Direction and Tasks for Reforming KORAIL Subsidiaries
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Writer
CFE
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Key Message
The government’s decision to reorganize the five subsidiaries under Korea Railroad Corporation into three specialized companies for customer service, distribution and logistics, and maintenance is a necessary step in that it bundles together dispersed functions and responsibilities. However, simply reducing the number of corporations does not guarantee greater efficiency. In 2009 as well, nine affiliates were consolidated into five, but afterward their businesses, workforce, and internal transactions expanded again. This reform must go further—eliminating overlapping executives and support organizations, reallocating personnel based on job functions, separating public functions from commercial functions, and expanding competitive procurement and private-sector participation. The success of the consolidation should be judged not by moving from “five to three,” but by overhead costs, customer benefits, logistics productivity, safety performance, and competitiveness in external markets.
◩ Summary of Policy Recommendations
• Before consolidation, disclose baseline data by subsidiary on functions, personnel, costs, and internal transactions, and set quantitative post-merger targets for overhead costs as well as service and safety performance.
• Consolidate overlapping support organizations such as planning, HR, finance, legal, audit, public relations, procurement, and IT, and reassign frontline personnel to service and safety roles based on job analysis.
• Strengthen professionalism and accountability in station operations, safety, and core maintenance, while expanding competitive bidding and private contracting in tourism, retail, advertising, parking, forwarding, cleaning, and building management.
• Replace negotiated contracts between the parent company and subsidiaries with a system of cost disclosure, performance contracts, and periodic contract review, and restrict automatic contract awards to subsidiaries in areas where competition is feasible.
• Employment stability should be achieved not through permanent preservation of existing organizations and jobs, but through reassignment, retraining, and outplacement support, with an independent ex post evaluation conducted two years after consolidation.
1. Background and Main Content of the Consolidation Plan
On June 30, 2026, at the 8th Public Institution Steering Committee, the government deliberated and approved the “Consolidation Plan to Improve the Efficiency of Korea Railroad Corporation Subsidiaries,” and released it on July 1. The plan reorganizes the current five subsidiaries into a three-company structure specializing in customer service, distribution and logistics, and maintenance (Ministry of Finance and Economy and Ministry of Land, Infrastructure and Transport, 2026).
Korail Tourism Development and Korail Networks will be merged into a customer service company that combines customer-facing functions such as station operations, train crew services, tourism, and call centers. Korail Distribution and Korail Logistics will be integrated into a distribution and logistics company combining in-station retail and rail logistics. Korail Tech will remain as a specialized maintenance company responsible for facilities, electrical systems, rolling stock, and environmental management. The government expects the reform to unify customer service channels, build a rail-based distribution and logistics network, and strengthen professionalism in facility and rolling stock maintenance.
Korail Subsidiary Structure Before and After Consolidation
Current Subsidiary
Main Functions
After Consolidation
Korail Tourism Development
Train crew services
·
Tourism
·
Station operations
Customer service company
Korail Networks
Station operations
·
Parking
·
Transportation cards
·
Customer center
Customer service company
Korail Distribution
Station retail
·
Advertising
·
Product distribution
Distribution
·
Logistics company
Korail Logistics
Rail freight
·
Loading and unloading
·
Storage
·
Forwarding
Distribution
·
Logistics company
Korail Tech
Facilities
·
Electrical systems
·
Rolling stock
·
Environmental management
Remains as a maintenance company
Source:
Prepared based on materials from the Ministry of Finance and Economy, the Ministry of Land, Infrastructure and Transport (2026), Korea Railroad Corporation, and each subsidiary.
◩ The Direction of Consolidation Is Reasonable, but the Means Must Be Evaluated Separately
Grouping areas with strong functional linkages is rational. Station operations, train crew services, and customer centers collectively shape the travel experience of rail users, while distribution and logistics offer room for joint use of procurement, warehousing, delivery, and information systems. Concentrating responsibility for facility and rolling stock maintenance in one company can also clarify safety accountability (Ministry of Finance and Economy and Ministry of Land, Infrastructure and Transport, 2026).
