, the Korean government established a plan to implement drone delivery for islands in Korea by 2020 as the first phase. Further, by 2023, the government plans to introduce delivery/equipment standards to ensure the safe and convenient delivery of goods to dense areas such as houses and buildings. By 2025, the system will be improved so that drone delivery is available on a full-fledged basis.
The Ministry of Land, Infrastructure and Transport in Korea announced a roadmap for preemptive regulatory reforms in the drone sector in 2019. Under this plan, drones were reclassified into three stages of industrial application and technical scenarios and subdivided based on infrastructure and utilisation. Through this, a total of 35 regulatory issues were identified while considering the balance between safety and commercialisation.
Table 6.3. Development stage scenarios
|
Development stage |
Stage 1 |
Stage 2 |
Stage 3 and after |
|---|---|---|---|
|
Year |
Present ~ 2020 |
2021 ~ 2024 |
2025 ~ |
|
Flight type |
Remote control |
Partial mission delegation |
Autonomous flight under direction |
|
Transport capacity |
10 kg or less |
50 kg or less |
200kg ~ 1ton |
|
Flight area |
Population rarity, invisible region |
Populated areas, visibility |
Populated areas, invisible region |
Technological roadmap (scenarios)
Scenarios were drawn in stages by predicting the development of drone technology. They describe flight technology, transport capacity, and changes to the flight area in five stages.
First, as for flight technology, to make drone delivery universal and achieve economies of scale, autonomous flight should be fully operational. The steps leading to full autonomy in drone flight are shown in Table 6.4.
Second, for transportation technology, currently the capacity is at a level that delivers items that weigh less than 10kg within 5km. Air transportation is expected to reach a level where more than 1 000kg can be delivered over 500km as shown in Table 6.5.
Table 6.4. Flight technology development scenario
|
Stages |
Stage 1 |
Stage 2 |
Stage 3 |
Stage 4 |
Stage 5 |
|---|---|---|---|---|---|
|
Development |
Pilot Flight |
Autonomous Flight |
|||
|
(Concept) |
Remote Control |
Partial assignment |
Commission |
Remote supervision |
Full autonomy |
|
Man direct steer |
Man direct steer only for difficult missions |
Man commissioned → Flight autonomous |
Fligth autonomous Man intervenes when needed |
No need of intervention |
|
Table 6.5. Flight technology development scenario (2)
|
Stages |
Stage 1 |
Stage 2 |
Stage 3 |
Stage 4 |
Stage 5 |
|---|---|---|---|---|---|
|
Development |
Cargo Loading |
Human Boarding |
|||
|
(Concept) |
10 kg or less, ~ 5km |
50 kg or less 5 – 50 km |
2 seater (200 kg) 50 ~ 50 km |
4 seater (400 kg) 50 ~ 500 km |
10 seater (1 ton 500 km~ |
Last, for the flight area, safety and security issues are crucial. Flights are currently permitted only in areas with less dense populations, but they may gradually move into the middle of a city center where radio waves can possibly disturb them and flight visibility is not secured as presented in Table 6.6.
Table 6.6. Flight area expansion scenario
|
Stages |
Stage 1 |
Stage 2 |
Stage 3 |
Stage 4 |
Stage 5 |
|---|---|---|---|---|---|
|
Development |
Population Rare Area |
Population Dense Region |
|||
|
(Concept) |
Invisibility, non-urban area |
Visibility, downtown area |
Invisibility, use of urban area control station |
Radio wave invisible zone, Inner City Radio Shading Area |
|
Implications of regulatory challenges
The Ministry of Land, Infrastructure and Transport of Korea has planned various projects to identify and improve regulatory issues related to the commercialisation of drone delivery. By 2022, the Ministry is planning to commercialise drone delivery in non-urban areas. Furthermore, the Ministry expects to expand drone-based delivery to densely populated urban areas by 2025.
In order to solve the safety concerns, noise issues, and radio frequency problems, which are the biggest problems of drone delivery, Korean government agencies such as the Ministry of Land, Infrastructure and Transport and the Communications Commission are trying to prepare regulations through specific projects. The regulations are designed mostly in terms of qualifications and responsibilities. They also deal with issues of the availability of flights in specific regions based on the nature of the flight area. Relevant regulatory improvement projects are shown in Table 6.7.
Table 6.7. Korean government agencies’ regulation-related projects
|
Regulation issues |
Project name |
Due |
|---|---|---|
|
Safety |
Advancement in drone insurance system |
2021 |
|
Flight region |
Establishment of standards fro drones to fly major national facilities and control areas |
2021 |
|
Safety |
Establishment of drone accident report management system |
2021 |
|
Safety |
Drone flight record and pilot qualification management system |
2021 |
|
Radio frequency |
Frequency discovery to support long-distance driving |
2021 |
However, there is still room for improvement regarding commercialised drone delivery in terms of regulatory design. The most urgent problem is how to secure a flight location by reforming the current regulations. In order to commercialise technological advancements, numerous test flights must be conducted. In Korea, however, flight spaces are strictly limited. Currently, there are only ten pilot airspaces without flight restrictions in the country. Prior permission is required to fly a drone within a 9.3 km radius of major facilities such as an aerodrome. It takes more than a week to check the flight area for each test flight and obtain approval from local aviation agencies and the Ministry of Defense.
