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Country report Japan 1049

Brief country report: Japan

1.1 Summary

The 2005 privatisation package has resulted in a separation of Japan Post in four divisions. Privatisation will take place in a transition period which commenced in 2007 and will end in 2017. Postal services in Japan are de jure fully open to competition, but strict conditions for obtaining a license result in a de facto monopoly in the addressed mail market for Japan Post.

1.2 General information

The decision of the Japanese government to privatise the postal market has been a controversial political issue, judging from the fact that then Prime Minister Junichiro Koizumi dissolved parliament and called new elections after a failed legislation package involving postal services liberalisation (Faiola, 2005). In contrast to developments in Europe, the driving force behind Japanese postal reform is not enhancing competition in postal delivery, but unlocking the financial assets of the postal system (Porges and Leong, 2005). Japan Post, the sole provider of universal service in Japan, was seen as a huge financial and distribution conglomerate. Being the worlds largest bank, with twice the asset size of the two next largest banking groups in the world (Mizuho Financial and Citigroup), the Japanese government was aiming to mobilise these assets in order to remove distortions in competition in the banking and insurance sectors. Benefits of postal competition were only an afterthought.

Table 0.1 General country information (2007)

Japan

Population (in million) 128.0*

Size of the country (1,000 km2) 377.9*

Population density (inhabitants/km2) 338.6*

Degree of urbanisation 65.8**

Number (and percentage) of inhabitants 5 largest cities 18.7 million (15%)***

Sources: * UPU (2006), ** UN (2005), *** World Gazetteer (2008 estimation).

1.3 Regulatory developments

The Japanese postal market reform’s process consisted of two stages. In the first stage, Koizumi, Prime Minister of Japan between 2001 and 2007, instituted a commission to study the future of the postal businesses and succeeded in 2002 to enact a package of four


bills that established Japan Post as a public corporation staffed by civil servants and supervised by the Ministry of Internal Affairs and Communication (MIC). The 2002 Correspondence Delivery Law allowed limited competition for some types of mail by introducing the ‘special correspondence license’ and the ‘general correspondence license’ as exceptions to the reserved area. (Porges and Leong, 2005). The second stage involved the privatisation of Japan Post by splitting its activities in four new operating companies: • Japan Post Network Company will handle network or branch services and will

operate the old network of Post Offices; • Japan Post Service Company will manage delivery and be a partner in international

joint ventures with firms that include ANA1; • Japan Post Bank Company will become a wholly separate publicly held bank; and • Japan Post Insurance Company will, like Japan Post’s bank, become a stand-alone,

publicly held insurance company. These four companies operate under the holding company Japan Post Holdings Company. The privatisation process takes place in three stages: • A “Preparation Period” which took place just before October 2007. On October 1,

2007, Japan Post has been split up into four different companies under a holding company;

• “Transition Period” from October 2007 until March 31, 2017. During this period, the Japanese government will reduce its stake in the holding company with holding at least one-third as soon as possible. Further reduction of the government’s share is also possible. Moreover, the Postal Savings Bank Corporation and the Postal Life Insurance Corporation will be fully privatised and the government stake in them will be reduced to zero;

• Full privatisation after April 1, 2017. The Holdings Company will continue to own 100% of the shares of both the Postal Service Co. and the Post Network Office Corporation (Cohen, 2006).

1 All Nippon Airways.


Table 0.2 Postal law and regulation

Postal law and regulation Date of

introduction

Date of latest

amendment

Remarks

Postal Law 1947 2005

Japan Post Law 2002 Establishes Japan Post as a public

corporation staffed by civil

servants and supervised by the

Ministry of Internal Affairs and

Communication (MIC).

Correspondence Delivery Law 2002 Creates an exception to the

reserved area by allowing MIC to

grant a license to a private

operator.

Privatisation Package:

• Postal Privatisation Law;

• Japan Post Holdings Co.,Ltd.

Law;

• Japan Post Service Co., Ltd.

Law;

• Japan Post Network Co., Ltd.

Law;

• Law on the Independent

Administrative Agencies to

Manage Postal Savings and Life

Insurance;

• Adjustments Law.

October 2005

Japan Post Network Act 21-10-2005

Antimonopoly Act 1947 2005 General competition law

document, administered by the

JFTC

Sources: Porges and Leong (2005), Campbell and Porges (2007), Cohen (2006, JFTC (2006).

1.3.1 Universal Service Obligation

The new legislation provides for a Universal Service Obligation (USO) for postal service providers. The USO is, however, very broadly defined as the postal operator's obligation to “promote[s] public welfare by provision of postal services at the lowest possible charges, on a nationwide scale and in a manner fair to all” (Campbell and Porges, 2007). Moreover, it requires the operator to provide a ubiquitous six-day delivery at a uniform rate for letters and postcards2, and to deliver to each addressee throughout Japan. (Porges and Leong, 2005).

