Coupang, which was hit with a penalty surcharge in the 600 billion won range last month over a massive personal data leak, now faces a double blow with a fire at its Incheon logistics center, raising concerns that this year's results will come under even greater pressure. While the scale of the fire damage has not been finalized, some say the losses could reach the hundreds of billions of won if inventory and logistics equipment losses are combined with the expense of suspending center operations.
◇ Fears of hundreds of billions in damage… performance burden grows with penalty surcharge on top
According to fire authorities and related industries on the 20th, the blaze that broke out around 6:54 a.m. on the 18th on the sixth floor of Coupang's Incheon Seohae District Seoknam-dong Logistics Center 32 has continued into a third day. More than 50 hours after the fire started, it has not been fully contained, and the fallout prompted evacuation orders for nearby residents and recommended school closures in the area.
The fire, coincidentally, occurred three days after Chief Executive Jeong Jong-cheol of Coupang Fulfillment Services (CFS) visited the center. On the 15th, Jeong visited Centers 31, 32, 41, 42 and 43 in Incheon to check heatwave countermeasures and on-site safety and health management and to encourage employees.
Incheon Center 32 has a total floor area of about 299,000 square meters and eight above-ground floors, more than double the size of the Deokpyeong logistics center in Icheon, Gyeonggi, which was completely destroyed in 2021. It is an ambient-temperature logistics center handling lightweight household goods, and is known to have large quantities of products and automated logistics equipment stored inside.
At the time of the Deokpyeong center fire, the loss amount disclosed by Coupang was about 340 billion won. Since Incheon Center 32 is larger than the Deokpyeong center, some observe that if the damage spread throughout the building, losses could be even higher.
In addition to direct property damage, indirect expenses from suspending center operations appear inevitable. Coupang is transferring orders that were to be processed at Incheon Center 32 to other logistics centers in the Seoul metropolitan area to minimize delivery disruptions. While a nationwide halt to Rocket Delivery is unlikely, if normalization of the center is delayed, some areas in Incheon and the metro region could see item shortages or delivery delays.
Coupang is providing 5,000 won in Coupang Cash per person to customers whose deliveries were disrupted by the fire. While the scale of eligible customers has not been disclosed, related expense could increase if delivery delays persist or the affected area widens.
During the previous Deokpyeong center fire, Coupang also dispersed volumes to nearby centers, but some products went temporarily out of stock and, depending on the region, it took more than a month to restore normal deliveries. According to Mobile Index, in the two weeks after that fire, Coupang's average daily users fell from 9.45 million to 8.34 million, a drop of more than 1.1 million.
Coupang is already facing a large accounting expense burden from the fallout of the personal data leak. The Personal Information Protection Commission last month imposed a 624.681 billion won penalty surcharge and 1.68 million won in fines on Coupang for violating safety measure obligations and collecting personal information without legal basis. That is close to Coupang's operating profit last year (about 679 billion won).
Industry watchers say if the penalty surcharge is reflected in second-quarter results this year, it will worsen annual profitability. Under accounting principles, a penalty surcharge from a government or regulatory body must be recognized as an expense in the quarter when the imposition decision is made or disclosed. In that case, following an operating loss of about 354.5 billion won in the first quarter, Coupang is likely to post a deficit in the second quarter as well.
Coupang has previously posted quarterly losses due to booking a penalty surcharge in advance. In the second quarter of 2024, Coupang reflected an estimated Korea Fair Trade Commission penalty surcharge of about 163 billion won related to manipulating search rankings for its PB (private brand) products in selling and administrative expenses, and recorded an operating loss for the first time in eight quarters.
Although some of the expenses related to the Incheon logistics center fire may later be offset through insurance payouts, the accounting loss will likely be reflected in third-quarter results this year. After the Deokpyeong center fire, Coupang also booked related losses as expenses immediately after the incident, and received about 360 billion won in insurance proceeds in the fourth quarter of 2024, more than three years later.
◇ Standards were tightened after the Deokpyeong fire, but Incheon Center 32 was exempt
The incident also draws attention to whether the recurrence prevention measures Coupang introduced after the 2021 Deokpyeong center fire functioned properly on the ground. At Incheon Center 32, which caught fire, questions have been raised that fire shutters and sprinklers may not have sufficiently contained the spread.
Sprinkler and fire shutter issues were also central points in the Deokpyeong center fire. About four months before the fire, an inspection of fire protection systems at the Deokpyeong center flagged 277 defects. Of these, 60 were related to sprinklers, the most among all categories. They included faulty fire detectors and water spray blind spots. Twenty-six defects were also found in fire shutters designed to prevent the spread of flames. At the time, the Icheon Fire Station determined that the issues had been corrected based on photos submitted by Coupang.
Coupang said it had implemented all additional improvements needed for fire safety immediately after the Deokpyeong fire, and noted it would make further improvements as necessary based on the cause investigation. It also announced a plan to conduct special inspections of all logistics centers and business sites nationwide to identify improvement measures.
In December of the same year, it also signed an agreement with KT to build an integrated fire facility monitoring system that would allow headquarters to check fire alarm receiver information at centers nationwide in real time to prevent fires and minimize human and property damage in the event of an incident.
The government, prompted by the 2021 fire at Coupang's Deokpyeong logistics center, also established separate warehouse facility fire safety standards that reflect high ceilings, large combustible loads and complex rack structures in logistics warehouses. The warehouse facility fire safety standards (NFPC/NFTC 609), implemented since 2024, require installation of large-drop sprinklers with higher water discharge than general types.
They also mandate adding sprinkler heads at intervals of 3 meters or less in rack warehouses. Water discharge per head was raised from about 80 liters per minute to at least 160 liters. Rack warehouses must also secure a water source capable of discharging for 60 minutes or more.
However, the new standards do not apply to facilities that applied for building permits or reported the start of fire protection construction before implementation. Incheon Center 32, which received its building permit in 2020, was excluded from the strengthened standards. Although a system was established after the Deokpyeong fire to reflect the structural risks of logistics warehouses, existing large logistics centers remain in a blind spot under the old standards.
After the fire is fully extinguished, fire authorities plan to investigate the exact ignition cause at the Incheon logistics center and whether the sprinklers operated initially. In a statement on the 18th, Jeong said, "I am truly sorry for causing great concern to many," and added, "While actively supporting local residents, we will support firefighting efforts and fully cooperate with the relevant authorities' investigation into the cause of the fire."