Why GS Caltex Gas Stations Suddenly Met with 'Drone Logistics'
⛽ Read this article to find out!
- Do you know who initiated the first convenience store drone logistics in Korea? The answer is GS25. Behind this initiative was a national project conducted in collaboration with the Ministry of Trade, Industry and Energy and GS Caltex, which operates a network of gas stations. You might wonder how gas stations, drones, and logistics come together in such an unexpected combination, right? It turns out there are four compelling reasons why gas stations are a perfect match for drone logistics. An official from GS Caltex, responsible for new business and overseeing the drone project, shares in detail the background, business design, and demonstration process of how gas stations came to meet drones and logistics.
- GS Caltex is serious about 'logistics.' Although this content focuses on drone logistics, GS Caltex has been involved in various logistics projects, such as setting up IKEA pickup points at gas stations and transforming gas stations into urban logistics centers since November last year. In fact, this isn't just a story about GS Caltex. All four major oil companies have had some involvement in logistics-related businesses, big or small. Why is that? We can understand the reasons from the perspective of the oil companies.
- When it comes to drone logistics, there's always this question: Is it really viable as a business? GS Caltex has also faced this question and conducted studies on various domestic and international drone logistics cases. The challenge was that the examples of commercialization in the United States didn't quite fit with Korean culture. Eventually, GS Caltex opted for this model. You can find out what GS Caltex's envisioned drone logistics business model is.
- Nevertheless, logistics at gas stations is challenging, a fact recognized by GS Caltex. The article outlines what needs to be addressed for gas station logistics to move beyond commercialization and become more active. Despite the challenges, the reasons why GS Caltex, among other oil companies, continues to pursue the challenge of gas station logistics can also be discovered.
CHAPTER 1
Are Gas Station Owners Wealthy?
There was a time when owning a gas station meant you were considered a significant local magnate. Cars were scarce, and gas stations were not as ubiquitous. Additionally, the supply of petroleum products was controlled by the government, making gas stations crucial energy supply points in their regions.
However, this notion has long become outdated. A quick search of recent articles reveals an increasing number of gas station closures, with some even being left inoperative due to the high costs of shutdown.
So, why are gas stations facing hardships? To understand this situation better, a brief explanation of the domestic oil retail market structure is necessary. South Korea's oil retail market consists of 'oil refiners', who import crude oil to process and supply products, and 'gas stations', which sell these products to customers. Directly operated gas stations by oil refiners make up about 10% of the market, with the remaining 90% operated by individuals or franchises.
Despite the dominance of four major oil companies (SK Energy, GS Caltex, S-Oil, HD Hyundai Oilbank) in the domestic petroleum distribution market, price information is highly transparent. Anyone can access Opinet, run by the Korea National Oil Corporation, to check the supply prices of individual oil companies and the daily selling prices at gas stations nationwide. As these prices are linked to international fuel trading prices, the profit margin for oil refiners in the domestic market is limited. With the number of gas stations close to free competition, and selling prices publicly available, the expected profits for gas station operators are also limited. With shrinking revenue streams and rising operational costs, including labor costs, the industry's difficulties have been compounded.
In response, oil companies have begun exploring ways to utilize their gas station networks for other business purposes. The first alternatives considered by oil refiners were the introduction of EV (electric vehicle) charging capabilities and the construction of hydrogen refueling stations.
For EV charging stations to be introduced at gas stations, amendments to the Dangerous Goods Safety Management Act were necessary to relax the distance between EV chargers and fuel dispensers. Additionally, simple installation of EV chargers was not enough for commercialization, necessitating the development of business models utilizing EV chargers for advertising revenue and ancillary space utilization, such as cafes.
In this context, the future-oriented gas station model presented by GS Caltex in 2020 is the 'Energy Plus Hub SamBang' seen at the intersection near Sinnonhyeon Station. It features ultra-fast charging facilities, advertising monitors, café spaces, and state-of-the-art car wash facilities. GS Caltex is also actively pursuing the establishment of hydrogen refueling stations, with the 'Gangdong Hydrogen Station'—where gas, LPG, and hydrogen refueling stations are bundled together—as a prime example.
CHAPTER 2
What If It Meets 'Logistics'?
GS Caltex has pondered utilizing the gas station network for functions beyond energy supply, discovering 'logistics' as a potential business area. Although the connection between oil companies and logistics might not be immediately apparent to most, a careful examination of the needs of logistics participants and the real estate assets owned by oil companies can reveal the potential for oil companies to be excellent partners in domestic logistics operations.
The connection between oil companies and the logistics sector can be broadly categorized into three types. The first is the function of providing services to logistics vehicles, utilizing existing gas station facilities. SK Energy's 'My Truck House' exemplifies this connection, offering convenient access, parking, large fueling facilities, and various rest areas to large truck owners.
