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Transport Industry Overview

11, 01. 2004

Current State

Yamato Transport, Nippon Express and Sagawa Express Engaged in Fierce Competition over Door-to-door Parcel Delivery Services

The domestic volume of cargo transported in Japan has been declining since around FY1997. In FY2001, it fell 3.3 percent as compared with the previous year, dropping again in FY2002 by 4.3 percent from the year before. It is thought that there was negative growth in FY2003 as well. As a reflection of such circumstances, the overall land transport industry in Japan has been forced to post sluggish growth.

   The exception, however, is door-to-door parcel delivery services. In it consolidated financial results for the first half of the fiscal year ending March 31, 2005 (six months ending September 30, 2004), Yamato Transport Co., Ltd., which is the industry leader in the number of parcels handled as well as in net sales, posted a year-on-year growth of 6.1 percent in net sales. Net income was also roughly 2.6 times that of the same period the previous year. The favorable financial results were brought about by healthy growth in its core service, with the number of parcels handled increasing by 5 percent from the same period last year. Kuroneko Mail, a delivery service for documents, product catalogues, etc., also increased by a large margin.
   There is fierce competition between three companies over door-to-door parcel delivery services in Japan: Nippon Express Co., Ltd., which boasts top net sales in the physical distribution industry; Sagawa Express Co., Ltd., which is second after Yamato Transport in the door-to-door parcel delivery business, and the aforementioned Yamato Transport. Sagawa Express, in particular, introduced services such as "e-collect," which is a cash-on-delivery service that utilizes a wireless mobile terminal for payment by credit cards or debit cards. Customers who have ordered products can settle charges for the ordered product as well as shipping charges at the time of product delivery. By increasing the number of mail order and telemarketing firms that use this service, Sagawa Express is in hot pursuit of Yamato Transport.

Antagonism between Japan Post and Yamato Transport

   Japan Post (the state-owned operator of postal services and financial services), is trying to break into the aforementioned battle for parcel delivery services that is taking place between three companies. In September 2004, the Japanese Cabinet endorsed a basic policy to privatize Japan Post in April 2007 by creating four separate companies under a holding company. In preparation of its privatization, Japan Post is aiming to expand its operations in a variety of fields. In June 2004, it launched a tie-in with two convenience store chains for the handling of its Yu-Pack parcel delivery services, which competes against Yamato Transport's delivery services. Furthermore, Lawson, Inc., a major convenience store franchise, announced in August 2004 that it would also begin handling Yu-Pack services. Yamato Transport objected to this move by Japan Post saying that it would place a squeeze on private-sector companies. It filed a complaint against Japan Post to the Tokyo District Cour, and it has sparked a debate on the nature of the privatization of the government-backed entity.
   Meanwhile, the number of passengers carried by the railway industry has shown little change if not a downward trend. Looking at major private railways, the number of passengers carried has fallen for 11 consecutive years since FY1992, with the declining birthrate and a growing proportion of elderly people as one of the factors of this downward trend.

Ticket machines of JR Shinjuku Station
Ticket machines of JR Shinjuku Station

Net sales have also been sluggish, and there are many companies that are experiencing low profits. The Japan Railways (JR), in contrast, is doing well in terms of profits. The consolidated financial results for each of the three JR companies in Honshu (the main island of Japan) - namely East Japan Railway Company (JR East), Central Japan Railway Company (JR Tokai) and West Japan Railway Company (JR West) - all showed record current income in FY2003 through a reduction of labor costs and decreased interest rate burdens.

History

In the 1980s, Major Transport Companies All Launched Door-to-door Parcel Delivery Services

   It was in January 1976 that Yamato Transport began services to deliver parcels door-to-door to homes and company offices. Up to then, it had been very inconvenient for individuals to send parcels. The only available methods were to send such items by parcel post or to use a system called "Check" that utilized railways. This meant that people had to go to post offices or train stations to send parcels. The new door-to-door service launched by Yamato Transport was named Takkyubin (literal translation: express home delivery), and use of the service grew rapidly after it started. By FY1983, the number of parcels handled by Yamato Transport exceeded 100 million. Major transport companies all launched similar services in the 1980s, making it a growth sector in a stagnating industry.