To secure more flight locations, the security issue must eventually be resolved. However, the Ministry of Land, Infrastructure and Transport has only come up with a plan for 'selective and optional allowable zones' so far. It is a plan to designate and operate special zones in highly populated areas such as city centers. However, more flight-permitted areas are required to ensure the robustness of drone delivery services.
Regulations on express delivery services
Emergence of express delivery services
Traditionally, offline-based retailers (i.e., brick-and-mortar retailers) and online-based retailers have targeted different customer clusters with obviously different service features. Recently, however, as delivery lead times get shorter, an increasing number of customers prefer online shopping due to its high convenience. According to data from the Ministry of Trade, Industry and Energy on retailers’ sales in 2019, sales at offline stores including supermarkets and mega-stores declined 0.9% compared to the previous year. On the other hand, the sales of online stores increased by 14.2%. The sluggish sales of offline stores were largely due to the country's rapidly growing e-commerce industry.
This shows a major change in the retail industry, where the hegemony of distribution is moving from offline to online. For example, the sales of large discount stores (-5.1%), Super Supermarkets (-1.5%), and department stores (-0.1%) decreased due to the widespread availability of online shopping, which led to a drop in overall offline sales. A closer look at the financial data of South Korea's largest retail giant, E-mart, reveals that its operating profit dropped by 67.4% from 462.8 billion won in 2018 to 150.7 billion won in 2019. In the case of Lotte Mart, after having a deficit of 25 billion won, it decided to phase out over 200 small offline stores. The profitability of the nation's large retailers is going downhill, and online distribution is occupying the position that offline distribution has lost.
When it comes to the fresh grocery category, businesses specialising in the grocery delivery market emphasise convenience without physically visiting stores and immediacy, which incorporates the strengths of both online and offline shopping. Along with fast delivery services reshaping grocery shopping habits in Korea, they have grown to take a considerable amount of profit away from store-based retailers in the industry. The market size for express delivery services (in Korea, this is commonly called “by-dawn delivery”) grew exponentially from WON 10 billion (USD 8.7 million) in 2015 to an estimated WON 400 billion last year, according to the Rural Development Administration.
Therefore, it is inevitable for store-based retailers to operate an online channel together with their existing stores so that they can offer the high value of timeliness via a fast delivery service. This expansion from offline to online is made possible through omni-channel operations technology. Omni-channel offers great accessibility in terms of speed and convenience by flexibly serving both online and offline customers. Improved technologies in ICT and logistics have opened the era of omni-channel in the wake of customers becoming familiar with the online environment.
In response to this change in customer behaviors, offline markets are making efforts to expand online services so that consumers can use the omni-channel that signifies the shift from offline to online. In terms of the availability of existing stores, there are no fixed costs and the extra cost of starting a business is not significant. In addition, the existing infrastructure and coverage schemes enable much quicker responses to orders.
In this section, we focus on regulatory issues in the field of express delivery services that involve improved technology for speedy logistics and omni-channel operations. We first examine new business models with relevant business cases of express delivery services in Korea.
Online early morning delivery cases
Market Kurly: Dawn delivery/early morning delivery
In 2015, an online grocery startup called Market Kurly first introduced the concept of dawn delivery. Its “Saetbyul delivery” (delivery made at dawn) delivers food products by 7 a.m. if customers order before 11 p.m. the previous day. While next-day delivery ensures the goods reach the customer within the shortest timeframe possible, dawn delivery shortens the timeline to the very next morning.
According to Market Kurly, products are packed and dispatched from its logistics center in Songpa-gu to some 480 deliverymen by 2:30 a.m. every day. As of August last year, an average of 12 000 orders were received every day for Saetbyul delivery. Thanks to increasing consumer demand for fresh food in the morning, the company achieved 46.5 billion won in sales in 2017, which corresponds to a 167% on-year increase. Further, sales of some 160 billion won were forecasted for 2018.
Market Kurly remains the dominant player in the dawn delivery market and it was responsible for some 79.5% of the relevant logistics as of August 2018, according to Statistics Korea. The company has expanded its horizons by offering not only fresh food, but also side dishes and home-meal replacement kits for parties.
Coupang: rocket fresh
In October 2018, Coupang rolled out Rocket Fresh, which ensures the delivery of some 4 200 fresh foods and other items by 7 a.m. the next day. This early morning delivery service allows consumers to receive fresh food for breakfast. If the order is made before midnight, they can receive the food items by 7 a.m. the following day. The company organises some 3 000 deliverymen known as Coupang Man into teams with different work schedules. For dawn delivery, a Coupang Man works from 10 p.m. to 8 a.m.
The “Rocket Fresh” service has been seeing significant growth recently. While Coupang has other competitors in the overnight fresh food delivery sector, it is confident that it has an upper hand based on its extensive scale of investments, loyal customer base, reputation of reliable deliveries, and wider range of food choices. Coupang’s early morning deliveries currently cover up to 2 600 types of food, including fruits, vegetables, meat, fish, eggs, milk, and ice cream.
Starting January 2019, the service is now available not only in Seoul but also other major cities, including Busan, Daegu, Daejeon, Gwangju, Ulsan, Cheonan, Gimhae, and Sejong. The company has been focusing on enlarging its logistics centers and expanding coverage nationwide. At the moment, it has dozens of logistics centers scattered around Incheon and Cheonan, covering a total of 1.1 million square meters. The company decided to double that size by building new mega logistics centers in 2020. The company expects membership of its Rocket Wow Club, which enables free delivery for all Rocket Fresh orders, to rise further. As of February 2019, the Rocket Wow Club had 1.6 million members.