The second approach utilizes gas stations as intermediate delivery hubs. Given their convenient locations, available space, and management personnel, gas stations are well-suited as last-mile logistics hubs. GS Caltex, recognizing this, has been experimenting with using gas stations as logistics collection points, pickup points, and drone or robot logistics bases.
A notable collaboration is with the warehouse-style furniture store IKEA, which uses GS Caltex gas station spaces as pickup points (PUPs). After customers purchase products online or in-store and request the PUP service, IKEA delivers the products to the designated gas station. The station installs PUP shelves in available spaces like office areas to store the furniture safely until customers pick it up, allowing customers to retrieve their products at their convenience.
The third approach involves utilizing gas station sites for purposes beyond fueling. Gas station sites are often located adjacent to roads and typically have relatively large land areas, making them suitable for various development purposes. Recently, urban gas stations have been developed into commercial buildings or undergone mixed development, maintaining gas station functions on the ground floor while adding structures above.
GS Caltex is concurrently running projects to build and operate Micro Fulfillment Centers (MFCs) on gas station sites and to construct mixed-use buildings incorporating logistics hub functions. The 'Energy Plus Hub Naegok,' which began full operation in November last year, is a prime example. Located near the Gangnam area
, a major demand center for small-scale deliveries, and surrounded by large apartment complexes, the site was chosen for its high logistics demand. To maximize the use of a small area of about 30 pyeong, automated storage equipment 'AutoStore,' capable of achieving the efficiency of approximately 120 pyeong of warehouse space, was installed and utilized.
CHAPTER 3
Why Suddenly 'Drones'?
What I particularly want to introduce to CONNECTUS readers through this article is the 'transformation of gas stations into logistics hubs.' The reason is to convey the message that 'oil companies are considering items beyond imagination.'
The idea of transforming gas stations into drone logistics hubs began with GS Caltex's contemplation of utilizing the canopy space of gas stations. Although gas stations operate with various safety measures in place, they inherently store large quantities of hazardous materials capable of explosion and fire. For this reason, a 'canopy,' a roofed space, is installed to ensure safety in the event of an explosion. Given that urban gas stations are located in expensive areas, leaving the canopy space empty is essentially a waste.
In this context, oil companies have undertaken several projects to construct buildings above gas station canopies under the name of mixed development. However, these projects require significant investment due to the need to meet stringent safety conditions, as gas stations are officially hazardous materials management facilities. Therefore, to quickly recoup the high construction costs compared to regular buildings, higher rental income is necessary. However, the fact that the 'gas station' must occupy the valuable first-floor space poses a challenge. As mentioned earlier, gas stations are currently suffering from declining profitability, a trend that is expected to worsen over time. If commercial facilities cannot be operated or leased on the first floor due to the gas station, recovering the construction costs of the mixed-use building becomes more difficult.
Thus, the upper space of gas stations was a conundrum, seeming useful but difficult to utilize properly. While pondering how to use this space, GS Caltex conducted studies on Amazon and Google's drone logistics projects, leading to the idea of utilizing the upper part of gas stations as a landing and takeoff area for logistics drones.
CHAPTER 4
Four Reasons They Match Surprisingly Well
Although industry insiders now agree that the upper part of gas stations is suitable for aerial vehicle landing and takeoff, initial plans faced internal and external questions of 'Why here?'
GS Caltex conducted feasibility studies to answer these questions, discovering that the upper part of gas stations is an optimal location for drone logistics hubs. Gas stations can overcome several constraints that hinder the commercialization of drone logistics.
One of the major challenges for drone logistics companies in urban demonstration is securing landing and takeoff spaces. The upper part of gas stations, due to safety reasons, is free of flying obstacles like power lines and has a flat surface with the minimum space (5mX5m) required for large drone operations. With an existing perfect landing and takeoff space, the widespread network of urban gas stations becomes a valuable resource.
Second, one of the biggest limitations of existing drone logistics is the restricted flying distance due to battery capacity. Typically, large logistics drones can carry 5-10 kg of cargo for a flying distance of about 10 km, which, due to the need for round-trip flights, effectively reduces the delivery range to about 5 km.
While flying distance may increase with future technological improvements, unless there's a dramatic increase, delivery range will likely remain a significant obstacle to drone logistics commercialization. Gas stations can play a crucial role in overcoming this limitation. Taking off from the canopy level of gas stations can reduce the altitude difference at takeoff, saving initial energy consumption.
The third constraint for commercializing drone logistics is 'management personnel.' As large logistics drones cost tens of millions to hundreds of millions of won, drone logistics has very low profitability. If separate personnel are required to manage the drone and load cargo, the business efficacy would further diminish. However, gas stations have permanent staff, and many have auto repair facilities, making them strong candidates for drone logistics hubs.
