TOKYO -- Japan's Yamato Holdings looks to tap demand for rapid parcel shipping to Asia with a new logistics center in Okinawa Prefecture, courting business-to-business service as competition heats up in the home delivery market.
The new facility in Naha began operations Wednesday. Dubbed "Southern Gate," it accepts high-value-added packages from business clients for express shipment to sites around Asia.
"We hope to create new value for our clients with the site's next-day delivery access to major cities in Asia," Chairman Makoto Kigawa said at the opening ceremony Tuesday.
The Southern Gate facility occupies warehouse space rented from the prefectural government near Naha Airport, which permits late-night air traffic and runs customs services around the clock.
The new center contains 26,590 sq. meters of total floor space, nine times the size of a nearby building Yamato has rented since 2013. The company will retain the smaller space, anticipating stronger international shipping demand when the Trans-Pacific Partnership trade pact takes effect.
Yamato already offers express home delivery and other services to Hong Kong, Singapore and elsewhere. Companies increasingly are using those offerings for business-to-business shipping. A major electronics manufacturer, for example, has contracted with Yamato since summer 2013 to store and ship components for cash-sorting devices. The shipper manages 4,200 different replacement parts at its Okinawa site -- within four hours of major Asian cities by air -- and delivers them as needed.
That system is now the model for Yamato's business-oriented service. Health and beauty company Sunstar, cosmetics maker Hoshi and others will set up shop in Yamato's new building. The companies see the site as a center for Asian exports as well as distribution within Japan. Yamato looks to transform itself "from a domestic home delivery company to one that lets businesses expand logistics to Asia," Kigawa said.
In need of a change
Yamato has good reason to shift focus to business-oriented shipping: Its core home delivery operations have suffered lately, even as demand grows. Group operating profit sank 15% year over year to 18 billion yen ($145 million) for the April-September half. Yamato's Ta-Q-Bin service handled 821 million parcels in the half, up 4% from the year-earlier period, but the average rate per package fell by more than 1% to around 585 yen.
"A larger percentage of shipments came from high-volume main-order businesses," said Managing Executive Officer Kenichi Shibasaki. These companies, including Amazon Japan, drive hard bargains during price negotiations.
Yamato also faces a larger threat from Japan Post Co., whose share of the home delivery market rose 1.7 percentage points to 13.6% in fiscal 2014. Yamato Transport, the largest player with a share of over 40%, saw volume drop as a result of rate hikes.
Japan Post's postal and domestic logistics business booked a 46.3 billion yen operating loss for April-September 2015. A Yamato executive complained that the government-held company "is slashing prices to draw in orders without any regard to profitability, even as Tokyo mounts efforts to escape deflation."
Second-place shipper Sagawa Express, with a market share around 30%, offers a different model. Parent company SG Holdings' group operating profit surged 41% to 28.3 billion yen for the first half. Business-to-business shipping accounts for roughly two-thirds of the company's operations, compared with Yamato's 50%. Yamato is thus more exposed to competition from Japan Post in home parcel deliveries, including direct-to-consumer shipping services.
Tapping a new market
Yamato is overhauling its distribution network, funding Southern Gate and other projects including the 140 billion-yen Tokyo-area Haneda Chronogate center, one of the largest logistics facilities in Japan. The reorganization is intended in part to make stronger business-oriented shipping a Yamato mainstay. Enlarging the network also will permit expanded same-day home delivery service for online shopping and other purchases.
Nippon Express and Hitachi Transport System, along with Sagawa, have built strong operations for business-oriented shipping among high-volume clients. U.S. companies including United Parcel Service and FedEx, meanwhile, have a secure lead in international parcel shipping. Yamato "will create new demand for package and parcel service to Asia," Kigawa said. But "we're only 20-30% of the way there," he conceded.
Yamato has built a reputation for innovation, and breaking out of its lull will depend on the company's ability to leverage that legacy as it turns toward the business-to-business market.