Regulations on work hours for offline retailers in Korea
Unlike online-based retailers, store-based retailers can take advantage of their existing selling infrastructure without setting up additional centers for online retailing to expand their business. Furthermore, their original coverage in local areas guarantees much faster and cheaper delivery to local customers than delivery services departing from distant distribution centers. Super Supermarkets (SSM) are located in almost every local area and manage to cover as much demand as possible through the chain management of conglomerate retailing companies. Despite these advantages in terms of much more accessible locations and already existing physical storage spaces, regulations on the large-scale stores’ business hours pose limitations to their making use of available resources.
Online-based retailers offer mail-order services via online marketplaces or transactions. They do not have physical stores to sell products face to face but operate based on a few (or several) distribution centers that handle all the parcels to be delivered to customers in each of their service areas. Basically, those businesses are registered as mail-order businesses and they are not subject to any specific restrictions on business hours. They can sell products for the whole day and deliver them when they want, regardless of time.
According to the Retail Industry Improvement Act (Box 6.1), large discount stores /SSMs/quasi-superstores registered as distributors are subject to compulsory closedowns and restrictions on business hours. They must close the store from midnight to 10 a.m. and shut down for two days per month. They cannot register as a mail-order company (like other online retailers) at the same time to compensate for the closedown time. Therefore, even if they offer online selling and delivery services, the operating hour restrictions still apply equally. Although compulsory closure dates can be adjusted in consultation with local governments, this has only been allowed in very rare instances. Large retailers that have changed their mandatory holidays to a weekday are only about 10-20% of the total over the past eight years. Since early morning delivery works as a dominant option when customers lack access to the offline store and it brings about competitiveness in the industry, the time restriction is a huge regulatory hurdle for the industry and the well-prepared existing businesses.
Box 6.1. Article 12-2 of the Retail Industry Improvement Act
Article 12-2 (Restrictions, etc. on Business Hours of Superstores, etc.):
1. The Mayor of a Metropolitan Autonomous City or the head of a Si/Gun/Gu may order discount stores (including a store that is established within a superstore and meets the requirements for a discount store) and quasi-superstores to restrict business hours or suspend business, designating a date for compulsory closedown as prescribed in the following subparagraphs, where deemed necessary for the establishment of sound distribution order, employees’ health rights, and win-win development for both superstores, etc. and the small and medium distribution industry: Provided, That the foregoing shall not apply to a superstore, etc. prescribed by ordinance of the local government concerned, in which the sales of agricultural and fishery products under the Act on Distribution and Price Stabilization of Agricultural and Fishery Products account for at least 55% of the annual turnover:
Restrictions on business hours;
Designation of a date for compulsory closedown.
2. The Mayor of a Metropolitan Autonomous City or the head of a Si/Gun/Gu may place restriction on business hours from 0 a.m. to 10 a.m. pursuant to paragraph (1) 1.
3. The Mayor of a Metropolitan Autonomous City or the head of a Si/Gun/Gu shall designate two days for compulsory closedown each month pursuant to paragraph (1) 2. In such case, a day for compulsory closedown shall be designated from among holidays, but it shall be possible to designate a day, which is not a holiday, for compulsory closedown through agreement with interested parties.
4. Matters necessary for imposing restrictions on business hours and designation of a day for compulsory closedown under paragraphs 1) through 3) shall be prescribed by ordinance of the local government concerned.
Such restrictions on large offline retail companies may also affect the consumer’s right to buy and choose. In an emergency such as the recent situation created by COVID-19, if restrictions on online operations remain in place for large offline stores, they cannot share the excess demand for online options. In fact, there were cases where some daily necessities were sold out at Coupang, South Korea’s largest online retailer, and consumers were unable to purchase daily necessities on weekends when large retailers were closed due to mandatory closedown regulations. Large discount stores have widespread distribution infrastructures, online ordering options, and delivery systems built by region, enabling a more stable supply of goods and systematic delivery systems. The Korea Chain Store Association submitted a proposal to the government to improve the distribution system and distribution infrastructure during a national emergency situation, such as a quarantine.
The Korea Chain Store Association also submitted a proposal to the government for a plan to improve the distribution infrastructure for the country's emergency services, including daily necessities and self-protection products. It suggested that restrictions on closedown days be relaxed, at least temporarily, for online purchase and deliveries through hypermarkets.
Big retail shops’ detouring strategies
Utilising existing stores and adding online channels
Walmart in the US has adopted a strategy of using more than 4 800 stores across the US as shipping bases, instead of establishing a large-scale logistics center, even as Amazon has been encroaching on the market with its fulfilment services. Walmart acquired e-commerce platforms such as Jet.com and Flipkart in 2016 and has since made intensive investments to strengthen its delivery competitiveness. Through this, the company established a delivery system that covers online and offline demand and recorded growth in sales and net profit. Similar to Walmart's strategy, many large retailers in Korea are also opting to provide additional online channels or fulfilment services to take advantage of existing stores. Although existing stores are being replaced with online distribution centers, they are still subject to mandatory shutdown and business hours restrictions in the same way as those under the Retail Industry Improvement Act.
Lotte Mart: Digital fulfilment store
Since March 2020, Lotte Mart has been operating its Gwanggyo Store and Junggye Store as “Digital Fulfilment Stores”. It aims to operate omni-channel stores that integrate online and offline modes. For the first time in the industry, the company has introduced an “Immediate Delivery” service that delivers goods within an hour and a half when a consumer orders delivery at a location within five kilometers of the store. This goes beyond the existing concept of Coupang's Rocket Delivery or Market Kurly's Dawn Delivery.