Lastly, large drones require ample storage space due to their 2m width when blades are spread. Fortunately, gas stations already have available space, such as office areas, for drone storage without additional facilities. They can also accommodate EV charging or hybrid drone fueling, making gas stations suitable for drone hangar purposes.
CHAPTER 5
Is It Really 'Viable'?
The potential for gas stations to serve as drone logistics hubs has been established. Next, GS Caltex studied which drone logistics business model would be most suitable for gas stations. Alphabet's subsidiary Wing, which is actively testing drone logistics commercialization, operates in Australia, Finland, and the USA, delivering relatively light items like coffee and sandwiches within a 9 km radius. Wing operates by lowering a line from the sky to deliver products without landing.
However, Wing's business model, with its relatively short delivery distance, seemed unsuitable for South Korea's densely populated urban areas. Given Korea's variety of
last-mile delivery methods and low costs, a model that loads multiple items on one drone for delivery to multiple destinations appeared more fitting than Wing's single-item delivery approach.
Therefore, GS Caltex concluded that utilizing large drones rather than small ones for gas station-based drone logistics is more appropriate. With a variety of retail outlets within walking distance in urban areas and numerous inexpensive last-mile delivery options, a drone delivery model targeting the mobility-impaired population in remote areas was deemed suitable.
GS Caltex, in particular, benefits from the presence of GS25 convenience stores, operated by GS Retail, either within or near its gas stations, facilitating the conceptualization of a delivery business model.
The remaining decision was the role GS Caltex would play in the drone logistics business. Essential participants in drone logistics include (1) drone operators, (2) pre-delivery logistics handlers, and (3) drone hangar and landing/takeoff space providers. Given that GS Caltex is not a drone technology company, its role could be limited to 'space provider.' Since drone logistics is not yet established and relies on government subsidies, this role was considered appropriate.
In summary, GS Caltex's current drone delivery business model involves drone delivery companies receiving cargo from logistics companies at drone takeoff and landing hubs provided by GS Caltex gas stations and delivering it to customers. If drone logistics commercializes in the future, GS Caltex envisions partnering with logistics companies or drone operators to become a full-fledged business player.
CHAPTER 6
The First Demonstration Started in Jeju
Since 2020, GS Caltex has been conducting a drone logistics demonstration project based on gas stations in cooperation with the Ministry of Trade, Industry and Energy (MOTIE) and the Electronics and Telecommunications Research Institute (ETRI). When GS Caltex and MOTIE began discussing the project, MOTIE was already working on a national project to develop domestic drone manufacturing technology. The project was primarily focused on public purposes, and there was a desire to build a commercial business model.
GS Caltex proposed a gas station-based drone logistics business model at this time, and MOTIE immediately approved GS Caltex as a demand-side participant. According to an ETRI official who served as the project manager for MOTIE's national project, the government had primarily considered companies already engaged in delivery businesses. GS Caltex's proposal to use gas stations as a 'delivery hub' for various operators offered a fresh perspective.
After confirming participation as a demand-side participant in MOTIE's drone logistics national project, GS Caltex began selecting suitable sites. Flying drones in the middle of urban areas was not realistically feasible. A gas station located at a reasonable distance from the city, within a 5 km radius of potential delivery recipients, and not crossing densely populated areas or roads was sought, a challenging task. Especially during the peak of the COVID-19 pandemic, finding suitable gas stations and demand-side participants was difficult.
Jeju Island was ultimately chosen as the final location. Despite the high difficulty of flying drones in wind-prone Jeju, the decision was made due to the local government's strong support and the availability of a GS Caltex gas station with a relatively large site. Additionally, many private homes with gardens in Jeju made it possible to find numerous 'demand locations' for large drone landings.
After determining the demonstration site, the task was to select the most suitable demand-side participants. During the severe COVID-19 situation, when student attendance at schools was challenging, drones were deemed an excellent medium for non-contact snack delivery. A nearby elementary school was initially chosen as the drone delivery recipient.
The next selected demand-side participant was a farmhouse inn. Located amidst beautiful citrus orchards, this inn served as a venue for newlyweds to hold small weddings with close family and friends during the pandemic. GS Caltex decided to gift the distressed newlyweds through a drone delivery event, choosing this location as the second recipient.
The next step was to decide on the 'procurement method' for delivery items. As explained, GS Caltex aimed to provide a physical hub for various drone delivery operators based on gas station locations. Therefore, a partner was needed to handle the 'distribution' of products to be loaded onto drones.
