Parcel Overload: Japan’s Delivery Crisis and How to Tackle ItEconomy
Delivery Giant Yamato Pushed to Its Limits
Japan’s delivery services have achieved growth by offering customers a thorough range of options including choice of delivery time and free redelivery. However, customer-oriented business may be reaching its limit. In February, the labor union at Yamato Transport—the industry’s market leader, with a 50% share—used this year’s shuntō (spring offensive) negotiations to urge company management to reduce the volume of packages it accepted. Yamato decided to remove the 12:00–2:00 lunchtime option for package delivery. In April, it also announced its first hike in basic transportation charges in 27 years.
The changes are thought to have been prompted by a projected fall in profits at Yamato for fiscal 2016. Despite fears of criticism from mail-order companies and other major clients, as well as ordinary consumers, they appear to have generally been accepted. Japan’s second largest delivery firm, Sagawa Express, is set to follow suit in raising prices for its major customers.
Reasons for the Delivery Crisis
Yamato is approaching the point where it cannot handle any more volume. In fiscal 2016, it delivered 1.87 billion parcels, up 7.9% from 2015, setting a second successive annual record. Employee shortages have made long working hours standard for its drivers, who even struggle to take a lunch break. This is an issue that affects many delivery companies.
Multiple factors have paved the way for today’s delivery industry crisis. The first is constantly rising demand. Booming online shopping has brought annual double-digit growth in the number of e-commerce parcels handled. In 2013, Sagawa decided to no longer deliver packages for Amazon Japan, meaning Yamato has had to manage an even larger share of the mail-order volume.
Second, Japan’s service industries are too eager to please customers. One problem for delivery companies is that no one is home to accept the package in fully a fifth of all deliveries, thus requiring redelivery at a later time. This is currently free of charge for customers, but somebody has to foot the bill.
A related issue is the lack of clarity over who pays for distribution. It is reasonable to expect these costs to be incorporated in some form into the price of goods. Yet, it remains ambiguous who actually pays for “free delivery,” as offered by Amazon and other retailers.
Finally, distribution costs are very low by international standards. According to figures from the Japan Institute of Logistics Systems, they amount to just 5% of total sales for the manufacturing, wholesale, and retailing industries in Japan, compared with 9% in the United States. This cannot be explained simply by a difference in land area. Japan must import all of it fossil fuels, making vehicle fuel prices considerably higher than in the United States. Meanwhile, delivery workers receive lower average wages than those in other industries. Japanese truck drivers are also poorly rewarded compared with their counterparts in other countries, despite their considerable efforts.
Reducing the Burden
Looking overseas provides some pointers for efficient distribution. For example, the US firm United Parcel Service charges an additional fee for redelivery. In China, both parents work in most households, so it is usual to deliver mail-order goods to workplaces. Yamato, Sagawa, and Nippon Express have all adapted to these local conditions in their Chinese operations. In suburban São Paulo, Brazil, supermarkets offer individual post boxes for customers, allowing more efficient delivery to single locations.
It is also worth investigating customer views in Japan. A fiscal 2015 survey by the Consumer Affairs Agency found that 60.8% of those surveyed would not choose to receive their parcels as soon as possible if it incurred an additional charge. Just 5.4% answered that they would pay an extra fee if it ensured the fastest possible service. Getting consumers to appreciate the costs involved would make it possible to reduce unnecessary redelivery, decreasing the burden on society as a whole. Introducing additional charges for redelivery is one way to tackle this problem.
Another approach is to expand the introduction of shared delivery boxes with digital locks. These boxes, which allow recipients to collect parcels at their convenience with an unlock code sent by the delivery firm, are becoming more common in urban apartment blocks.
While convenience stores are filling a gap to some extent by letting users send and receive packages at their counters, their role in handling parcels is not expanding as much as had been hoped. One reason for this is that it is hard to create the needed logistics infrastructure, including truck parking and parcel distribution space, on the lot of a convenience store that may only cover 100 square meters of land. At the same time, rather than reducing the load for delivery companies, stores are increasingly contracting them to distribute bentō lunches and other food products, tipping the balance toward still more exertion for the industry.
One realistic solution is to implement a shared system for the “last mile” of delivery, whereby one company takes responsibility for delivering all parcels in a particular area when they reach the final leg of their journey. It is certainly the time to rethink logistics policy. Company managers should take the plunge in making their convenient offerings into paid services and trimming those aspects that are unnecessary.
Service Industry Initiatives to Learn From
There is a deep-rooted belief in Japan that when consumers purchase a product, they can expect any associated services to be free. This is one reason why the Japanese service industry is less productive than its US equivalent.
Yet even in Japan, some service companies are finding the right formula to boost productivity. QB House and similar barber chains have won customers by offering simple, quick haircuts at ¥1,000 for 10 minutes. In terms of cost per time, this is actually more expensive than ordinary establishments. Given enough customer turnover, they can presumably pay their workers a decent wage.
Business hotels are known for having the highest customer satisfaction in Japan’s service industry. Chains such as Super Hotel and Richmond Hotels keep prices down by minimizing furnishing in rooms, but offer services like allowing customers to choose their own pillows and preparing healthy, tasty breakfasts. By doing so, they achieve higher customer satisfaction levels than many higher-priced urban hotels.
This is what happens when companies revamp their services to meet consumer needs. The delivery crisis is sparking a forward-looking discussion in Japan on whether the time has come to curtail excessive service. I would like to see the distribution industry making the same kinds of changes as business hotels. Rather than relying on private initiatives alone, the government should also contribute to building logistics infrastructure.(Originally published in Japanese on May 15, 2017. Banner photo: Yamato Transport workers at a distribution center in Ginza, Tokyo. © Rodrigo Reyes Marin/Aflo.)