If a consumer orders online and visits the store, they can also use either “drive pick” that directly loads items into their car, or “store pickup” where the consumer receives them directly from the store after ordering online. Conveyor belts and vertical lifts were installed to facilitate the rapid movement of goods in the store. When an online order comes in, an employee at the store picks up the items from the store shelves and puts them on the belt. In the warehouse behind the store, the goods are automatically sorted according to their destination and the delivery process begins. An autonomous driving product transport robot has been introduced for in-store pickup.
In addition, ICT technology is being used to provide a more diverse and unique purchasing experience. There are plans to expand the application of ICT to nine large cities and metropolitan areas in the future. Up to 21 dark stores, which are warehouses equipped with separate online delivery equipment at the back of the store, will be built.
Homeplus: Fulfilment center & store
In order to increase sales by expanding its online business, Homeplus formed a strategy to be more cost effective and time saving by converting existing stores to serve as additional fulfilment centers so that the company does not need to spend extra money and time to construct totally new logistics centers. Homeplus plans to significantly strengthen its online logistics functions at 140 stores nationwide by 2021 and increase online sales to WON 2.3 trillion by 2021 from WON 600 billion in 2019.
Accordingly, the number of “Pickers”, employees specialising in shopping and picking up items, will be expanded from 1 400 to 4 000 and the number of cold chain delivery vehicles will be increased substantially from 1 000 to 3 000, aiming to increase the number of daily deliveries from 33 000 to 120 000.
In areas where online delivery is heavily concentrated, the company plans to build fulfilment center (FC) stores that upgrade store logistics functions and scales one step further to meet demand. Starting with the Gyesan Branch in 2018, the Anyang Branch and Woncheon Branch have been changed to FC Stores. FC services are expected to expand to 10 branches by 2021.
In the case of the Homeplus Gyesan Branch in Incheon, the first basement level is no different from that of a regular store, but there are more than 7 000 square meters of distribution center on the second basement level. A total of 46 delivery trucks are lined up and waiting for delivery. Pickers move around the shelves where only 3 000 types of core products with high online ordering frequency are displayed. The number of online shipments at the Gyesan Branch, which was about 200 per day, increased to 1 450 per day, more than seven times since the FC opened. In the case of the Anyang Branch, a “two-way walk-in cooler”, where refrigerated and frozen products can be taken out for both the store and fulfilment center, has also increased pickers’ convenience.
Homeplus is also expanding same-day delivery services in Seoul to customers of The Club, an online mall opened in June 2019 that combines the discounts offered to warehouse retailers with a conventional grocery store experience. ‘Special Stores’ will also play a part in supplying products for Homeplus to fulfil same-day delivery orders, as their inventory is used for ‘The Club’. ‘Special Stores’ combine the low prices of bulk discount warehouses with a conventional grocery store experience. They are newly equipped with their distribution centers, the fulfilment centers (FC), for online services. The retailer had been offering same-day delivery in four selected regions where Homeplus Special Stores are located. The company said it would expand same-day delivery beyond Seoul in the future. Customers will be able to receive packages dispatched from Homeplus Special Stores on the same day if they place orders before 4 p.m.
New fulfilment center for online selling
E-mart’s new fulfilment center: NE.O for online selling
As E-mart is subject to the regulation on business hours, the company established Next Generation Online Stores (NE.O) for its online service to extend its business hours and meet online demand in a timely manner. It required a huge investment to build the new system and facilities. Emart has made large investments and currently runs logistics centers in Yongin and Gimpo, which are equipped with automation facilities as well as a stock prediction and management system.
The company has already invested 150 billion won in its second NE.O location in Yongin and expects to spend a similar amount for its third distribution center. Focusing on the establishment of an advanced storage and logistics system, it planned to complete construction of a 52 535 square-meter logistics center in Gimpo, Gyeonggi Province by the end of 2020. The center will become the third NE.O. Following the construction of the NE.O 003 Logistics Center with cold chain systems that manage stock in a temperature-controlled supply chain, the company expects to beat its rivals. "We plan to expand our dawn delivery service to additional regions across the country within this year after NE.O 003 opens in December," an SSG.com official said.
The company ultimately aims to set up a system to send products stocked at the NE.O 003 Logistics Center for same-day or three-hour delivery.
Thanks to the separate fulfilment center, E-mart was able to launch ‘Good Morning SSG’ in 2018, betting on the fast-growing online delivery market of fresh goods. The service allows orders to be placed as late as midnight with deliveries guaranteed to arrive within a preferred delivery slot between 6 a.m. and 9 a.m. or 7 a.m. and 10 a.m. the next day. Daily necessities and fresh food products are among the most popular items delivered by E-mart.
The retail market has been moving rapidly toward a more online-friendly environment. That is why offline retailers have been trying to extend their coverage to the online market with omni‑channel operations. They have aggressively adopted state-of-the-art technology while making the most out of their existing resources. However, the current regulations on large-scale offline retailers make them less competitive with regard to online delivery services. According to the regulations, the offline retailers must close the store from midnight to 10 a.m. and for two days a month. This applies to their new online business model as well, and this is a major obstacle to providing early morning delivery services. Moreover, they are not allowed to register as a mail-order company like other online retailers for their online services, which would help overcome these restrictions.
