4 Billion Parcels and Labor Shortage Shed Light on the Dark Side of the Most Convenient Economy in the World

Japan may now be the world's third largest economy in the world, but it is undoubtedly the most convenient economy in the world. We have mobile phones that act as wallet, train pass, and TV. Shopping and dining could mean spending some extra time inside the train station where we have access to UNIQLO, Starbucks, and a wide assortment of restaurants. Convenience stores enable us to rush out at 1 am to buy underwear if we realize we are out of fresh ones and it is not a great hour to start doing laundry. We even have toilet seats that stay warm and shower our bums. And same day or next day delivery of our online shopping items is not a premium service we pay extra for - it is the cost of doing business in Japan thanks to amazon, Askul, and anyone else whose online stores have loyal clientele.

Thanks to such convenience, Japan's small parcels delivery is showing no signs of decline as the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) announced on 27 July, 2017.

MLIT statistics indicate that small parcels traffic in Japan grew 7.3% year-on-year to 4.02 billion parcels, exceeding 4 billion for the firs time in history. 

Broken down, ground transport items were 3.98 billion pieces and air transport items were 40.8 million pieces. The steep growth and high volumes of ground transport parcels is attributed to the growing popularity of online shopping.

The Big 3 - Yamato, Sagawa, and Japan Post (Yu Pack), amount to a total of 93.4%. Add two more larger players and their share total is 99.8%. This is not a highly diversified industry and Yamato, if anyone, should be benefiting most from economy of scale.

Yamato's Pain and Punishments 

4.08 billion parcels is not all good news for the delivery companies. 

On 23 June, Yamato Holdings Co., Ltd., the parent company of Yamato Transport Co., Ltd. who offers the Ta-Q-Bin service, held its annual general shareholders' meeting. 

It is reported that at the opening, Masaki Yamauchi, CEO of Yamato Transport Co., Ltd. led his fellow management team to bow for 5 seconds in an apology for the significant loss Yamato reported as a result of having to pay two years of compensation for unpaid overtime owed to its employees. 

Yamato Holdings posted provisions for unpaid wages of 23.0 billion yen, bringing down the consolidated net profit by 54% over the previous period to 18.0 billion yen. Yamato anticipates its performance to continue to suffer from this ordeal with a 6% decline in net profit in fiscal 2017 to 17.0 billion yen. They plan to install a new system to more accurately manage actual working hours.

The Yamato saga began in November 2016 when a man in his 30s who claimed to be a sales driver for Yamato in one of its Yokohama operations centers held a press conference at the Ministry of Health, Labor, and Welfare to publicly accuse Yamato of forcing him and his colleagues to work illegally long hours and then denying them compensation for it. The said man had left Yamato prior to the press conference in autumn of 2016, and had been explaining the illegal working conditions to his local Labor Standards Inspection Office. 

Following the press conference, Yamato's own labour union began to request changes to their long working hours and compensation for unpaid overtime, towards the end of 2016 and the beginning of 2017. 

Yamato's Strategy and PR office says, "since the summer of 2016, we have seen demand for our Ta-Q-Bin services grow exponentially. Then, the end of the year gift giving season put further pressure on our operations as the growth did not slow at all. The Labour Union began to collect requests from its members that the Union must demand management to remedy the long working hours and to pay for the unrecognized overtime work. This led to both the Union and management to work together to uncover the facts."

Yamato launched an internal investigation from around February this year to collect facts and data. This led to understanding the full extent of their problem and Yamato worked to remedy its ailment. On 28 April, Yamato Holdings announced such punitive measures for Yamauchi and his management team as a 30% cut in pay for several months for causing its employees to work such long hours, and that the company will pay for unpaid overtime up to 23.0 billion yen. 