GS Retail, a fellow GS Group company, was the first partner considered. As previously mentioned, many GS25 convenience stores are located within or near GS Caltex gas stations, making GS Retail the most suitable company to supply products for the gas station-based drone logistics business. GS25 also possessed many character collaboration products preferred by elementary students, the primary consumers in the Jeju demonstration, offering the potential for greater synergistic effects compared to other distribution companies.
Transporting products from GS25 convenience stores to GS Caltex gas stations was another matter. Fortunately, GS25 had recently launched a local last-mile delivery service, 'Our Neighborhood Delivery,' and was actively promoting its own app equipped with a pickup product ordering feature. GS25 readily agreed to cooperate, becoming
an essential partner in the Jeju drone logistics demonstration.
On the day of the drone logistics demonstration kickoff, Jeju Governor Won Hee-ryong and GS Caltex CEO Heo Se-hong attended. Two drones took off towards the elementary school and farmhouse inn, marking the start. GS Caltex conducted over 30 drone delivery demonstrations in Jeju until the end of 2022, providing Jeju residents with drone delivery experiences and establishing the industry's recognition of gas stations as suitable drone delivery hubs.
CHAPTER 7
The Second Demonstration Across the Yeosu Sea
After starting the drone logistics demonstration in Jeju in early 2020, GS Caltex began studying new drone logistics business models. Planning for a new demonstration in Yeosu, where the GS Caltex plant is located, began in the second half of 2020.
The biggest difference between the Yeosu and Jeju demonstrations is the flight mode and demand-side characteristics. While the Jeju demonstration planned flights over fields and vacant lots, the Yeosu demonstration involved sea flights. The decision to opt for sea flight routes was based on the lower risk of human and property damage in case of flight failure and the convenience of drone delivery as an alternative for consumers in areas where land transportation is hindered by geographical constraints.
In terms of demand-side participants, while the Jeju drone delivery targeted residents, the Yeosu drone delivery focused on GS Caltex factory workers, specifically those residing in the company dormitory located deep within the Yeosu industrial complex. The Yeosu industrial complex is situated more than 30 minutes by car from Yeosu city center, with the GS Caltex dormitory located in the innermost part of the complex, far from basic amenities like supermarkets and restaurants. Positioned between industrial facilities at the back and the sea in front, the dormitory's almost island-like location made drone logistics delivery highly beneficial.
The GS Caltex gas station located at the Yi Sun-sin Bridge, connecting the Yeosu and Gwangyang industrial complexes, served as the hub for Yeosu drone logistics. This station has a large site and various rest facilities for large vehicles traveling between the two industrial complexes, allowing it to meet the diverse needs of factory workers.
GS Caltex views this demonstration project as a confirmation that gas station sites located in maritime areas can be utilized as drone logistics hubs and as an opportunity to explore the use of drones on factory and company-owned sites.
CHAPTER 8
The Challenge of Gas Station Logistics and the Reason for the Challenge
Despite various efforts, conducting logistics business from gas stations remains challenging.
For gas station sites to be more actively used as valuable assets in logistics business, regulatory improvements under the Dangerous Goods Safety Management Act are necessary. Currently, conducting non-fueling businesses at gas stations requires passing stringent standards. While safety is undeniably important, with the significant improvement in fueling equipment performance and heightened safety awareness among operators, more flexible permission for ancillary businesses is deemed necessary.
Next, improvements in the performance of unmanned delivery vehicles, such as drones and robots, are needed. While gas station operators can manage basic maintenance of unmanned delivery vehicles, current technology still requires expert presence for delivery operations.
To date, professional labor costs have not been a crucial business factor due to the experimental nature of operations. However, minimizing expert labor costs will be a vital prerequisite for commercialization. Efforts to improve machine performance to the point where gas station operators can manage delivery operations in their spare time are necessary.
Lastly, the location of gas stations required for logistics operations is crucial. As mentioned earlier, despite many gas stations facing difficulties, those in good locations continue to perform well. Many desirable locations for logistics businesses are currently occupied by thriving gas stations not considering logistics. This situation hampers the full-scale introduction of logistics businesses using gas stations.
Nonetheless, the transition to mobility energy is an inevitable trend, potentially accelerating faster than anticipated. Therefore, I believe it won't be long before gas stations in coveted locations emerge as candidates for logistics business sites. When that day comes, the successful business operators will be those who have experimented and developed detailed business plans in advance.
GS Caltex, along with other domestic oil companies, is pioneering various logistics-related new business tests in this context. Although still in the early stages, oil companies are eagerly awaiting the appearance of businesses or partners that can make more profitable use of gas station sites beyond their traditional fueling functions. We look forward to meeting readers with innovative business ideas as partners in the future.
Contact us and we'll help you learn more and connect your business. cs@beyondx.ai