However, corporate consolidation and operational innovation are not the same thing. If existing organizations, executives, managers, business lines, and contracts are simply carried over intact in the form of business divisions, the result may be only merger costs, without reducing overhead or decision-making layers. Public institution reform should be judged not by the number of entities reduced, but by functional redesign, the promotion of competition, and accountable management (Gwang yong Go and Hyun-jo Choi, 2026; OECD, 2024). More important than the labels of customer service, distribution and logistics, or maintenance is which functions are retained, integrated, or opened to competition.
◩ Lessons from the 2009 Consolidation
In 2009, Korail also restructured nine affiliates into five, promoting the removal of overlapping functions and cost savings. Three technology-related affiliates were merged into Korail Tech, while some others were merged or abolished (Korea Railroad Corporation, 2008a; 2008b). The need for another restructuring 17 years later suggests not that the earlier consolidation was a total failure, but rather that simply reducing the number of corporations is not enough to control functional expansion and internal inefficiency in public organizations.
Conditions for This Consolidation to Differ from the Past
• Finalize a plan to streamline overlapping executives, headquarters units, and support organizations within six months of the merger date
• Do not automatically preserve inherited business lines by company; instead, review them again by function
• Disclose baseline data before consolidation on costs, personnel, contracts, and service indicators
• Apply follow-up measures after 2–3 years—including market opening, divestment, and abolition—for business areas that fail to meet targets
2. Why Organizational Consolidation Alone Cannot Improve Efficiency
◩ The Core Risk Is Not the Number of Corporations but Overlapping Functions and Administrative Organizations
If, even after consolidation, the existing headquarters units, departments, teams, executives, and managers of each company remain in place, the actual gains in efficiency will be limited. Planning, HR, finance, legal, audit, PR, IT, and procurement should be unified under a single system, while frontline organizations should be redesigned based on service flow and safety accountability. The number of executives, the ratio of managers, the share of support staff, and headquarters operating costs before and after consolidation should be disclosed so that organizational slimming can be verified (Gwang yong Go and Hyun-jo Choi, 2026).
◩ Employment Stability Is Necessary, but It Does Not Mean Permanent Preservation of Organizations and Jobs
The government’s commitment to employment stability for subsidiary workers is meaningful in reducing conflict during the transition. But if employment stability comes to mean maintaining all existing ranks, positions, duties, work locations, and wage systems, then functional integration and productivity improvement will be impossible. The design should protect people while still allowing organizations and jobs to change, centering on reassignment, retraining, and outplacement support.
If differing wage, rank, and welfare systems among the merging companies are equalized upward, labor costs may rise and conflict may become prolonged. Rather than integrating compensation based on the originating company, it should be integrated based on job value, risk level, skill, and performance, with transitional measures for existing working conditions distinguished from the system for new hires and phased in gradually.
◩ Internal Transactions Dependent on the Parent Company Weaken Market Discipline
A certain level of internal transactions is unavoidable because Korail subsidiaries perform work necessary for rail operations. However, if contract volumes and revenues are effectively guaranteed, incentives for cost reduction, service improvement, and expansion into external markets weaken. The OECD emphasizes that state-owned enterprises also require competitive neutrality and transparent performance accountability (OECD, 2024). As consolidation enlarges the corporations, there is also a risk that they become new monopolistic internal suppliers.
For work where safety and network integration are critical, multi-year performance contracts may be used, but cost structures, service levels, penalties, and rewards should be disclosed. In competitive fields such as cleaning, parking, retail, advertising, and general logistics, competitive bidding should be conducted under the same conditions as private firms, and automatic contract awards to subsidiaries should be restricted.