But Yamato is just a tip of the iceberg. Yamato's Strategy and PR office explains that "the logistics industry in general is now suffering from a structural shortage of labor. The effective job to applicant ratio in fiscal 2016 was said to be 1.22 jobs for every applicant, but when it comes to driving jobs, it was 2.33, which is double the average ratio. To drive trucks, one must have a driver's license but less and less youths are opting to get licenses these days, much less for larger vehicles like trucks. As a result, it is becoming extremely difficult for us to secure the manpower we need."

In the announcement of 13 April, whereby Yamato announced its vision in revising its working environment and the way its employees work, Yamato also announced that it will commence negotiations with its large customers like amazon, to increase the steeply discounted delivery fees.

And the problems are not just Yamato's alone. Japan Post, whose Yu Pack small parcels service only began to be included in MLIT's stats from October 2016 is also seeing similar challenges. It even won a Special Judges Award for 2016 on the Most Evil Corporation of the Year Award alongside Dentsu, who won the Grand Prize as one of its employees committed suicide from being overworked.  

Network Saturation Is a Reality in Japan

When I attend conferences in Shanghai, Singapore, or Hong Kong that covers first and last mile services for e-commerce deliveries, and I ask the question about network saturation, everyone looks at me like I am crazy to put a damper on the sky high business potential presented to delivery business by e-commerce growth. Non-Japanese operators seem to not even fathom that their infrastructure could quickly become overwhelmed by the growth that is happening.

The only other "organism" that I can think of, that grows so fast that it kills the very infrastructure that nurtures it is cancer. When I had cancer, it was explained to me that the cancer cells are not themselves poisonous or dangerous in that they directly cause pain or malfunctions. What makes them malicious is their ability to grow so fast that it overtakes the other "healthy" cells and inhibits their functions. I was also told that in a place like the skull, where space is limited, once the cancer grows enough to put pressure on the brain, that is when various symptoms happen. 

As unpleasant as it is, this explains what is happening to the delivery industry in Japan right now. We have only so much capacity to deliver. We can even imagine the delivery network like blood vessels. And in a healthy person, the amount of blood that flows in our veins is probably maintained at a healthy level. But if our system for some reason, began to produce so much blood than can be held in the veins, I would imagine that some of the liquid would have to seep through the vessels into other body tissue. And if blood continued to increase...??? This is scarier than a Stephen King movie.

But that is where we are at.

Yamato is hoping that by raising prices, it can control the amount of parcels coming into its system. But what we are seeing is that amazon, who is estimated to ship 300 million parcels (by the Nikkei) a year, has changed suppliers, and now I see a different face at my door and he seems just as exhausted as the Yamato guy and the Sagawa guy who also come to my door, but less often. 

Has knowing this led me to shop less on amazon and Rakuten and more in real stores? Not really. 

Am I being charged delivery fees more than before? I think so. But I feel my tolerance for accepting delivery fees is increasing, too, because I am still as time poor as before and e-commerce is becoming even more convenient. And I do find that if the shipping cost doubles my purchase price, then I decide to live without the items.

So, we have yet to see where this leads. 
And whether consumer behavior will change or will the share of wallet just change. 

Labor Shortage Results in Bankruptcy for Taxi Company

Another industry that competes for drivers with delivery companies is the taxi industry. Japan's taxi market is very heavily regulated and even domestic businesses like Kyoto's MK Taxi, whose policy is to keep their prices lower than their competition has faced legal challenges to hike prices in line with everyone else. While Tokyo is estimated to be the world's largest taxi market at $17 billion USD, share riding like Uber is not allowed to operate in the key metropolitan areas. 

Near Tokyo, Naganuma Kotsu, a taxi company based in Inage city of Chiba Prefecture (which is where Narita International Airport and Disney Land are actually based) was announced bankrupt in December 2016 by the Chiba Regional Court. Its inability to hire enough drivers forced their operations to shrink to the point where the company became unsustainable. 

In April, Kyoto trucking company, Minobe Unso went bankrupt. The company cites price pressure from its clients and the lack of drivers as its two main woes. 

Other industries that are struggling to secure workers is construction, food & beverages, and convenience stores.