TOKYO -- Yamato Transport became Japan's biggest home deliverer by sticking to the maxim "service first, profits later," but that approach is being challenged by the twin pressures of the online shopping boom and the crippling labor shortage.
"It has become extremely difficult to address the accelerated market expansion and maintain sustainable operational growth," President Yutaka Nagao told reporters Friday. The Yamato Holdings unit's hikes in shipping rates are slated to go into effect in September. Apart from adjustments matching rising consumption taxes, the company has not raised those fees since 1990.
Yamato is also working to reduce redeliveries, seen as the biggest problem facing the home delivery industry. If customers choose to have packages delivered to depots instead of their residences, they will get a 50-yen discount from base shipping fees.
The raises in shipping charges average 15%, larger than the 8% jump 27 years ago. "We've taken into account how the tight labor supply balance has become more acute," said Nagao, indicating that he expects the business environment to deteriorate further.
Yamato Holdings sees group net profit falling 6% to 17 billion yen ($152 million) for the current fiscal year ending March 2018. Operating profit is likely to take a 14% hit to 30 billion yen.
The company has earmarked 9 billion yen for changing workplace practices. Those include introducing an entrance and exit control system and installing delivery boxes. "The impact on earnings is great, but for future considerations these expenses are unavoidable," said Yamato Holdings President Masaki Yamauchi.
The hikes in basic shipping rates will boost average unit price nearly 6% to roughly 590 yen, but that would not be enough to offset the extra costs being taken on by the company. These higher rates will affect about 10% of the client base, mainly ordinary consumers.
The biggest factor in Yamato's earnings and the domestic home delivery industry in general is going to be contract negotiations with internet retailers and other large-volume clients who qualify for discounts.
"There are customers for whom we need to request large rate increases," said Nagao. Some of these clients enjoy rate levels that are less than half of basic shipping fees. Those that fail to compromise on curbing package volume or accepting higher rates may have their contracts canceled.
Yamato is also developing a system that will determine profitable shipping rates for each large-lot client based on the number of parcels and the frequencies of package sizes and delivery destinations.
Although the rate hikes come as a shock to customers both big and small, many have been accommodating. "When I see how busy the delivery people are, the price hikes are unavoidable," said a homemaker in Kanagawa Prefecture.
"We understand [Yamato's] situation and we are discussing the matter," said Yusaku Maezawa, president of Start Today, which runs online apparel retailer Zozotown. But several package consigners remain vigilant for significant increases in shipping costs, which could lead them to reconsider free deliveries and other services.