Major Risks That Could Erase the Benefits of Consolidation
Risk
How It Occurs
Required Response
Coexistence of organizations
Retention of existing headquarters
·
teams
·
executives
Abolish overlapping organizations and disclose manager ratios
Increase in labor costs
Upward equalization of wages
·
welfare
Phased integration centered on jobs
·
performance
Strengthened internal monopoly
Negotiated contracts with the parent company and guaranteed volumes
Cost verification
·
performance contracts
·
competitive procurement
Cross-subsidization
Mixed accounting for public services and commercial businesses
Disclose profit and loss and asset usage fees by business division
Delayed innovation
Fragmented information systems and data
Integrate customer
·
logistics
·
asset management data
3. Reform Direction by Function: What Should Be Retained and What Should Be Left to Competition
◩ Customer Service Company: Strengthen One-Stop Accountability, Use Competition for Ancillary Businesses
Functions directly linked to rail users’ time and convenience—such as station operations, customer centers, and train crew services—need to be integrated into a single window and data system. Linking customer IDs, complaints, parking, transportation card, and tourism data can reduce complaint transfers and accountability gaps. However, tourism products, parking, transportation cards, and ancillary services are areas where private operators can compete or form partnerships, so they should not be fixed as monopoly businesses of the consolidated company.
◩ Distribution and Logistics Company: Integrate Shared Infrastructure but Separate Profit and Loss by Division
Station retail and advertising, along with rail freight, loading and unloading, storage, and forwarding, can generate synergies in joint procurement, warehousing, delivery, and information systems. But because their customers and revenue models differ greatly, accounting, assets, and performance accountability for the distribution division and the logistics division should be kept separate even within the merged corporation. To ensure that retail and advertising businesses using public assets and internal contracts do not enjoy unfair advantages over private competitors, market-based usage fees and the principle of competitive neutrality should be applied (OECD, 2024).
◩ Maintenance Company: Distinguish Core Rail Safety Functions from General Support Services
Maintenance of facilities, electrical systems, and rolling stock has a strong connection to rail safety and system integration, making long-term performance contracts and the accumulation of specialized personnel necessary. In contrast, cleaning, security, office building management, and general facilities management are areas where private markets are well developed. Research on rail reform also emphasizes that in network industries, safety and infrastructure responsibilities should be distinguished from operational and ancillary services that can be exposed to competition (World Bank, 2017; Nash, 2005). If all work is monopolized under the broad label of “maintenance,” accountability for core safety technologies may be blurred and private markets may be crowded out.
Operating Principles by Function for the Three Consolidated Companies
Consolidated Company
Core Public Functions
Functions for Competition
·
Market Opening Review
Performance Indicators
Customer service
Station operations
·
train crew services
·
customer centers
Tourism
·
parking
·
transportation cards
·
ancillary services
One-stop processing rate
·
complaint handling time
·
satisfaction
Distribution
·
logistics
Logistics coordination linked to the rail network
Retail
·
advertising
·
forwarding
·
general logistics
Logistics unit cost
·
inventory turnover
·
external sales
Maintenance
Facilities
·
electrical systems
·
rolling stock safety management
Cleaning
·
security
·
office buildings
·
general facilities management
Failures
·
service disruptions
·
accidents
·
preventive maintenance rate
Criteria for Judging Functional Redesign
• Whether the function is essential and directly the responsibility of the state
• Its relevance to rail safety
• Whether it can be replaced by private operators and exposed to competition
• Complementarity across functions and the cost of coordination and contracting
• Financial performance, user benefits, and impact on private markets
• Clarity of accountability and measurability of performance after consolidation
4. Overseas Railway Reform Cases: Integration and Separation Are Means, Not Ends
◩ Japan: Split a Giant Organization by Function and Region and Assign Performance Accountability
In 1987, Japan split and privatized Japanese National Railways (JNR) into six regional passenger companies and one nationwide freight company. This went beyond merely adjusting the number of corporations: it also addressed long-term debt, workforce restructuring, managerial autonomy, and profit-and-loss accountability by company. Japan’s railway reform is generally assessed as having improved service and productivity in areas with demand, but it also left unresolved issues such as the weak revenue base of low-demand regional companies and the freight company, as well as long-term debt problems (MLIT, 1987; 1996; Mizutani & Uranishi, 2003; OECD, 1998).
