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Business

Japan's Sagawa hiking shipping rates, eyeing rival Yamato

Couriers put profit over volume as labor crisis eats into bottom lines

Executives Shunichi Nakajima, left, and Kimiaki Sasamori of Sagawa Express parent SG Holdings speak at a Monday earnings conference. The shipper announced it intends to raise rates.

TOKYO -- Package shipper Sagawa Express is raising its rates to stem losses from discounts for high-volume shippers, after larger competitor Yamato Transport announced its own rate hike.

Japan's package couriers, which once competed for customers in fierce price wars, are now choosing profit over volume as they face a drought of labor and a deluge of packages.

Steeper shipping rates

Sagawa parent SG Holdings is targeting an average rate of around 518 yen ($4.64) per parcel for high-volume clients for the fiscal year ending March 2018, roughly 1% above the year before. The hike is thought to be aimed at heavy users like online shopping websites.

SG will "negotiate toward receiving reasonable freight rates," Kimiaki Sasamori, an executive officer, said Monday at the news conference where the company released its fiscal 2016 earnings.

Yamato recently announced a similar move, but targeted retail customers as well. Sagawa, unlike the Yamato Holdings unit, is focusing on corporate shippers, which make up most of its clientele.

Yamato aims to raise its base delivery prices by an average of 15% in September, intending to reach agreements by the end of that month with 1,000 customers that get bulk discounts for high shipping volumes. The shipper has said it is prepared to cut off services for clients if they cannot settle a deal.

One online catalog order business, Senshukai, said it had received a request from Sagawa for higher rates and was considering its response. TV shopping website QVC Japan, another Sagawa customer, said it would consider how to respond should a request come.

Caution on the rise

High-volume shippers negotiating with Yamato probably will comparison-shop with Sagawa as well as Japan Post. But all Japan's couriers are afflicted by the labor drought, and probably will hesitate to cut into profits to take on more contracts.

"We'll negotiate with each client, and if rates and volumes are reasonable, we'll take on" their business, Sasamori said when asked how Sagawa would handle high-volume customers Yamato had broken with. It was a marked display of caution for a shipper that once tangled with Yamato to claim more clients.

The labor crisis has driven up personnel costs, pressing shippers to focus on profits. SG Holdings has downgraded to 56.5 billion yen its fiscal 2018 group operating profit forecast, formerly 62 billion yen, in its medium-term management plan ending that year. Yamato Holdings' fiscal 2016 net profit fell 54% on the year as the company outsourced more deliveries and labor costs swelled.

The Amazon effect

Sagawa saw business surge when it took on shipments for online shopping giant Amazon Japan. At its peak in fiscal 2012, it shipped 1.36 billion packages, around 30% more than five years before. But bulk shipping discounts ate into profit, and its average shipping rate dropped 13% over that same period to around 460 yen per parcel.

The shipper tried to negotiate rate hikes with Amazon in 2013, but abandoned its business with the retail site after talks broke down. It began choosing customers carefully to maximize profit over package volume. In fiscal 2016, Sagawa delivered around 1.22 billion packages, 10% below its peak year, but at an 11% higher average per-package rate.

Yamato took on Sagawa's Amazon business and its accompanying difficulties. The larger shipper handled roughly 1.87 billion packages in fiscal 2016, up nearly 30% from fiscal 2012 before its business with the shopping site began in earnest. But its average per-parcel rate dropped 5%.

(Nikkei)

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