2 The Japanese postal business is roughly composed of three types of services: (1) letter post, i.e. first-class mail (sealed

letters, regular size and irregular size), second-class (postcards), third-class of periodical publications (newspapers, publications issued by the organisations for the handicapped) and a fourth-class of publications (correspondence study mails, magazines in raised letters, etc., and special handling of registered delivery and express), (2) Parcel post and (3) International mail (JFTC, 2006, 5).


The universal service includes postal services that are considered to be “social contribution business”, i.e. third-class and fourth-class mail that comprise of periodical publications issued by organisations for the handicapped and mail that has raised letters and recordings for the blind. If losses in these services can not be compensated for by the overall profits in the postal business, e.g. first-class and second-class mail, these services can be funded by means of a social contribution fund (JFTC, 2006).

1.3.2 Reserved area

Since implementation of the 2002 Correspondence Delivery Law, private providers are, in theory, able to apply for a ‘general correspondence delivery’ license, which allows ‘complete participation nationwide’, i.e. all types of ‘correspondence’. 3 Consequently, the Japanese postal market has no reserved area since 2002. Moreover, parcel and non-correspondence mail (e.g., direct mails, books, catalogues, and magazines) were already opened to competition prior to 2002.

Table 0.3 Liberalisation of postal services and the reserved area (2008)

Postal product Within reserved area

(Yes, no, partially or unclear)

Remarks

Bulk mail and consolidation No

B2B non-bulk mail No

Individual item mail No

Cross border mail No

Unaddressed mail No

Parcel mail No

Express mail No

Source: ECORYS desk research.

Currently, the Japanese postal market liberalisation process is still in its “Transition Period” until 2017. During this period, the Japanese government will reduce its stake in the holding company to 33 percent as soon as possible and will sell all of its interests in the Postal Savings Bank Co. and the Postal Life Insurance Co. Besides the next steps envisaged in the 2005 privatisation package, there is also some discussion on other competition-enhancing measures. In these discussions, developments in the European Union are often mentioned as possible examples for future reform.4 Moreover, the Japanese Fair Trade Commission makes several recommendations for future reform, including opening Japan Post’s postal network and lowering the level of entry conditions for obtaining a ‘general correspondence delivery’ license (JFTC, 2006). The USO debate, on the other hand, has focused on whether postal network offices must offer savings and insurance services in addition to classic postal services. (Porges and Leong, 2005)

3 http://www.soumu.go.jp/english/yuseijigyo/index.html. 4 See for example Cohen (2006) and JFTC (2006).


1.3.3 NRA

The following governmental bodies are relevant to competition in the Japanese postal market. • The Postal Privatization Commission gives Japan Post an opportunity to present its

views if it wants to enter a new line of business. Then, it sends a recommendation to the MIC. Finally, the Postal Privatization Commission supervises process of postal market privatisation. As of March 2017, this body will cease to exist;

• The Ministry of Internal Affairs and Communications (MIC) decides whether to approve an application from Japan Post to enter a new line of business.5 The MIC is the regulatory body regarding ‘correspondence’. Consequently, the MIC has no jurisdiction on the parcel market. For “letter post”, however, the MIC sets the rates which Universal Service Providers need to charge. Because of its wide range of competences, Campbell and Porges (2007) argue that MIC is actually more in the role of top management of Japan Post than in the role as a regulator;6

• The Headquarters for Promotion of Privatization advances measures regarding the transition of Japan Post from a public company to distinct private companies. As of March 2017, this body will cease to exist;

• The Committee for Privatization supervises jointly with the Headquarters for Promotion of Privatization the privatisation process. As of March 2017, this body will cease to exist;

• Japan Fair Trade Commission (JFTC) is the Japanese competition authority and administers the Antimonopoly Act. Although it has made some recommendations on future reform in the postal market7, its regulatory authority remains limited to general competition law (Campbell and Porges, 2007);

• The Ministry of Land, Infrastructure and Transport (MLIT) is the regulator on the parcel market.

Table 0.4 Regulatory powers NRA

Powers Yes/No/Unclear Remarks

Require data from USP Unclear PPC has the authority to obtain

accounts and information from the

ex-postal companies (Porges and

Leong, 2005).

Require accounting system Unclear JFTC (2006), ACCJ (2007b) and

EC (2004) recommend a separate

accounting in competitive and non-

competitive activities.

Require new data studies Unclear

Cancel unlawful rates Unclear

Levy Fines Yes Fines are levied when engaged in

‘correspondence’ without meeting

5 This approval needs a second approval by the Headquarters for Promotion of Privatization, which includes the Prime

Minister. 6 In their presentation, Campbell and Porges (2007) refer to the fact that MIC controls for Japan Post the 25-gram letter rate,

the articles that are to be incorporated, its annual business plan, its postal regulations, its management guidelines, its subcontracts, the disposition of its assets and its entry into new business.

7 JFTC (2006).


Powers Yes/No/Unclear Remarks

the conditions.

Seek judicial order Unclear

Set new rates for USP Yes MIC sets rates for licensees of a

‘general correspondence delivery

license’

Require downstream access No

Require data from non-USPs Unclear

Sources: Porges and Leong (2005), Cohen (2006), JFTC (2006), EC(2004) and ACCJ (2007b).