Despite these regulations, leading offline retailers in Korea such as Lotte Mart, Homeplus and Emart have made various attempts to operate online. Lotte Mart installed conveyor belts and vertical lifts in their stores to utilise their existing shop as a fulfilment center. Homeplus, with 140 stores nationwide, has also utilised their stores as fulfilment centers in that their store floors share fulfilment centers and shopping areas. In the case of Emart, they made major investments in two large distribution centers for online delivery services. They established this business sector as an independent company, which made them provide early morning delivery just as online retailers do.
Nevertheless, these attempts by existing online retailers are not yet performing optimally. The closure of several Lotte Mart stores demonstrates that these efforts are not enough to overcome the regulations that block them from offering their services on a 24/7 basis to customers. Considering these working hour regulations were first raised ten years ago in order to protect local retailers from large-scale markets, it seems reasonable to revisit the effectiveness of the regulations and go through a major reform. Experts are of the view that big markets are no longer the threat to local markets they were before. Rather, it can be said that large-scale markets are threatened by online retailers.
Regulatory challenges for truck platooning
Truck platooning technologies
Truck platooning refers to a technology in which two or more vehicles form and operate a convoy connected to one another. In other words, it uses vehicle connection technology to share information so that the vehicles behind can follow the truck located at the front autonomously.
Since it is not yet possible for vehicles to drive autonomously, a method by which vehicles can be connected by technology is being studied. In terms of hardware, the technology of sensors that collect data and the technology of semiconductors that process computations have been fully developed. In terms of software, Artificial Intelligence has greatly improved through machine learning and deep learning. Thanks to these comprehensive technological advancements, the technology has improved to the point where the system can drive directly and the driver can respond appropriately to the system's request. In the future, the level of involvement required of the driver will decrease gradually. However, autonomous vehicle technology alone is not enough to help the logistics industry because the driver still needs help.
We will cover the basics of driving technology and the regulations required for the commercialisation and development of these technologies for truck platooning.
Truck platooning concept
Platooning is a technology in which two or more trucks connected to one another form a convoy. The truck at the front plays the role of leader, and the trucks behind follow the path of the leader truck. As a result, the driver needs to drive manually only when he or she needs to leave the procession or drive independently.
Advantages of truck platooning
Below is the list of advantages of truck platooning.
Fuel savings: since several trucks run close to each other, air resistance and fuel consumption are reduced;
Environmental protection: leading trucks reduce CO2 emissions by more than 8% when using platooning technology. Following trucks reduce CO2 emissions by more than 16% when using platooning technology (ERTICO, 2016[8]);
Increased safety: autonomous driving and V2V (Vehicle-to-Vehicle) technology enable rapid stopping for the entire truck procession. This is five times faster than when a person responds to a sudden stop signal/warning;
Economic effect: the effective use of roads reduces transportation time and traffic. Moreover, based on self-driving technology, drivers can do other tasks such as making telephone calls.
Technological development forecast
According to the reports from the European Automobile Manufacturing Association and McKinsey (McKinsey, 2018[9]) (ACEA, 2017[10]), the development of truck platooning technology will roll out in four waves. It starts with trucks platooning guided by drivers and will eventually run without drivers. The main roll-out phases are presented below: 2018-2020: A driver in each truck. Two drivers platoon two trucks on an interstate highway. Drivers drive individually on non-interstate highways.
2022-2025: A driver is placed in the leading truck. Platooning is allowed only on interstate highways between dedicated truck stops with two trucks, with a single driver in the leading vehicle. Drivers drive individually on non-interstate highways.
2025-2027: A driver is engaged for pickup and drop-off. Autonomous trucks ride on interstate highways without drivers (platooning two or more trucks when possible). Drivers drop off trucks at dedicated truck stops.
2027-: Driverless. Autonomous trucks drive individually on all highways and in platoons of two or more trucks.
European Automobile Manufacturers Association (ACEA)
Europe’s ACEA has also established four steps that are similar to McKinsey’s (ACEA, 2017[10]).
Step 1: Platooning is possible between trucks of the same manufacturer. It is designed to enable platooning between trucks of the same manufacturing line and the same brand through technology dissemination within the manufacturer. This has already been successfully tested by Volvo.
Step 2: Free multi-brand platooning without boundaries is enabled between manufacturers. In the future, we will establish international standards for platooning technology and equipment, and develop freely for any truck. However, Phase 2 is still a step in which the driver should actively intervene.
Step 3: Minimise the role of drivers based on self-driving technology. Like a passenger aircraft that minimises the role of the aviator through autonomous flight technology, it is a step to minimise the driver's role in platooning to guarantee the driver some rest or additional working time.
Step 4: Fully automated platooning is enabled. The following trucks, other than the leader trucks, which are at the forefront, are operated through full autonomous driving without a driver.
Necessary conditions for the commercialisation of truck platooning
The necessary conditions that should be addressed to commercialise truck platooning for ground logistics are as follows. First, the platooning technology requires autonomous driving, as well as inter-vehicle connectivity and integrated operating systems. The technology is being developed under various conditions such as vehicle spacing, vehicle speed, distance error, maximum number of following vehicles, communication cycle, time required for side and rear side breaks, and rate of fuel economy.
Second, it is necessary to expand the infrastructure such as driving space and electronic markings on the road to enable platooning. To this end, the process of securing various real cases through the pilot operation of platooning in the current road traffic environment should begin.
