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Japan's parcel shippers forced to revise unprofitable strategy

Yamato Transport introducing rate hikes, delivery innovations

TOKYO -- The rise in online shopping has expanded business for Yamato Transport and other Japanese parcel shippers to record levels, but higher labor costs and stiffer competition have stretched those operations thin and nullified profit growth.

Yamato Transport, which holds the leading market share in domestic home deliveries, handled 1.71 billion packages between April 2016 and February of this year, an 8% jump from a year earlier. Annual package volume is on track to an all-time high in the current fiscal year ending March 31.

"For the past six months, we have sensed considerable risks in the sustainability of our operations," Yutaka Nagao, president of Yamato Transport, told The Nikkei.

In December, for example, Yamato Transport picked up business from rivals forced to delay deliveries. "That was a very challenging period," said Nagao.

In addition, a worker shortage has become critical. Yamato Transport employs roughly 10,000 female part-timers to handle pick-ups and deliveries. Last October, the government expanded the class of wage earners required to pay into the social insurance system. The mandate now applies to workers who earn at least 1.06 million yen ($9,300) annually and meet other requirements.

Housewives and similarly situated workers looking to maintain their exemptions shortened their work hours, which exacerbated the labor shortage. Yamato Transport now finds itself regularly subcontracting excess packages to small and midsize logistics firms, an arrangement that used to be confined to the end of the year and other peak periods.

Earnings under pressure

Earnings at parent Yamato Holdings will likely erode even further for the current financial year. The group is booking an 8% increase in outside contracting expenses for the period. Although package volume is slated to hit an all-time peak, the increase actually translates to weaker profitability due to slim unit prices paid by internet retailers. The delivery segment will post a 7 billion yen operating loss for the January-March quarter.

Amazon Japan and other large-lot clients are seen paying no more than half the normal shipping rate. At Yamato Transport, accounts with more than a few clients are not profitable despite high parcel volumes.

Feeling the strain, Yamato Transport is taking the rare step of raising basic shipping rates. "We need to proceed with a pricing strategy that is appropriate for the current situation," said Nagao. That sentiment is shared across the entire Japanese home delivery industry.

Too many no-shows

Rival shippers have been scrambling for customers by offering enticing options. As a result, delivery workers are putting in longer days that last from morning to well into the evening, working through their lunch breaks.

Compounding the problem is the rise in redeliveries, which now account for 20% of all shipments. There are times when two out of three deliveries end up at addresses where no one is available to accept them, according to some workers. Such increasingly frustrating conditions have made it more difficult for these companies to secure new personnel.

Yamato Transport is asking Amazon Japan and other internet retailers to improve their methods of sending out products. It has requested that those clients bundle orders into single shipments. The company also seeks to work with online sellers on ways to reduce redelivery based on rate of occurrence at each client.

A number of the digital outlets have no mechanism for consumers to specify delivery times, which has contributed to the jump in redeliveries. "If we are unable to receive cooperation, we will be forced to reflect that in the pricing system," Nagao declared, hinting at the possible introduction of redelivery fees.

Yamato Transport is seeking to abolish the noon-to-2-p.m. delivery slot for customers and modify the 9 p.m. end time for shipping packages.

Dealing with a crisis

Yamato Transport is moving to maintain and expand customer amenities using tools such as information technology. One of those innovations is the rollout of delivery lockers.

The company had planned to install 5,000 lockers by 2022, but is now pushing that goal forward. Over the next year, Yamato Transport's 4,000 offices will house the lockers, which will also be concentrated at train stations in the Tokyo area.

The logistics company is also looking at delivering packages after the receiver confirms availability through the Line chat smartphone app.

If the company and competitors are able to collaborate on lockers and IT solutions, "the framework will serve as a method to expand package intake volume," said Nagao.

However, many obstacles stand in the way. Yamato Transport, Sagawa Express and Japan Post together control 90% of Japan's home delivery market. The triumvirate would undermine each other if they were to compete in areas where they could partner. However, they only see eye-to-eye in some cases.

Meanwhile, the online marketplace only accounts for about 5% of Japan's retail market, a level practically guaranteeing additional growth in internet shopping. Japan's labor force also continues to shrink, leaving the logistics industry prone to worsening earnings. Japanese home deliverers are only beginning to address the crisis.


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