1.3.4 Licenses

The 2002 Correspondence Delivery Law initiated the first steps in allowing competition in the correspondence mail market by introducing exceptions to the reserved area. This law states that private operators are allowed if MIC grants a license for either ‘special correspondence delivery’ or ‘general correspondence delivery’. ‘Special correspondence delivery’ is defined as a service to deliver correspondence items: • within three hours; • at a rate exceeding the amount specified by the MPHPT8 ordinance, which is not less

than 1,000 yen; and • with the length, width, and thickness adding up to 90 cm or more or which weighs

over 4 kg.9 A licensee needs to show that it is able to carry out this business and that its business plan is appropriate and is adapted to protecting the confidentiality of correspondence. As of February 28, 2006, 160 operators have entered ‘special correspondence delivery’. (JFTC, 2006) ‘General correspondence delivery’, on the other hand, is defined as a business for ‘complete participation nationwide’ that allows delivery of all types of ‘correspondence’, and includes the service to deliver correspondence items: • within the length, width, and thickness of 40 cm, 30 cm, and 3 cm respectively and

which weighs 250 g or less; and • within three days from the date on which the correspondence was posted in Japan.10 However, an operator of ‘general correspondence delivery’ must meet several requirements. That is, a licensee for ‘general correspondence delivery’ must: • deliver throughout Japan at least six days per week; • set up approximately 100,000 of its own collection boxes (distinct from Japan Post’s

boxes); • meet the service standards set by MIC; and • charge MIC-regulated uniform rates.

8 Ministry of Public Management, Home Affairs, Posts and Telecommunications, the former name of the Ministry of Internal

Affairs and Communications (MIC). 9 http://www.soumu.go.jp/english/yuseijigyo/index.html. 10 http://www.soumu.go.jp/english/yuseijigyo/index.html.


Table 0.5 Entry regulations

Instrument Services allowed under

the license

Conditions for obtaining

the licence

Number of licences

approved (2006)

General correspondence

delivery

All types of

‘correspondence’: service

to deliver correspondence

items:

• within the length,

width, and thickness

of 40 cm, 30 cm, and

3 cm respectively

and which weighs

250 g or less, and

• within three days

from the date on

which the

correspondence was

posted in Japan.

A licensee must:

• deliver throughout

Japan at least six

days per week;

• set up approximately

100,000 of its own

collection boxes

(distinct from Japan

Post’s boxes);

• meet the service

standards set by

MIC, and

• charge MIC-

regulated uniform

rates.

011

Special correspondence

delivery

Service to deliver

correspondence items:

• within three hours;

• at a rate exceeding

the amount specified

by the MPHPT12

ordinance, which is

not less than 1,000

yen, and

• with the length,

width, and thickness

adding up to 90 cm

or more or which

weighs over 4 kg.

A licensee needs to show

that it is able to carry out

this business and that its

business plan is

appropriate and is

adapted to protecting the

confidentiality of

correspondence.

16013

Sources: http://www.soumu.go.jp/english/yuseijigyo/index.html, Cohen (2006), Porges and Leong (2005).

However, upon passage of the Correspondence Delivery Law, the firm seen as most likely to obtain a ‘general correspondence delivery’, Yamato, stated that these conditions were impossible to meet.14 (Porges and Leong, 2005) Moreover, Sagawa Express estimated that, in order to build a network with over 100,000 mailboxes to comply with the rules for obtaining a “general correspondence delivery” license, would cost 11.1 billion yen and require annual maintenance spending of 1.1 billion yen.15 Consequently,

11 Japan Post does not have a license. According to Japan Post, “Japan Post’s position as a universal service provider (USP)

and general correspondence operators’ [are to] be clearly distinguished in that only the latter have the option to exit from the mail delivery business with the permission of the MIC” (ECORYS Questionnaire – Japan Post).

12 Ministry of Public Management, Home Affairs, Posts and Telecommunications, the former name of the Ministry of Internal Affairs and Communications (MIC).

13 As of February 28, 2006 (JFTC, 2006). 14 Yamato Annual Report 2002. 15 Nihon Keizai Shimbun. 2006. “Private Firms Urge Japan Post, NTT To Open Up Their Monopolies.” February 2.


one can say that the 2002 privatisation package realised a postal market that was de jure open to competition, but de facto still a monopoly for (correspondence) letters under ¥1000. (Campbell and Porges, 2007) On July 2, 2008, a study group of the MIC published a final proposal for designing future postal regulations. Regarding the conditions for a general correspondence delivery license, it was proposed that service standards and requirements should not be imposed on new entrants from medium- and long-term perspectives, while preserving universal service by means of new policies such as a universal service fund and/or government subsidies.16

1.3.5 Access

Besides obtaining a ‘general correspondence delivery’ license, there is currently no other possibility for acquiring access in the universal service area. As mentioned before, the Correspondence Delivery Law stipulates very strict requirements for entry into ‘general correspondence delivery’ business. Hence, entry into these services is very difficult. In its 2006 review of the privatisation of the Japanese postal market, the JFTC recommends, in order to promote competition in the general correspondence delivery business, to “eliminate the requirement to provide universally fair service, approve the new entry in the area that is economically feasible, and promote the new entry first in the area of face-to-face acceptance of correspondence for business use” (JFTC, 2006, 24).

