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Business trends

Japan Post gains ground as parcel delivery stalwarts struggle

Swamped by e-commerce, Yamato loses clients from price hikes and volume caps

Smaller businesses have flocked to Japan Post, which has refrained from raising corporate rates as much as rivals. (Photo by Keiichiro Asahara)

TOKYO -- Japan Post is closing the gap with the country's leading parcel shippers thanks to a surge of cost-conscious customers, as the e-commerce explosion pushes its understaffed rivals to raise rates and limit package volumes.

In absolute terms, the Japan Post Holdings unit is a distant third among Japan's shippers, commanding less than 20% of the home-delivery market. Yamato Transport leads the industry with close to a 50% share, and Sagawa Express -- part of SG Holdings -- comes in second with roughly 30%.

Yet based on package totals for fiscal 2017, this established order is changing. The core Yamato Holdings unit handled 1.83 billion home delivery packages, 2% fewer than in fiscal 2016. Sagawa defended its position, handling 1.26 billion packages for a 3.6% rise in volume. But Japan Post's home-delivery total surged more than 25% to 875 million parcels.

Yamato appears to have lost customers after hiking rates and reassessing policies to cope with Japan's severe shortage of delivery workers. The shipper last year capped the number of parcels it would carry, aiming to ease the growing burden on its delivery and pickup staff, and has started turning down shipments that would be unprofitable. Rates for retail customers were raised last October, and the company renegotiated prices for corporate clients such as Amazon Japan throughout 2017. Sagawa took similar steps to improve profitability.

All the while, Japan Post has picked up cost-conscious clients such as small and midsize businesses leery of those hikes. While the postal service in March increased retail rates an average of 12% and raised corporate rates by roughly the same amount, this pales in comparison to the 30-40% hikes some corporate clients faced elsewhere.

The postal service is no longer a purely public entity, as its parent Japan Post Holdings debuted on the Tokyo stock market in 2015. But the discounted rates set under government control have largely persisted, as it is difficult for the service to increase rates greatly without drawing backlash. As a consequence, business "has grown more than we expected," an executive said.

Japan Post expects roughly 9% volume growth this fiscal year, while Yamato plans on a 4% reduction. Sagawa expects business will be "about the same" as in fiscal 2017, according to its parent, putting the No. 2 shipper in danger of being overtaken by the current No. 3.

But even the postal service is struggling to keep up with the surge in business brought on by Japan's growing appetite for online shopping. Costs are mounting as the company hands off more of its business to contract couriers. While Japan Post may soon have the distinction of carrying 1 billion packages per year, "we plan to emphasize profitability, not just scramble for share," an executive said.

The challenge of serving a growing e-commerce sector is not unique to Japan, which in 2016 was the world's third-largest parcel shipping market behind China and the U.S., according to postage meter maker Pitney Bowes. Shipments from China's e-commerce leader Alibaba Group Holding have overloaded that country's shipping infrastructure, triggering a rash of delays and lost packages last year. In the U.S., e-tailer Amazon.com is building up its own shipping operations, eating into business for established shipping companies like UPS and FedEx.

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