Last, the active co-operation of logistics companies is required. Governmental land management departments and trade-related departments that require logistics efficiency for platooning dissemination should be involved in the process. Moreover, incentives should be provided for technology development and dissemination. Furthermore, legal requirements for platooning and new insurance systems need to be established.
Policy for truck platooning technologies
The European Truck Platooning Challenge, launched in 2016, conducted various technical studies and pilot operations. The platform was used to discuss the policies dealing with platooning in Amsterdam, the Netherlands. Likewise, governments worldwide are preparing a foothold to introduce truck platooning. Some countries have started relaxing existing regulations on the road and others like Korea are reforming regulations for the upcoming change.
Regulation-relaxation approach
Exempting platooning from the state’s FTC Rules, US
According to a guide on automated vehicle platooning for legislators, “Following Too Close (FTC)” statutes are a major issue in discussions on platooning legislation. FTC rules vary by vehicle class and rule types. Vehicle classes are “Cars”, “Heavy trucks”, and “Caravans” and rule types are “Reasonable and prudent”, “Time”, “Distance”, and “Sufficient space to enter and occupy without danger”. FTC statutes deal with safety issues related to inter-vehicle distances, and they vary among regions. Some non-state areas such as the District of Columbia and Guam do not have these rules. Regions without FTC rules rely instead on broader reckless driving statutes.
In order to authorise automated vehicle platoons, the United States need to exempt this service from existing FTC rules. However, some FTC rules are spread across several class sections, making it tricky to set up a standard. In 2016, US jurisdictions authorised automated vehicle platooning. In 2015, Utah became the first state to exempt automated vehicle platooning from FTC rules and authorise the testing of connected vehicles, when it enacted the first law in the US that supports attempts to apply vehicle platooning. Florida followed suit in 2016. Also in 2016, Michigan enacted a comprehensive automated vehicle law that included an FTC rule exemption.
Mitigation policy for automotive safety standards, US
Although this policy is not directly related to crowded driving, it is meaningful in that the safety standards for automobiles that limit the scope of developing platooning trucks are relaxed and applied. In the US, general automakers must meet approximately 75 automotive safety standards in order to be approved for operation. The US government said it would exempt the application of automobile safety standards if there were any vehicles among self-driving cars that meet certain conditions for technological development. In February 2020, the US Federal government first allowed self-driving cars to operate without the essential equipment for driving, such as a steering wheel or pedals. The autonomous vehicle, R2, developed by the startup Neuro, was granted a car license and approved for operation. The R2 is a low-speed electric vehicle with a maximum load weight of 1134kg and a maximum speed of 40km/h. The vehicle does not have a steering wheel or pedals that have hitherto been essential for driving.
The US collaborated with Peloton Technologies, Texas
In Nevada and Virginia, their deregulation allowed a platooning test. According to a report from the Competitive Enterprise Institute, ten states passed a plan to reduce the distance between platooning trucks to within 40 feet in 2017 (Safety Distance Maintenance Issues). However, in-truck radio transmission technology and automatic stop technology must be installed. By 2018, 34 states in the United States were enacting or discussing platooning and related laws, with legislation extending to Georgia, Tennessee, and Texas.
Regulation-reform approach
Korea’s preemptive regulatory reform roadmap
Since 2018, platooning technologies have been the first pilot project of the Preemptive Regulatory Reform Roadmap. Preemptive regulatory reforms are intended to pre-emptively tackle various problems arising from regulations that have not kept up with new industries and technologies. In the present case, it is impossible to operate platooning trucks due to the obligation to secure a safe distance in accordance with the existing current laws and a joint risk prohibition clause that prohibits two or more cars from being lined up one behind the other or side by side. To address this, demonstrations have been permitted on test roads and within certain areas, and after a number of tests, the Road Traffic Act will be revised to implement actual truck platooning in 2022, including reducing the mandatory safety distance.
Korea’s truck platooning demonstration
As part of the Preemptive Regulatory Reform Roadmap, in November 2019, Hyundai Motor Company succeeded in demonstrating the first truck platooning in Korea. At Yeoju Smart Highway (Yeoju Test Road), two trailer trucks with a maximum weight of 40 tons were connected. Yeoju Smart Highway is a test bed built by the government along a 7.7km section of the central inland highway to develop autonomous co-operative driving technologies such as Vehicle-to-everything (V2X) wireless communication. Vehicles for research on self-driving technology often run on this road, so driving conditions are almost the same as those of general highways. The technologies that have been successful in this demonstration include cluster driving formations, cut-in/cut-out of other vehicles, simultaneous emergency braking, and vehicle-to-vehicle communication technology. For safety, the top speed was limited to 60 km/h. The self-driving group demonstration project was planned to be expanded in 2020. As mentioned above, the project will increase the number of units on Yeoju Closed Road to three units, and the two units verified on the Closed Road will also be demonstrated on the general road. Up to four units will be tested in 2021, and the Road Traffic Law will be revised after 2022 according to the test results.
Logistics service using autonomous vehicles in Korea
The Ministry of Land, Transport and Maritime Affairs decided to designate and operate a pilot operation district that grants special permissions such as the paid transportation of passengers / cargo and auto safety standards using autonomous vehicles within a certain region through the enactment of the “Autonomous Vehicle Act” in April 2019. Accordingly, in the pilot operation area, which took effect from May of that year, logistics services using autonomous vehicles were allowed through special cases such as the truck platooning method. The foundation for demonstrating and commercialising platooning technology was prepared. The designation period for the pilot operation district was set within the range of five years. In the pilot operation district, if a business operator wants to provide paid services by applying the special regulations of the “Cargo Vehicle Act”, he or she can submit a vehicle registration certificate to check the driving safety of the autonomous vehicle.