Table 0.6 Network access

Upstream/downstream Form of access Regulated?

(Yes, No, Unclear)

Upstream Access to street letter boxes No

Access to outward sorting centres No

Downstream Access to inward sorting centres No

Access to delivery offices No

Access to P.O. Boxes No

Source: ECORYS desk research.

1.3.6 Price regulation

By definition, licensees of ‘special correspondence delivery’ provide items that are priced above 1,000 yen. Besides this restriction, pricing decisions are left to the operators. By contrast, licensees of ‘general correspondence delivery’ are subject to MIC price regulation. Until 2007, the Postal Law required the pricing of all (‘general correspondence’) letter post to be approved by MIC. Since October 2007, however, notification of postal and card rates suffices.17 (JFTC, 2006) Moreover, ‘general

16 ECORYS Questionnaire – Japan Post. 17 Third- and fourth-class mail services, on the other hand, still require approval of the MIC.


correspondence’ operators must set a uniform rate across Japan with a maximum of 80 yen for a letter up to 25 grams in weight (JCER, 2006). Parcel mail, on the other hand, is regulated by the Ministry of Land, Infrastructure and Transport (MLIT). Up until 2007, parcel services were provided by both Japan Post and private operators, but both provided under the jurisdiction of different laws. Whereas Japan Post operated under the Postal Law, private operators were subject to the Trucking and Freight Forwarding Business Law. Consequently, Japan Post set a universal rate throughout the country to a portion of parcel products or booklet parcel regardless of parcel weights and delivery distance, whereas private operators were required by the Trucking and Freight Forwarding Business Law to set the delivery fee based on the fair cost. As of October 1, 2007, however, parcels have been excluded from the Postal Law and put under the jurisdiction of the Truck Business Law and Freight Forwarding Business Law (JFTC, 2006).

1.3.7 Quality of service

The quality of service in both ‘general’ and ‘special correspondence delivery’ is monitored by the MIC. By definition, ‘general correspondence delivery’ requires delivery within three days, whereas one of three business categories of ‘special correspondence delivery’ requires a delivery within three hours. In its second mid-term management goals, stipulated in its 2007 Annual Report, Japan Post committed itself to a 97.0% or higher on-time delivery rate. During fiscal years 2003 through 2006 Japan Post achieved an average on-time delivery of 97.3%.

Table 0.7 Quality of service USP

Standard Threshold Performance USP Remarks

On-time delivery 97.0% 2003:97.5%

2004:97.2%

2005:97.3%

2006:97.3%

1.4 Market developments

1.4.1 Mail market overall

The total volume of mail handled by number of items peaked in fiscal year 2001 at 26.7 billion items and has been on a declining trend since then. Due to electronic substitution and a reduction in the amount expended for communications of corporations, the total volume of letter mail has gradually decreased. By contrast, the volume of parcel post items handled has increased rapidly since Japan Post became a public corporation in 2003 (JCER, 2006). Though substantial, the increase in parcel items is insufficient to compensate for the decrease in total mail.


Figure 0.1 Number of items handled by Japan Post

20000

21000

22000

23000

24000

25000

26000

27000

28000

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Fiscal year

Mill

ion

item

s

outbound international mail

parcel mail

letter mail

Source: JCER (2006), Annual Reports Japan Post.

Figure 0.2 Total mail volume (1980-2005)

Source: Campbell and Porges (2007)


Table 0.8 Size of Japan Post’s postal services in turnover (in Yen)

Postal product 2005 2006

Letter post 1,439.7 1,424.6

First class (sealed letters) 787.3 776.4

Second class

(post cards)

434.3 423.6

Third class(magazines ,

newspapers)

26.4 23.7

Fourth class

(correspondence

courses, etc.)

1.0 1.1

Special handling

(registered delivery,

express)

190.7 199.8

Parcel post 305.2 323.9

International mail 80.3 81.7

Total 1,825 1,830

Source: Japan Post Annual Reports 2006 & 2007.

Table 0.9 Number of mail items handled by Japan Post (in million items)


Letter post 22,666 22,284

First class (sealed letters) 11,194 11,048

Second class

(post cards)

7,082 6,995


newspapers)

624 588

Fourth class

(correspondence

courses, etc.)

31 30

Special handling


express)

550 573

Parcel post 2,075 2,317

International mail 78 76

Total 24,819 24,677

Source: Japan Post Annual Reports 2006 & 2007, ECORYS questionnaire – Japan Post.


1.4.2 B vs C

Table 0.10 Postal streams in the market for addressed mail in physical terms (in %)

Postal stream 2006

B2B 24.9%

B2C 54.0%

C2B 0.6%

C2C 20.4%

Source: Japan Post Annual Report 2007.