   The road that led to the growth of Yamato Transport's Takkyubin service was not an easy one. In order to expand its service area, Yamato Transport filed a license application for new routes with the Ministry of Transport (the current Ministry of Land, Infrastructure and Transport) in the early '80s. However, it was neither turned down nor granted and was left untouched for several years. The company suffered the passive obstruction of the Ministry of Transport. It was not until the 1990s when deregulation became the catchword that barriers to market entry disappeared.
   Meanwhile, the various JR companies arose from the now defunct Japanese National Railways (JNR).

It was in April 1987 that the ailing JNR, which was in a critical state because of massive debts, was split-up and privatized resulting in the birth of six regional railway companies (Hokkaido, East Japan, Tokai, West Japan, Shikoku and Kyushu) and a freight railway company. While the government-owned JNR was debt ridden and passenger fares were raised almost every year, after privatization fares have not been raised much by JR East, JR Tokai and JR West, and they have erased their chronic deficits. Strikes, which were frequent during the JNR age, are now virtually unknown.

Three Key Points towards the Future

Point 1
Can the Transport Industry Defeat Intensifying International Competition?

The Series 500 of Nozomi ,introduced on The Tokaido & Sanyo Shinkansen Line, with a maxium speed of 300 kilometers per hour
The Series 500 of Nozomi ,introduced on The Tokaido & Sanyo Shinkansen Line, with a maxium speed of 300 kilometers per hour
  The globalization of the world's physical distribution market is remarkable. The four majors in the world are said to be the United Parcel Service of America, Inc. (UPS), FedEx Corporation (US), Deutsche Post World Net (DHL) and TPG Post (Netherlands). Each has a fleet of several hundred aircraft as well as bases around the world and has established an efficient distribution network. Both Japan Post and private transport companies in Japan have gotten off to a very late start. In order to survive in the international market, Japan Post plans to reinforce its international division from the fundamentals by establishing its first overseas base in China as well as by looking into alliances with giant companies overseas.

Its role model for globalization is Deutsche Post, which has successively acquired physical distribution companies overseas. Deutsche Post currently operates in well over 200 countries around the world.

Point 2
Can Japanese Companies Succeed in Dealing with Third Party Logistics (3PL)?

   A new kind of distribution service in which comprehensive distribution operations that include the management of transport as well as inventory as subcontracted from a shipper is called third party logistics (3PL). Because businesses that handle 3PL contract distribution operations in a comprehensive manner, they are able to construct efficient systems and provide accurate and swift information to wholesalers and retailers to whom shipment is made. Furthermore, expectations are placed on 3PL as a way to reduce the negative effects on the environment caused by distribution. Nippon Express, the domestic leader in Japan in the distribution industry, concluded an air freight alliance with FedEx of the US in order to fortify its 3PL operations. Furthermore, Nippon Express established a new company through joint ventures with Sumitomo Corporation, Mitsui O.S.K. Lines, Ltd. and others in November 2003 and launched a high-speed marine transport service between Hakata (Kyushu, Japan) and Shanghai. Other companies are starting to enter this business based on the judgment that needs are rapidly expanding.

Point 3
Can the Friction Accompanying the Privatization of Postal Services Be Avoided?

 The road to the privatization of Japan's postal service still remains unclear. Although the basic policy is that Japan Post will be privatized by establishing four separate companies under a holding company in April 2007, there is condition placed on this: that specialists will judge whether system development will be ready in time to do so. There are those within the Liberal Democratic Party who say that even this alone shows that privatization has not yet been officially decided, and there are voices persistently being heard to revise the basic policy. Furthermore, while Japan Post is aiming to enter new fields or to expand current areas, it looks as those these moves will become the cause of friction with the private sector. The private sector's logic is that it is unfair for Japan Post to compete on the same arena as private sector companies while still retaining special privileges, such as favorable treatment in terms of the tax code, as a government enterprise. The dispute with Yamato Transport over the door-to-door parcel delivery business has already been taken to court.

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