Japanese express service ties create strange bedfellows

The shifting express landscape in Japan is producing some unusual alliances. Concern about the international integrators encroaching on their turf has induced domestic rivals to form pacts with one another.

On December 18, All Nippon Airways, Kintetsu World Express and Nippon Express signed a memorandum of understanding to set up a joint venture company for international business-to-business express delivery service in Asia. Operations of the new company are slated to commence on April 1 of this year.

ANA will have a 34 percent stake in the new company and Nippon Express and Kintetsu will each take 28 percent, with the remaining 10 percent going to other forwarding companies.

The partners pointed to growth of international logistics and the need for integrated strategic distribution services as the main reasons for their alliance. They stressed the need in Asia for reliable logistics services that can support businesses with rapidly expanding production bases.

The new partnership seems to be a conflict of interest for ANA, which already formed a joint venture cargo airline with Japan Post that took to the air last year with a fleet of B767 freighters. However, the new carrier, which flies to a number of Asian destinations as well as to the US, has signalled that Japan Post’s volumes are not enough to fill the aircraft, so it has been looking for partners to generate more cargo. A planned partnership between Japan Post and TNT has failed to materialise. The shifting express landscape in Japan is producing some unusual alliances. Concern about the international integrators encroaching on their turf has induced domestic rivals to form pacts with one another.

On December 18, All Nippon Airways, Kintetsu World Express and Nippon Express signed a memorandum of understanding to set up a joint venture company for international business-to-business express delivery service in Asia. Operations of the new company are slated to commence on April 1 of this year.

ANA will have a 34 percent stake in the new company and Nippon Express and Kintetsu will each take 28 percent, with the remaining 10 percent going to other forwarding companies.

The partners pointed to growth of international logistics and the need for integrated strategic distribution services as the main reasons for their alliance. They stressed the need in Asia for reliable logistics services that can support businesses with rapidly expanding production bases.

The new partnership seems to be a conflict of interest for ANA, which already formed a joint venture cargo airline with Japan Post that took to the air last year with a fleet of B767 freighters. However, the new carrier, which flies to a number of Asian destinations as well as to the US, has signalled that Japan Post's volumes are not enough to fill the aircraft, so it has been looking for partners to generate more cargo. A planned partnership between Japan Post and TNT has failed to materialise.

Observers have questioned the viability of flying B767 freighters across the Pacific as well as the carrier's choice of Okinawa for its main hub, as the island is affected by typhoons every year.

While Kintetsu is a new partner for Japan Post and ANA, Nippon Express already has a partnership in place with the logistics arm of the postal authority, which was privatised last October. Just days after the privatisation, the pair announced an agreement to integrate their door-to-door parcel delivery business. The planned joint venture company, slated for launch in October of this year, is to take over Japan Post's Yu-Pack and Nippon Express' e-Pelican delivery operations.

In fiscal 2006, Nippon Express and Japan Post ranked third and fourth respectively in the domestic parcel business, commanding 11 and eight percent of the market respectively. According to sources in Japan, both operators – as well as Kintetsu and other large players offering express parcel and logistics services in Japan – feel under threat from the international integrators such as FedEx, who have been trying to make inroads into the market. In response, some large players are trying to expand in the intra-Asian express market, with a strong focus on the Japan-China sector.

Nippon Express tabled double-digit declines in operating and net profits for the six months ending September 31. Operating profit dropped 10 percent to USUSD 181 million, while net profit declined 11.7 percent to USD 115 million.

Sources close to JAL claimed that Nippon Express and Kintetsu had approached Japan's leading international airline last year before striking a deal with ANA. With its larger international network, plus B767 freighters joining its fleet, JAL seemed a logical partner. However, there are questions over its future cargo strategy, particularly the size of its all-cargo fleet as the older B747-200Fs are retired from service.

Japan's top two express operators – Yamato Transport and Sagawa Express – the two commanded 37 and 32 percent of the domestic market in fiscal 2006) – are reported to be looking at international expansion as well.

Yamato parent Yamato Holdings announced a joint venture with NYK, parent of Nippon Cargo Airlines as well as forwarder Yusen Sea & Air, in the summer of 2006.

The joint outfit, Yamato NYK Global Solutions, is supposed to focus on integrated logistics solutions for Japanese imports and exports and business-to-business logistics targeting the Chinese market. However, no steps have been announced by the pair since then.

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