1.4.3 Market opening

Because the ‘general correspondence delivery’ license allows ‘complete participation nationwide’, i.e. delivery of all types of ‘correspondence’18, the Japanese ‘correspondence’ market has been de jure fully opened to competition since 2002. However, as of yet, no operator has obtained a ‘general correspondence delivery’ license. Therefore, there still is a de facto monopoly over correspondence letters that are priced below 1,000 yen. (Campbell and Porges, 2007) On the other hand, since its introduction several operators have successfully applied for a ‘special correspondence delivery’ license. As of February 28, 2006, 160 companies had obtained such a license. ‘Special correspondence delivery’ is, however, only a small part of total letter post. In fiscal year 2004, ‘special correspondence delivery’ had a volume of approximately 930,000, which accounted only for only 0.006 percent of all ‘correspondence’ letter mail and only 0.004 percent of all letter post (JFTC, 2006, 5-6). Consequently, as of 2004, 100 percent of the correspondence letter mail market was opened to competition by law, but much less is de facto opened to competition. By contrast, parcel mail is fully opened to competition and has been a long time. As a result, Japan Post had only a market share in the parcel market in 2007 of less than 10 percent.19

1.4.4 Cross border mail

The following figure summarises the trend in international mail volume between 1980 and 2005.

18 http://www.soumu.go.jp/english/yuseijigyo/index.html 19 ECORYS Questionnaire – Japan Post


Figure 0.3 International mail volume (1980-2005)

Source: Campbell and Porges (2007).

Cross-border mail can be separated into two types of mail: international mail20 and international express mail. International mail delivery is the concerted operation by the postal office of each member country providing the services via their postal network, whereas international express mail provides all the delivery functions related to international logistics and its operators (integrators) take responsibility for the entire mail shipment process. In Japan, Japan Post is the operator that performs the international mail services provided by the UPU Treaty, i.e. documents and parcels weighing less than 30 kg (JFTC, 2006). By contrast, international express mail is facing competition from the integrators such as DHL, FedEX and TNT. Although there are differences in the handling fee and services offered between international EMS and international express delivery service, these services are converging. Therefore, JFTC (2006) looked for fiscal year 2004 at competition in the international express mail market originating in Japan with Japan Post’s express mail included. It concluded that the international express mail market, including Japan Post’s EMS service, is in tight oligopoly.21

20 JFTC (2006) distinguishes between four groups of international mail in order of the number of days required for delivery:

EMS (Express Mail Service), Airmail, SAL (Surface Air Lifted/Economy Air) and Sea Mail. 21 JFTC (2006, 17) calculated a Herfindahl-Hirschman Index (HHI) of over 1,800.


Source: JFTC (2006).

JFTC found the following market shares in the international express mail service: DHL accounts for 29%, FedEx for 26%, and EMS of Japan Post for 18%. Therefore, international express mail, but not international mail delivery, is actually opened to competition.22 Considering that only Japan Post’s EMS service is facing competition, only 5.06 percent of its total output in international mail was facing competition in 2004.

1.4.5 Impact of innovation

During the past few years Japan Post has been trying to increase its share in the parcel mail business. Moreover, Japan Post has announced that it will expand into international express mail services. As a first step, in 2006 MIC announced its approval for Japan Post to engage in a joint venture with All Nippon Airways (ANA). With its collaboration with ANA, Japan Post will be able to expand its services in China. Furthermore, using its air fleet, Japan Post might be able to expand its express delivery service to Europe and North America, perhaps in cooperation with a major European player (Cohen, 2006, 6-8).

1.4.6 National postal operator/Universal Service Provider

The 2002 package established Japan Post as a public corporation that is fully owned by the government. The 2005 privatisation package stipulated an ongoing process between 2007 and 2017 in which the former activities of Japan Post are split into four distinct companies operating under a holding company. This holding company, Japan Postal Services Corporation (JPSC), will have sold all of its interest in the Postal Savings Bank Corporation and Postal Life Insurance Corporation at the end of the 10-year transition period that started October 2007. Even after 2017, JPSC will continue to own 100% of the shares in the Postal Service Corporation and the Post Office Corporation. The Japanese government, on the other hand, will have to reduce its stake in the holding company as soon as possible to 33 percent.

22 JFTC (2006) assumed that the size of the international express market in Japan (originating in Japan) is assumed to be

about 100 billion yen, including Japan Post’s EMS (18% market share). On the other hand, international mail operated by Japan Post, also including EMS, accounted up to 296 million items.


Source: Campbell and Porges (2007).

Japan Post offers its services throughout the country and had post offices established in all 1,827 cities, towns and villages in Japan. The number of Japan Post’s post offices and agencies has experienced a slight decrease since 2003. By contrast, the number of street letter boxes has experienced some growth since 2002 up to 192,300 in 2006. A ‘general correspondence’ operator needs to set up a minimum of approximately 100,000 of its own street letter boxes.

Table 0.11 Postal network of the national postal operator

Japan Post 2006

Number of post offices 20,218

Number of postal agencies 4,356

Number of street letter boxes 192,300

Source: Annual Report Japan Post 2007, p. 95-96.