The lesson for Korea is that neither integration nor division is always the right answer. Functions with a unified customer interface, such as customer service, can be integrated, but business lines with different markets and cost structures should maintain independent profit-and-loss responsibility. In particular, if debt, labor, and uneconomic business lines are transferred intact into the merged company, the result may amount not to structural reform but simply the aggregation of problems. Korail subsidiary consolidation must therefore be designed together with accounting and performance accountability by business division.
◩ Germany: Integrate Complementary Infrastructure but Distinguish Operating Businesses
Germany’s Deutsche Bahn maintains a business-division structure by function, including long-distance passenger, regional passenger, freight, energy, and infrastructure. In 2024, it launched DB InfraGO by merging DB Netz, which handled rail tracks, and DB Station&Service, which handled stations. Tracks and stations were placed under unified responsibility for planning, construction, and operation, while passenger and freight transport remained in separate business divisions (Deutsche Bahn, 2025).
The German case shows that even while maintaining public ownership, functional accountability and performance management can be strengthened. Functional integration should be limited to areas requiring strong complementarity and single-point responsibility, while operating and ancillary businesses need divisional accounting and external benchmarking. Korail, too, can concentrate responsibility for facility and rolling stock safety management without placing general support services such as cleaning, building management, and security under the same monopolistic structure.
◩ United Kingdom: Reintegrating Accountability After Excessive Fragmentation
Following railway privatization in the 1990s, the UK fragmented infrastructure, passenger operations, rolling stock, and maintenance across numerous organizations. This expanded competition and private-sector participation, but problems emerged in the form of complex contractual relationships, dispersed responsibility, and high transaction costs. The UK government is now pursuing reforms to reunify responsibility for infrastructure and operations through the creation of Great British Railways and the return of passenger services to public ownership (UK Department for Transport, 2025; 2026; Nash, 2005).
The UK case shows that separation and competition cannot themselves be the ultimate goal. Where coordination costs across functions are high and users cannot easily identify who is accountable, integration is necessary. But if an integrated public organization lacks cost transparency and performance accountability, the inefficiencies of a giant bureaucracy may reappear. Korail subsidiary reform should therefore not treat integration and competition as opposites; instead, it should integrate responsibility for safety and service while opening ancillary functions that can be competitively supplied.
Overseas Railway Reform Cases and Their Implications for Korail
Country
Main Reform
Performance and Limitations
Implications for Korail
Japan
Split and privatized JNR into 6 regional passenger companies and a freight company
Responsible management
·
productivity gains, but weakness in regional and freight sectors
Business-level profit-and-loss accountability must be accompanied by workforce and debt restructuring
Germany
Integrated tracks and stations into DB InfraGO, while keeping transport operations separate
Unified infrastructure responsibility, while maintaining divisional accountability by function
Integrate only complementary functions and separate competitive businesses
United Kingdom
After excessive fragmentation, moved to reintegrate responsibility around GBR
Aimed to reduce coordination costs and accountability gaps, but with risk of renewed public monopoly
Even after integration, cost disclosure
·
performance evaluation
·
market discipline are necessary
5. Policy Improvement Measures: Link Corporate Consolidation to Functional, Organizational, and Market Reform
(1) Reexamine all work by function
The work of the five companies should be evaluated based on whether it is essential to the state, related to safety, replaceable by the private sector, open to competition, financially viable, and beneficial to users. Business lines should not be automatically inherited simply because they belonged to an existing corporation. Instead, the appropriate option should be selected among retention, integration, market opening, private contracting, divestment, and abolition.
(2) Streamline overlapping organizations within six months of the merger
Transferring existing organizations into business divisions on the merger date should be allowed only as a temporary measure to minimize operational disruption. Executives and the functions of planning, HR, finance, legal, audit, PR, procurement, and IT should be integrated into a single system, and overlapping posts and committees should be eliminated. The number of executives, the ratio of managers, the share of support staff, and headquarters operating costs before and after consolidation should be disclosed.