Major issues related to truck platooning regulations
Regulations on truck platooning present several major issues from various aspects. The challenges of each issue are summarised as a list below.
Definition of a driver: The current Road Traffic Act stipulates various obligations necessary for transportation on the premise that the driving is done by people. Based on the new premise that the driving is performed by an autonomous system, it is necessary to newly define various requirements for transportation. In particular, there is a need to address the differences between lead vehicles and following vehicles.
Vehicle care duty: To date, the driver's car management obligations have been regulated through the duty to inspect cars and to prohibit the maintenance of badly damaged cars. In addition, there is a need to define obligations that are consistent with autonomous vehicles. In particular, there is a need to update the software version so that truck platooning can be run without problems and redefine the obligation to check before operation.
Definition of an autonomous vehicle: Under the current law, the concept of “autonomous driving” is defined as 'the car’s ability to drive by itself without the driver or passenger's operation. Truck platooning needs to be defined for each level of technology (Driver in Each Truck, Driver in Leading Truck, Driver for Pickup and Drop-off, Driverless).
Control of driving: Truck platooning regulations are needed for situations in which control of driving must be transferred from the system to people. A unified standard for the transfer of control will allow the driver to cope with the safe and fast transfer of driving control.
Accident liability: Under the current law, in the event of an accident caused by the operation of a car, the driver shall be liable for civil damages and criminal liability may be imposed on the driver. In the event of an accident during truck platooning, it is necessary to clarify who is liable for civil and criminal proceedings (Driver in the leading vehicle, driver in a following vehicle, company of the platooning system, company of the vehicle).
Vehicle insurance: While it is mandatory for the car owner to be insured in the event of a car accident, the accident insurance responsibility is unclear for autonomous driving. The insurance system should be improved according to the results of defining the civil liability and criminal responsibility upon occurrence of an accident during autonomous driving.
Accident record system: If an accident occurs during autonomous driving, it is essential to analyse the responsible materials between the driver and the system by analyzing the accident record. To this end, specific standards for the establishment of an accident record system and the installation and analysis of an accident recorder should be prepared.
Pedestrian image information: Under the current laws, it is mandatory to obtain prior consent to collect and process video information of pedestrians while driving. However, autonomous driving needs to process information on pedestrians collected in real time, so the relevant regulations should be revised to allow the collection and processing of video information without prior consent.
Information on the location of things: Under the current laws, when collecting objects’ location information while driving, the owner's prior consent must be obtained, but this is practically impossible. The collection of simple location information rather than individual location information should be treated as an exception within the principle of informed consent.
Maps for autonomous vehicles: For autonomous driving, lane information is required instead of road units. This requires precise maps with more information than conventional navigation and ADAS maps. However, there is no specific regulation on the type of information a precision map should contain. Moreover, it is not clear how secure it should be.
Safety distance: Under the current law, platooning is not allowed due to the obligation to secure a safe distance and the Prohibition of Common Dangerous Acts that prohibits two or more cars from moving forward, backward, or side to side jointly. Therefore, in order to allow platooning and establish differentiated safe distances on trucks that are clustered, special provisions for securing safe distances and prohibiting common dangerous acts should be introduced. In this regard, it is necessary to refer to technical studies such as Nonlinear Spacing Policies for Automated Heavy-Duty Vehicles to define a reasonable safety distance.
Infrastructure information in standard format
There is an international infrastructure information standard format that enables communication-based autonomous driving for some road segments such as highways. However, the standardisation of infrastructure communication and remote-control signals for all roads in Korea has not yet been prepared.
Edge computing and cloud computing: At present, it is difficult to transmit information on security issues such as video information for pedestrians collected and processed during autonomous driving and location information for objects to a cloud server. Therefore, it is necessary to define criteria for classifying information to be transmitted to the cloud server for processing by cloud computing as well as information to be processed by edge computing inside the vehicle.
Safety latency level: Autonomous vehicles using cloud computing can cause major problems when delays in data transmission and reception occur. Therefore, a clear assessment of the speed of data transmission and reception in real time is required to mandate that the system warn the driver at the moment of delay beyond the threshold.
Regulators are not yet ready to accommodate all these issues within their regulation system. Since a conducive regulatory framework is critical for developing the truck platooning services in the business sector, it is important to identify relevant regulations and verify the potential terms that can cause issues and the areas where new regulations are required to clarify potential misunderstandings preemptively.
Implications of regulatory challenges
In case of the US, regulations that prevent platooning implementation have been relaxed to some extent. Specifically, automobile manufacturing regulations were relaxed to meet only certain standards applicable to autonomous vehicles. The majority of states also agreed to lower the vehicle distance limit to 40 feet.
A guide for legislators on automated vehicle platooning identified “Following Too Close (FTC)” statues as a major issue with the regulations varying among states. Exempting platooning from states’ individual FTC statues has paved the way for the authorisation of automated vehicle platooning services.
On the other hand, some countries including Korea are approaching regulations via a bottom-up method. They are trying to identify possible problems arising from these new technologies, and put together relevant regulations. It is a different from the approach adopted by the US in that the latter exempted platooning from existing policies.