For 2003 and 2004, JFTC (2006) estimated the following division of turnover over different postal products.

Table 0.12 Division of turnover of the national postal operator per market segment


Letter post 16,294 15,247

First class (sealed letters) 9,094 8,488

Second class

(post cards)

4,727 4,485


newspapers)

443 347

Fourth class

(correspondence

courses, etc.)

16 12

Special handling 2,013 1,914




express)

Parcel post 1,686 2,345

International mail 833 823

Total 18,814 18,415

Source: JFTC (2006).

Table 0.13 Overview alliances and partnerships of the national postal operator (2007)

Japan Post Mail Express Logistics

Japan Several All Nippon Airways (ANA) All Nippon Airways (ANA)

Shortly after passage of the 2005 privatisation package, All Nippon Airways (ANA) and Japan Post established a joint venture which will be an international express courier service that will compete against more established logistics companies such as DHL and FedEX. Although it will firstly focus on expanding in the Asian market, it also intends to open a North American route. (Cohen, 2006) Japan Post is also looking to expand its domestic parcel services. Cohen (2006) describes several partnerships with firms that have been initiated in order to achieve this goal.23

1.4.7 Competitor postal operators

Table 0.14 Overview of main competitors on the postal market (2007)

Postal

operator

Market Turnover

(2006)

(100 million

yen)

# of

Employees

(2006)

Service level

(number of

deliveries per

week)

Coverage

Japan Post All 19,134 (of which

income from

handling parcel

is 3,239)

109,193 (postal

services only,

254,177 in total)

6 (mail)

7 (parcel)

100%

Yamato

Transport

Parcel

Non-

correspondence

11,616 (of which

income from

handling parcel

is 7,605)

(of which income

from handling

non-

correspondence

is 1,297)

157,653 (in total) - 100%

Sagawa Express Parcel

Non-

correspondence

8,693 (of which

no breakdowns

for parcel and

- - -

23 Cohen (2006) mentions an alliance with Lawson, Inc., an acquisition of Daimaru’s distribution services subsidiary, a joint

company with Mitsukoshi Ltd., an alliance with Sankyu and an agreement with Tobu Department Store.


non-

correspondence

service is

available)

Nippon Express Parcel

Non-

correspondence

‘Special

correspondence’

18,662 (of which

income from

handling parcel

is 1,728) (of

which no

breakdown for

non-

correspondence

and special

correspondence

is available)

- - -

Several ‘Special

correspondence’

- - - -

Source: ECORYS Questionnaire – Japan Post, JFTC (2006), Annual Report Japan Post 2007, Annual Report

Yamato Transport 2007.

All competitor postal operators are in private hands. Especially in the parcel market, there are firm competitors of Japan Post. ‘Special correspondence’ only accounts for approximately 0.004 percent of all letter mail. Because of strict legal entry barriers, no private operators are expected to enter ‘general correspondence’ services soon.

1.4.8 Competition

Whereas ‘general correspondence’ letter services are monopolised by Japan Post, the parcel market faces firm competition. In this market, Japan Post has less than 10 percent market share, whereas its biggest competitors, Yamato, Sagawa and Nippon Express, have 34.5, 30.8 and 11.4 percent share of the parcel market, respectively. As the figures below indicate, Japan Post’s market share in the small packages market has increased between 2000 and 2006 (from 5.8 % in 2000 to 8.4 % in 2006).


2000

5,8%

33,0%

24,6%

15,7%

7,1%

5,2%8,8%

2004

30,8%

34,6%

7,0%4,4%9,7%

11,4%

2,0%

2006

6,3%4,2% 8,4%

36,6%

32,4%

10,7%

1,5%

Figure 0.4 Shift in the share of small goods shipment in volume (parcel delivery services and ordinary parcel)

Source: JFTC (2006), ECORYS Questionnaire – Japan Post.

Moreover, in the non-correspondence segment of the Japanese postal market, 6.6 percent (1,736 million items) was delivered by competitor postal operators in 2004, whereas this increased up to 8.7 percent (2,310 million items) in 2006.24

Table 0.15 Number of competitors and degree of competition (2006) Postal product Market share USP Number of

competitors

Concentration ratio

C3

Bulk mail and consolidation

B2B non-bulk mail

Individual item mail

Correspondence Letter Mail App. 100% 180 licensees of

‘special

correspondence’

Non-correspondence Letter Mail 4 major operators

Cross border mail

Unaddressed mail

Parcel 8.4% 5 major operators 79.7%

Express mail

Total

Source: ECORYS Questionnaire – Japan Post, JFTC (2006).

24 ECORYS Questionnaire – Japan Post.


Due to strict requirements for obtaining a ‘general correspondence’ license, entry into this market is not to be expected in the near future. In 2002, Yamato stated that the conditions stipulated in the Correspondence Delivery Law for obtaining a ‘general correspondence’ license were impossible to meet.

