A Trucker For The Information Highway
Three years ago, Masatoshi Tsuru was convinced that e-commerce was about to take off in Japan. So the general manager of logistics planning for Yamato Transport Co., Japan's largest home-delivery outfit, set up a special unit to handle distribution services for Net retailers. His timing could not have been worse. Japan had just started to sink into its deepest recession since World War II, forcing many large companies to shelve their online investment plans. The slowdown wiped out many of Japan's first-generation Net start-ups. While e-commerce zoomed ahead in the U.S., Japan, with the world's second- largest economy, remained stuck in the slow lane. Yamato's Net business seemed to be heading nowhere fast.
Tsuru had the right idea. It was just the wrong time. Now e-commerce is finally gaining traction in Japan, and thanks to Tsuru's prep work, Yamato is emerging as the delivery company of choice for cybershops that need to ship merchandise to consumers. And Tsuru isn't waiting around for online merchants to find their way to his door. A year ago, he launched a Web mall to help these businesses grow. So far, the mall has attracted about 2,400 retailers, many of which depend on Yamato to provide not just delivery, but also their warehousing, stock management, and packing functions.
Now Yamato is preparing to launch more cyberventures. The company has teamed up with Yahoo Japan and with Softbank Corp., Japan's biggest Internet investor, to back two new online specialty sites--one for books, the other for toys. When the ventures get up and running in the next few weeks, consumers will have the choice of picking up their purchases at a convenience store or having Yamato deliver them to their doorstep. If the choice is delivery, Yamato will also collect payment from the buyers, passing it on to the merchants. Yamato has a similar deal with Digital Garage, a startup that sells CDs, videos, and such over the Web. "There is no other company in Japan as good at logistics and computer systems," says Shigeki Saitoh, chief operating officer at Digital Garage.
Yamato's strategy is starting to pay off. Tsuru, who oversees Yamato's online business, figures Net-related income accounted for 3% to 4% of the company's $7.4 billion in revenues last year. "Right now, we're at the takeoff point," he says. "Once the Net economy gets going, Yamato will be there to offer the distribution services that online firms are going to need."
By all indications, those needs will be huge. According to a recent report by the trade ministry, e-commerce in Japan last year totaled $82.7 billion, with business-to-consumer trade accounting for $620 million. By 2003, the total is expected to skyrocket to $683 billion, with purchases by consumers reaching $30 billion.
What's driving all this activity is that the Japanese are finally flocking to the Web. The number of Japanese Internet users, now estimated at 17 million--some 13% of the population--is expected to double in the next two years. Meanwhile, the number of people using Net-ready cell phones is pegged to explode to 20 million over the next two years, from 3 million today, according to International Data Corp. in Japan. And the country's capital markets are developing to help finance Net startups. Several new equity markets, including Softbank's Nasdaq Japan, are scheduled to debut over the next year.
Already, the nascent Internet boom has driven up Yamato's share price. Its market capitalization has risen by 220% over the past year, to $14 billion. That's more than double the $6.7 billion cap of its main rival, Nippon Express Co., a consumer- and business-delivery outfit with more than twice the sales.
Yamato's Net strategy is similar to those of U.S. delivery outfits Federal Express and United Parcel Service Inc. Both have set up warehouses near key air hubs and have invested tens of millions of dollars in new Web package-tracking systems in anticipation of a flood of Net business. But the American companies are shooting for bigger targets, chiefly outside of Japan, because Japan is so heavily regulated and virtually impossible to crack. Andersen Consulting, for example, forecasts that U.S. e-commerce will reach $1.6 trillion by 2003.
Yamato wants bigger game, too, so it's expanding beyond Japan and into other parts of Asia. In late October, the company formed a joint venture with Uni-President Group, a convenience-store chain in Taiwan, to set up a national courier service in that country. If all goes well, the Taiwanese courier service could serve as a springboard for Yamato to enter Southeast Asia and mainland China.
Yamato has a history of breaking new ground. In 1976, the company--whose logo is a black cat--was the first Japanese transport company to offer home delivery. Later, it was the first to operate on Sundays and holidays, and to ferry sporting gear, such as heavy golf clubs, to and from resorts. In 1986, it began collecting payments on behalf of companies that sent goods to customers. The following year, it inaugurated the first delivery service for chilled and frozen foods. And last year, it began letting customers choose when they wanted their goods delivered, within a two-hour time slot.
Now, Yamato is tailoring some of these services to the Net. The fastest-growing one is payment collection. Polls show that up to 70% of Japanese are reluctant to part with credit-card data over the Web because they're worried about fraud. Last year, Yamato's cash-on-delivery business grew by 17.5%. In the first six months of this year, it surged another 27%. "In this cash-oriented society, Yamato is emerging as the collector for Net businesses," says analyst Satoshi Kitami of Nomura Securities Co. in Tokyo.
The company also is using the Web to help consumers keep track of their shipments. A new service allows customers of Net-ready cell phones to access Yamato's online tracking system. At the peak of the gift-giving season last December, Yamato's Internet tracking system attracted as many as 10,000 people a day. Compared with the 500,000 or more phone inquiries Yamato has been known to handle in a busy day, that might not sound like much. But use of the Net tracking system is growing by more than 250% per month. "It's already saving us time on queries," says Taro Tozaki, an assistant planning manager who keeps tabs on Yamato's Net business.
Compared with its closest Japanese rival, the old-fashioned Nippon Express, Yamato looks like a speed demon on the Information Highway. And although Yamato is only half the size of Nippon, which had $15.6 billion in annual sales last year, the former is far more profitable. Its operating profit margin is 5.9%, compared with 2.7% for Nippon, thanks in part to a state-of-the-art network that makes it possible to sort packages quickly and accurately. It was one of the first Japanese companies to outfit its delivery staff with portable handsets that connect to the company's computer servers.
Still, victory in the Net-delivery market is far from assured, as rivals start to gain on Yamato. Last year, for example, Nippon Express modernized its logistics-management system to speed up its processing of packages. It also introduced home-delivery service, which operates daily until 10 p.m.--an hour later than Yamato's. Another rival, Sagawa Kyubin Co., is planning to do deliveries 24 hours a day to appeal to a cybergeneration that keeps late hours.
Still, Tsuru is confident Yamato will prevail. While rivals are busily trying to imitate Yamato's tactics, he vows to stay ahead with new innovations. Given Yamato's track record so far, that's a promise the company should be able to deliver.
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