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Despite Monday’s Upper House rejection of the bills to privatize Japan Post, the organization is expected to step up its door-to-door parcel delivery business, analysts and industry insiders say.

“For its survival, it has to expand businesses other than standard mail and postcard delivery,” said Osuke Itazaki, transport analyst at Credit Suisse First Boston Securities (Japan). “For that reason, it eventually has to aggressively pursue parcel delivery and other logistics businesses.”

Japan Post’s standard mail and postcard service has been on a decline as more people communicate via e-mail and other electronic means.

Standard mail and postcards handled by Japan Post dropped from 26.7 billion items in fiscal 2001 to 25 billion in fiscal 2004. The fiscal 2004 figure shows a 2.3 percent decline from the previous year.

The parcel delivery market has meanwhile more than doubled in the past decade, according to industry experts.

Realizing market needs are shifting, the government-run entity has recently begun an aggressive effort to enter the parcel delivery arena, which is currently dominated by market pioneers Yamato Transport Co. and Sagawa Express Co.

Last year, Japan Post cut its delivery fees, expanded overnight delivery areas and launched new services, including transporting ski equipment and golf clubs for holidaymakers.

Japan Post now charges 600 yen to deliver its smallest parcel within Tokyo, compared with 740 yen by rival Yamato.

Thanks to price cuts and other marketing efforts, Japan Post said its parcel deliveries jumped 18 percent year-on-year to a record 214.68 million units in fiscal 2004.

Asked about the impact of the growing presence of Japan Post in this sector, Yamato officials declined comment, but it certainly appears to have put the company on the defensive.

In a statement last fall, Yamato expressed irritation, asking, “Why does a public company have to copy and provide services already offered by private-sector firms?”

Japan Post’s move last summer to let Lawson Inc.’s 7,900 convenience stores handle its parcel services prompted Yamato to file a lawsuit, claiming the public entity is engaged in illegal dumping. The suit is ongoing.

But analysts say Japan Post’s impact on Yamato and Sagawa will be limited. Instead, smaller fish in the sector, including Tokyo-based Nippon Express Co. and Fukuyama Transporting Co. based in Hiroshima, will probably be hurt, they say.

Strong market demand has continued to boost the parcel delivery business by Yamato and Sagawa, with Yamato delivering 1.063 billion parcels and Sagawa 943.23 million in fiscal 2004.

“These two companies have a reputation for high service quality, so they can avoid engaging in a severe price war,” Itazaki said. “But smaller operators do not have much to differentiate themselves and thus have no choice but to go head on against Japan Post in the low price race.”

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