1.4.9 Competition issues

The most substantial barrier to entry in the Japanese postal market are the strict requirements for obtaining a ‘general correspondence’ license, which include the provision of universal services. However, these requirements have been specifically instituted in order to prevent cream-skimming, i.e. merely offering mail services in the most profitable areas without providing universal service. JFTC (2006) recommends a review of the “current correspondence delivery system and develop a system to both enable the maintenance of universal service and to promote competition through new entry into the general correspondence delivery” (JFTC, 2006, 24). Because Japan Post provides services both in the monopoly area and in the competitive area, it can save costs which overlap, as it can share resources. Competitors, on the other hand, do not possess the ability to save these costs. Japan Post can use this advantage to create a profitable mail operation that could cross-subsidise steps to strengthen its share in the domestic parcel delivery or international express market. With this in mind, the JFTC (2006) recommends an inquiry into abolishing the condition to provide universal services, the introduction of ‘rules of access fee’, a more transparent accounting system and the establishment of a reserved area based on the weight of mail. Besides this, the fear remains that as long as the banking and insurance businesses are tied to the network, the pressure for cross-subsidies will continue (Porges and Leong, 2005). The 2005 legislation package ensured a gradual abolishment of preferential tax treatments25, Japan Post is still said to be advantaged over others. JFTC (2006) mentions three of Japan Post’s public privileges. First, because Japan Post carries both ‘correspondence’ and parcel post, it is exempted from application of the Road Traffic Law. Competitors, on the other hand, are not exempted and will have to take certain measures, such as acquiring parking lots. Secondly, the Postal Law stipulates that when a recipient of mail reports his new address to the post office, Japan Post should transfer the mail to the new address. As a result, Japan Post has an advantage over other parcel delivery operators as it can use the new address information it holds to contain the rate of return. Thirdly, the Customs Law recognizes simple procedures for the import and export of mail, creating an advantage of Japan Post’s EMS service to private international express operators, who will have to take additional measures such as post-9/11 security measures at airports. (JFTC, 2006, 38-40) Furthermore, Cohen (2006) stresses the danger of Japan Post, being likely to follow Deutsche Post’s strategy of expansion into the international express market, to use profits from high-priced domestic mail monopoly to support expansion throughout Europe and the rest of the world. One possible solution might be to let regulators review Japan Post’s

25 Until privatization, Japan Post was receiving an estimated 1 trillion yen of subsidies annually (JCER, 2006).


plans to enter new lines of business. However, national regulators might be lenient towards Japan Post in order to let it build a substantial base in international express mail. Cohen (2006) point out that in its approval of Japan Post’s joint venture with ANA, the Privatization Commission’s review process was flawed. Moreover, unlike European operators, Asia has neither a regional government nor a regional competition body that has jurisdiction on these matters. Consequently, Japan Post might take anticompetitive measures, e.g. cross-subsidisation, to enlarge its market share in Asian or even European and American markets. Therefore, Cohen (2006) argues that the US and the EU need to resort to politics in order to induce Japan to take action against potential anticompetitive behaviour from Japan Post.26

1.4.10 Results of competition

Because no private operator has, as of yet, entered the ‘general correspondence’ delivery business, results of the de jure market opening are absent in the correspondence market. JFTC (2006) shows, however, that the price of parcels has been in a downward trend in the past few years, reflecting active competition in the market of parcel delivery service. In its assessment concerning the privatisation of the postal services, JFTC (2006) gives four reasons for persistent lack of entry into the business of general correspondence of letters and postcards. These reasons are: • the entry condition requiring the general correspondence delivery business to apply to

provide universally fair services throughout the country is too high; • in a network business, such as the postal business, the larger the network the operator

owns, the better and less expensive services it can render, i.e., network externality counts to a large extent;

• venturing into new lines of business by providing the universal service, with no prospect for market expansion, is not economically feasible;

• approval should be obtained from the Minister of Internal Affairs and Communications, who holds the jurisdiction of Japan Post, for the new entry (JFTC, 2006, 2).

Regarding results of competition, Japan Post notes that “while competition in the correspondence market has been limited, competitors have successfully entered the non-correspondence delivery business for a decade to the extent of gaining an 8.7% share of the mail market in 2006. Since Japan Post’s First-class mail (letters) service competes partly with non-correspondence products offered by competitors, Japan Post has been delivering letters of the minimum weight at 80 JPY (Japanese Yen) since 1994 to cope with fierce competition.”27

26 Cohen mentions a threefold negotiation. First, Japan should be induced to abide by the pro-competitive obligations that

Japan has via the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO). Second, the EU and the US should request that the JFTC plays a central role in overseeing the privatisation process. Third, the Japanese government should be convinced that letting Japan Post behave in an aggressive, anti-competitive way is not maximising the welfare of Japanese citizens. (Cohen, 2006, 21-23).

27 ECORYS Questionnaire – Japan Post


1.4.11 Customer needs

There are no figures available for current customer satisfaction with Japan Post’s services. However, Japan Post has recently established CS Promotion Committees at post offices, regional offices and the Japan Post headquarters to urgently gather opinions and comments from customers, and from the employees who have the most direct contact with customers, and to quickly reflect those opinions and comments in improved services and operations.28

1.4.12 Price performance: tariffs

JFTC (2006) shows that competition in the parcel market has resulted in a downward trend in Yamato’s parcel tariffs.