(3) Make employment stability concrete through retraining and outplacement support
Workers in overlapping roles should be offered job-transition training, digital skills training, frontline certification opportunities, transfers to related institutions, voluntary retirement, and support for moving into private-sector jobs. Labor-management consultation should focus not on freezing total headcount, but on safety and service job standards, principles of reassignment, training plans, and performance-based compensation systems.
(4) Convert internal transactions into performance contracts and competitive procurement
Transactions between the parent company and subsidiaries should no longer be tasks assigned simply because they are affiliates, but contracts to purchase necessary services based on quality and cost. Multi-year contracts may be allowed for core safety maintenance, but they should be subject to cost verification, external benchmarking, disclosure of safety performance, and periodic contract review.
In areas that can be replaced by private providers—such as cleaning, security, office building management, parking, advertising, retail, general logistics, and forwarding—competitive bidding should be expanded in stages. Subsidiaries may also participate in bidding, but competitive neutrality must be ensured so that they do not gain unfair advantages in the use of rail assets, financing and guarantees, taxation, or procurement (OECD, 2024).
(5) Strengthen accounting by business division and competition in external markets
The distribution and logistics company should separate the profit and loss of station retail and advertising from rail freight and forwarding, and should pay market-based fees for the use of public assets. The tourism, parking, and transportation card businesses of the customer service company should also make use of private partnerships or competition, and data portability and service openness should be ensured so that consolidation does not become a means of monopolizing user data.
(6) Establish company-specific performance indicators and conduct an ex post evaluation after two years
The three companies should be evaluated by indicators suited to their different objectives. For customer service, the key metrics are one-stop processing rate and complaint handling time; for distribution and logistics, logistics unit cost, inventory turnover, and external sales; for maintenance, failures, service disruptions, safety accidents, and the implementation rate of preventive maintenance. Two years after consolidation, the Ministry of Finance and Economy, the Ministry of Land, Infrastructure and Transport, and an independent research institution should evaluate administrative cost reductions relative to merger costs, improvements in service and safety, impacts on private markets, and the outcomes of employment transition.
Phased Reform Roadmap
Stage
Period
Core Tasks
Disclosed Indicators
Stage 1
Before consolidation
to 6 months
Disclose baselines for functions
·
personnel
·
contracts, and streamline overlapping organizations
Executives
·
managers
·
support staff
·
internal transactions
Stage 2
6 months
to 2 years
Integrate job and compensation systems, link information systems, expand competitive procurement
Overhead costs
·
complaint handling time
·
logistics unit cost
·
safety indicators
Stage 3
After 2 years
Independent ex post evaluation and follow-up measures for underperforming business lines
External sales
·
competitive procurement
·
impact on private markets
Summary of Policy Improvement Measures
• Apply differentiated measures—retention, integration, market opening, private contracting, divestment, and abolition—through diagnosis at the functional level.
• Actually reduce overlapping executives, support organizations, and posts, and reassign frontline personnel based on job analysis.
• Implement employment stability through retraining, outplacement support, and phased transition to an integrated compensation system, rather than preserving organizations.
• Apply cost verification and performance contracts to internal transactions, and expand competitive bidding in contestable work areas.
• Conduct an independent evaluation two years after consolidation, and reconsider market opening, divestment, or abolition for business lines that fail to meet targets.
◩ Comprehensive Policy Proposal
The government’s plan to consolidate Korail’s five subsidiaries into three specialized companies is a necessary restructuring in that it brings together dispersed customer-facing functions, distribution and logistics, and maintenance functions. It has the advantage of allowing customers to use rail services as one integrated service without needing to know the boundaries between multiple companies, while also enabling shared use of data and assets across functions.
However, if the goal of consolidation is limited to reducing the number of subsidiaries, it may amount to little more than a repeat of the 2009 restructuring. At that time, the number of affiliates was reduced from nine to five, but functions and personnel later became complicated again through policy projects, conversion to direct employment, and expansion of support work. This time, a second-stage structural reform must follow corporate integration simultaneously by sorting out overlapping organizations, jobs, contracts, and business lines.