Korea just started test driving in 2019 and designing regulations based on the results of the tests could be one of the safest ways to apply new technology. However, when the technology is ready for commercialisation, it might be helpful to adopt a relaxation approach. Building up regulations from the bottom by going through test operations only allows a handful of demonstrations under strict supervision. Thus, Korea’s approach could slow down the commercialisation of truck platooning and a careful revisit of regulation strategies will be needed.
Conclusion
This chapter introduced the concepts of smart logistics and relevant technologies. Smart logistics depend on state-of-the-art technologies to control, manage, and operate all logistics activities. The global logistics market is expected to grow at a CAGR of 7.3% over the next decade, and markets for the related technologies such as commercial drones, automated guided vehicles, and unmanned land vehicles are also expected to grow rapidly. The enlargement of the e-commerce market was made possible by these technologies and e-commerce is expected to sustain this level of growth powered by these technologies.
Among these core technologies of smart logistics, we have introduced technology and regulation issues on drone delivery, early morning delivery, and truck platooning. We focused on the critical regulation issues related to these topics.
Regarding drone delivery, we observed the need for expanded flight locations. In order to commercialise technological advancements, numerous test flights must be conducted. In Korea, however, flight spaces are strictly limited. The country only has ten pilot airspaces without flight restrictions. Prior permission is required to fly a drone within a 9.3 km radius of major facilities such as an aerodrome. In addition, security issues have been the greatest obstacle. It takes more than one week to check the flight area for each test flight and obtain approval from local aviation agencies and the Ministry of Defense. The Ministry of Land, Infrastructure and Transport, the Ministry of Science and Technology, and the Ministry of Defense should co-operate to secure more flight location sites.
For express delivery services, we observed the retail market’s rapid movement toward an online-friendly environment. Regardless of this change in retail markets, the regulations protecting local retailers from large-scale markets discourage offline retailers from making their business model more online friendly. The regulation restricts operating times from midnight to 10 a.m. and this has proved to be a huge obstacle for offline retailers to gain competitiveness in the e-commerce market. It has been especially critical in the case of early morning delivery, for which it is important to operate 24/7. Regardless of these offline retailers’ new investments, their business performance has lagged behind that of existing online retailers. Since ten years have passed from the time of adopting these regulations, they need to revisit incorporating the recent changes in technologies and business models and offer a level field for all players in the market.
In the case of truck platooning, safety-related challenges present the most significant concerns for commercialising this technique. One of the most important legislative issues is the distance between vehicles. Current platooning mostly violates the lower limit on inter-vehicle distance regulations. We compared the cases of the US and Korea, which show differences between the relaxation and reform of regulations. The US adopted an approach of exempting platooning from existing regulations. On the other hand, Korea partially authorised test operations under supervision and in restricted environments. In the technology developing stage, it is preferable to go through a variety of scenarios. However, considering the quick commercialisation and development of platooning technology, an approach of partial relaxation seems more suitable and needs to be considered.
In the end, we would like to emphasise that for smart logistics to be adopted in our daily lives, technologies and regulations must evolve and complement each other. Those who develop technology should make efforts to better understand regulatory issues, and those who create regulations should carefully study the technological and business aspects.
As a future study, we believe that the following directions are worth further investigation. First, to commercialise drone delivery services, a new route system for drones at the national level should be established. The permitted routes should be determined depending on the size and specifications of the drone, and a traffic signal system incorporating the drone traffic should be developed to prevent collisions along the routes. It is expected that drone delivery services will be available in real life only after such a system regarding safety and operation standards is established.
Second, for express delivery services, it is important to understand the stakeholders affected by regulations. In this regard, the regulations on the large offline retailers should be reconsidered so that they can compete with emerging online retailers in the market on equal terms. It is recommended that the different interests and incentives of large offline retailers, traditional small and medium offline retailers, and online retailers be carefully co-ordinated to properly improve the existing regulations.
Last, for truck platooning technologies, it is suggested that the role of cloud computing and edge computing be clarified before standardising the data and communication systems. When the standardisation is achieved, the establishment of reference points for various deregulations will follow; for example, a reasonable safe distance can be set according to the level of the reaction speed of the truck and the level of braking technologies.
References
[10] ACEA (2017), EU Roadmap for Truck Platooning.
[8] ERTICO (2016), ““ITS4CV” – ITS for Commercial Vehicles : Study of the scope of Intelligent Transport Systems for reducing CO2 emissions and increasing safety of heavy goods vehicles, buses and coaches”.
[5] Federal Aviation Administration (2019), FAA Aerospace forecast 2019-2039.
[4] Global Industry Analysts (2021), Drone Transportation and Logistics - Global Market Trajectory & Analytics.
[1] Grand View Research (2021), Automated Guided Vehicle Market Size. Share & Trends Analysis Report 2021-2028.
[3] Markets and Markets (2020), Unmanned Ground Vehicles (UGV) Market by Mobility (Wheeled, Tracked, Hybrid, Legged), Application (Commercial, Military, Law Enforcement, Federal Law Enforcement), Size, Mode of Operation, System, and Region - Global Forecast to 2030.
[9] McKinsey (2018), Route 2030: The Fast Track to the Future of the Commercial Vehicle Industry.
[6] MILT (2019), “Regulatory Reform Roadmap for Drones”.
[7] Ministry of Land, Infrastructure and Transport, Korea (2019), Regulatory Reform Roadmap of Drones.
[2] Transparency Market Research (2016), Logistics Market: Global Industry Analysis, Size, Share, Growth, Trends and Forecast 2018-2026.