Table 0.16 Public tariffs (in Euro)

Postal product 2005 2006 2007

Letter post 1st class up to 25g 0.58 0.55 0.50

Letter post 2nd class 0.37 0.34 0.31

Letter post cross-border n.a. n.a. n.a.

Parcels n.a. n.a. n.a.

Parcels cross border n.a. n.a. n.a.

Registered item 2.56 2.40 2.17

Insured item n.a. n.a. n.a.

Bulk mail, 20g n.a. n.a. n.a.



Source: ECORYS Questionnaire – Japan Post

Note: n.a. is not available

Table 0.17 Public tariffs (in PPP)

Postal product 2005 2006 2007

Letter post 1st class 0.52 0.54 0.56

Letter post 2nd class 0.33 0.34 0.35

Letter post cross-border n.a. n.a. n.a.

Parcels n.a. n.a. n.a.

Parcels cross border n.a. n.a. n.a.

Registered item 2.29 2.36 2.45

Insured item n.a. n.a. n.a.




Source: conversion rate based on Eurostat data.

Note: n.a. is not available.

28 Annual Report Japan Post 2007, p. 82.


1.4.13 Employment

As mentioned before, the privatisation of Japan Post has resulted in four new divisions besides Japan Post Holdings: Japan Post Service Co. Ltd., , Japan Post Network Co. Ltd, , Japan Post Bank Co. Ltd., and Japan Post Insurance Co. Ltd.,. Employees are expected to be distributed over these divisions as depicted in the following figure (Cohen, 2006).

Figure 0.5 Division of employees over Japan Post after privatisation

Japan Post Corporation(Holding)Postal ServiceCorporationPost Office Corporation

Postal Savings BankCorporation Postal Life InsuranceCorporation

Source: Cohen (2006).

Table 0.18 Employment in the sector, in employees and [FTE]

Operator 2005 2006

Japan Post total

Japan Post civil servants

Japan Post Postal Services

256,572

256,572

110,579

254,177

254,177

109,193

Yamato total 141,602 152,787

Total

Source: Annual Reports Japan Post, Yamato.

The Japan Post Public Corporation Law of 2002 established Japan Post as a public corporation that is fully staffed by civil servants. As of October 1, 2007, however, Japan Post employees are employees of Japan Post Service Holdings or one of the new companies.

1.4.14 Employment conditions

During fiscal years 2003 through 2006, the ratio of wages as a proportion of total costs has been slightly increasing. This ratio was 53% in 2003, but 56% in 2006.


Table 0.19 Wages as proportion of total costs (in %)

Operator 2005 2006

Japan Post 75.2% 75.6%

Yamato* 53% 52%

Source: Annual Reports Japan Post, Yamato.

Note: * personnel expenses as a percentage of total operating costs.

1.4.15 Environment

Japan Post has an environmental policy, “The Japan Post’s Medium-term Plan for the Environment”. This plan was a plan from 2004 through 2006 that stipulated specific targets for Japan Post to achieve. For example, Japan Post planned to reduce CO2 emissions in 2006 by 2.2 percent compared to 2002. According to its own estimations, Japan Post achieved a 3.4 percent reduction. These measures include setting up environmental friendly post offices and deploying low-emission vehicles. Other environmental policy measures include energy and resource conservation and reduction in waste matter.

1.5 Sources

• American Chamber of Commerce in Japan, Coalition of Service Industries, U.S.-Japan Business Council. 2007. “Comments on Draft Ministerial Ordinance for Making Partial Amendments to Enforcement Regulations of the Postal Law.” Public Comment.

• Campbell, James I. and Amelia Porges. 2007. “How Much Postal Reform in Japanese Postal Privatization?” Presentation for 15th Conference on Postal and Delivery Economics.

• Cohen, Robert B. 2006. “Policy Challenges and the Privatization of Japan Post.” Economic Strategy Institute Report.

• European Commission. 2004. “EU Priority Proposals for Regulatory Reform in Japan.” EU-Japan Regulatory Reform Dialogue.

• Faiola, Anthony. 2005. “Japan Approves Postal Privatization.” Washington Post Foreign Service. 15 October 2005.

• Kawabata, Eiji. 2004. “Dual Governance: The Contemporary Politics of Posts and Telecommunications in Japan.” Social Science Japan Journal, 7(1): 21-39.

• Japan Center for Economic Research. 2005. “Challenges Facing Japan Post and the Move to Privatize.” Japan Financial Report 13.

• Japan Fair Trade Commission. 2006. “Issues Concerning Postal Services and Competition Policy Coinciding with the Enactment of the Law of the Privatization of the Postal Services. Countering Anticompetitive Acts Using the Monopoly Area.” JFTC Report.

• Porges, Amelia and Joy M. Leong. 2005. “The Privatization of Japan Post: Ensuring both a Viable Post and a Level Playing Field.” Paper for the 13th Conference of Postal and Delivery Economics.

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