The core of the reform lies not in managing the three companies in the same way, but in assigning each a different form of performance accountability. The customer service company should reduce users’ time costs and inconvenience; the distribution and logistics company should raise productivity and external competitiveness by leveraging rail assets; and the maintenance company should be responsible for rail safety and asset reliability.
Publicness does not mean that every function must be performed directly by a public company. Functions requiring safety and network integration should have responsibility concentrated in specialized subsidiaries, but areas that the private sector can perform—such as retail, advertising, tourism, parking, forwarding, cleaning, and general facilities management—should be opened further through competitive bidding and market access. The purpose of public enterprise subsidiaries is not to preserve organizations, but to provide better services at lower cost.
Employment stability, too, must be distinguished from organizational preservation. Workers’ employment and transitions should be protected, but overlapping posts and inefficient jobs should be addressed through reassignment, retraining, and outplacement support. Integration should be based not on upward equalization of wages and rank systems, but on job value and performance, so that the costs of reform are not passed on to rail users and future generations.
Before consolidation, the government should disclose indicators on costs, personnel, internal transactions, service, and safety, and conduct an ex post evaluation after two years. For business lines that fail to meet targets, follow-up measures should include market opening, share divestment, and abolition. The final goal of reform is not an organizational chart change from “five to three,” but the creation of “three performance-accountable entities with lower costs and higher service and safety.”
◩ References
· Gwang yong Go and Hyun-jo Choi. (2026). “Strategy and Direction for Public Institution Reform under the New Government.” CFE Report No. 26-03. Center for Free Enterprise (CFE).
· Ministry of Finance and Economy and Ministry of Land, Infrastructure and Transport. (2026). “Korail’s Five Subsidiaries to Be Consolidated into Three Companies.” Press release, July 1.
· Korea Railroad Corporation. (2008a). “Korail to Immediately Push Ahead with the Consolidation and Abolition of Affiliates… Completion Expected Early Next Year.” Press release, October 24.
· Korea Railroad Corporation. (2008b). “Korail Begins Full-Scale Advancement Efforts… Merger Contract Ceremony Held Among Affiliates.” Press release, November 20.
· Korea Railroad Corporation and Korail Tourism Development, Korail Networks, Korail Logistics, Korail Distribution, and Korail Tech. (2026). Corporate materials and disclosures on major businesses and management.
· Campos, J., & Cantos, P. (2000). Rail transport regulation. World Bank Policy Research Working Paper.
· Deutsche Bahn. (2025). Integrated Report 2024. Deutsche Bahn AG.
· Ministry of Land, Infrastructure, Transport and Tourism of Japan. (1987; 1996). Annual Report of Transport Economy; White Paper on Transport.
· Mizutani, F., & Uranishi, S. (2003). The post-reform productivity of Japanese railways. Journal of Transport Economics and Policy.
· Nash, C. (2005). Rail infrastructure charges in Europe. Journal of Transport Economics and Policy.
· OECD. (1998). Railways: Structure, Regulation and Competition Policy. OECD Publishing.
· OECD. (2019). Efficiency in Railway Operations and Infrastructure Management. International Transport Forum/OECD.
· OECD. (2024). OECD Guidelines on Corporate Governance of State-Owned Enterprises 2024. OECD Publishing.
· UK Department for Transport. (2025; 2026). Great British Railways and Public Ownership Programme; Rail Reform Updates.
· World Bank. (2017). Railway Reform: Toolkit for Improving Rail Sector Performance. World Bank.
※ The reference date for the materials is July 2, 2026. The government’s detailed merger procedures and the names and organizational structures of the consolidated companies may be adjusted later through administrative procedures and labor-management consultations.
Original title: 코레일 자회사 개혁의 방향과 과제
Author: Center for Free Enterprise (CFE)
Date: 2026-07-03
Source: https://www.cfe.org/bbs/bbsDetail.php?cid=issue&pn=1&idx=29244