By last November, Hirotaka Yokota had finally had enough.

He told Yamato Transport that his drivers would no longer ferry packages. The nation’s largest parcel carrier was working them into the ground, with a surging volume of packages from online retailers such as Amazon.com to homes and businesses. And they could get better-paying work elsewhere, without doing 15-hour shifts.

“More and more subcontractors were having that conversation,” said Yokota, who runs Artpla Ltd., a former delivery subcontractor for Yamato. “Yamato ran out of drivers and was relying on its own employees. And then they couldn’t manage.”

In Yokota’s eyes, what happened next was both surprising and inevitable. In April, Yamato announced that it would raise in October its base rate, which applies to individual customers, for the first time in 27 years. The Tokyo-based company also began negotiations with Amazon Japan and other larger clients.

Yamato didn
Yamato didn’t raise shipping fees for so long because it was engaged in fierce price competition. | BLOOMBERG

“It became difficult to maintain rates,” said Yasuharu Kosuge, a managing executive officer at the main delivery arm of parent Yamato Holdings Co., which handled 47 percent of express deliveries in the year through March 2016, the most recent period for which figures are available.

In some quarters, Yamato’s move was taken as a sign that Abenomics — Prime Minister Shinzo Abe’s plan to jolt the economy out of two decades of deflation — was working. As unemployment fell to 2.8 percent, the lowest since 1994, the tighter labor market was finally feeding through to higher pay.

It was Bank of Japan Gov. Haruhiko Kuroda’s “virtuous cycle” in action; price increases would fuel better wages, which in turn would boost consumer spending.

But there’s another argument — that Yamato’s case highlights an issue that is holding Abenomics back.

From that perspective it could be noted that Yamato didn’t raise shipping fees for so long because it was engaged in fierce price competition, which ruled out any chance of raising rates and, in turn, worked against Japan’s goal of achieving 2 percent inflation.

As a result, the parcel deliverer also overworked and underpaid its staff and contractors, scaring away potential future staff. While Yamato eventually had to give up this approach because of surging e-commerce demand and the labor shortage, that’s not the case in other parts of the economy.

“In the past, this industry battled for market share,” said Hideo Murata, who heads public relations at Japan Post Holdings Co., which holds a 14 percent market share, making it the nation’s third-largest express delivery company. “We took orders without getting an adequate price. The current situation stems from that.”

Yamato’s Kosuge disputes this idea. He said the company didn’t focus so much on market share, and that employees have some of the best working conditions in the logistics sector. He also points to several steps Yamato has taken to address the situation, including announcing in April that it would retroactively pay ¥19 billion to compensate about 47,000 employees for unpaid overtime over the prior two years.

“I don’t feel that we pay low rates,” Kosuge said. “We’re top of class in the delivery industry.”

Yamato’s 60,000 drivers — and its legion of subcontractors — delivered 1.8 billion parcels in the year ended March. Workers in gray-and-white striped shirts and green caps with Yamato’s logo of a black cat carrying a kitten are part of the landscape. Pushing trolleys of parcels around the neighborhood — often jogging, rarely walking — they’re also a symbol of how hard people work in Japan.

Part-time employees of Yamato Transport Co., called
Part-time employees of Yamato Transport Co., called ‘field cast’ by the company, push carts loaded with parcels for distribution near residential buildings in Musashimurayama, Tokyo, on Tuesday. | BLOOMBERG

Yamato and close rivals such as Sagawa Express Co. offer a level of service that’s unmatched in the rest of the world. Deliveries can be arranged to arrive at specific times in two-hour increments. If recipients aren’t home, drivers will leave their mobile phone number and seek to redeliver, because Japanese customers expect to sign for parcels instead of having them left on a doorstep.

That has driven up expectations, with customers taking such perks for granted, according to Yokota of Artpla. “People have come to believe that delivery is free,” he said.

The combination of low pay and grueling work has made it harder to attract workers. The labor shortage may exist at least partly because people don’t see the jobs as attractive, according to Susumu Kato, a transport ministry official. Drivers of smaller trucks make about ¥3.9 million a year, about a fifth lower than the all-industry average, according to the latest government figures. Yet they work an average of 2,580 hours per year, compared with 2,124 hours for all industries. We hope “Yamato’s home-delivery price increase improves working conditions,” transport minister Keiichi Ishii told reporters last month.

A Yamato Transport Co. driver checks his delivery truck before departing a Yamato branch in Musashimurayama, Tokyo, on Tuesday.
A Yamato Transport Co. driver checks his delivery truck before departing a Yamato branch in Musashimurayama, Tokyo, on Tuesday. | BLOOMBERG

Despite underpaying its workers and registering a 20 percent increase in revenue last fiscal year compared with the period ended March 2008, Yamato’s profits had been broadly flat, until they tumbled in the 12 months through last March. Asked if the company had struck a bad deal with Amazon, Kosuge says it was the right decision at the time, but “outside factors have changed a lot since then.”

There’s also room to improve productivity, and pare back or get compensated for extra services. Starting next Monday, Yamato will reduce the number of delivery windows in a day. Parcel companies have also been setting up communal delivery boxes in train stations and universities so people can pick up packages on their way home.

It wouldn’t be illegal to just leave packages outside people’s doors if they’re not in, according to Kato of the transport ministry. But culturally, that’s not going to happen in Japan, he says.

Yamato has been testing a driverless vehicle that would stop outside people’s homes during preset times. Recipients could then walk over to pick up parcels from lockers in the vans by themselves. “I have high hopes for this,” says the ministry’s Kato, who notes a trial service with drivers started operating in Fujisawa, Kanagawa Prefecture, this year.

“We should eliminate wasted time and energy to improve productivity and overcome the problem,” said Yasumi Kudo, vice chairman of the Keidanren business lobby.

Yamato, meanwhile, announced plans to hire 9,200 new full- and part-time workers this year. That’s going well but might be a little delayed, Kosuge says. And bigger customers have been understanding in price negotiations, he says. Yamato is considering introducing a four-day workweek as one option for improving working conditions, according to Kiyotaka Obuchi, a spokesman for the unit responsible for home delivery.

It’s hard to say if the measures will lead to higher profits, said Ryota Himeno, an analyst at Citigroup Inc., who has a neutral rating on Yamato’s stock. Either way, for Japan Post’s Murata, the era of intense price competition is probably over. At the transport ministry, Kato is concerned about whether the current situation is sustainable, and is working — among other things — to ensure logistics companies get paid for all the services they provide.

Sitting in his tiny office in Koiwa, Yokota says fixing the problems in his industry is beyond his pay grade. He’s been experimenting with different job ads to attract staff. But in one positive development, Yamato just got back in touch after he cut ties with the parcel giant months ago.

“They offered the kind of good terms that would have been unimaginable in the past,” he said.

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