John Manners-Bell and Hiroaki Hamabe

At the World Economic Forum meeting in Davos, Prime Minister Abe of Japan declared to the conference that he would be pushing through a concerted programme of reforms in order to continue the momentum which has been created in the Japanese economy.

After visiting the country in 2010, we wrote that there were signs that Japanese industry, and specifically its logistics industry, was becoming more open to third party logistics services.

In the intervening years there has been some progress. The downturn in the market acted as a spur for some Japanese groups to sell off their logistics subsidiaries and open up to third parties. One such acquisition recently announced was the purchase by Nippon Express of a 66% stake in Panasonic Logistics Co. Ltd, from Panasonic Corporation.

Of the major manufacturing groups, only Toshiba and Mitsubishi Electric now own their own ‘1PL’ subsidiaries. Other companies have already sold or taken investment from outside and although this trend will continue, the major M&A deals have already been done. One exception is in the shipping sector where for years there has been talk of the consolidation of the ‘big three’: MOL, NYK and ‘K’ Lines.

However these positive developments have not meant that the industry has necessarily become more welcome to foreign investment.  One impediment to change has been the resistance of Japanese labour unions, suspicious of what external forces would mean in terms of employment. In this respect the market still remains closed to the rest of the global logistics industry. Whilst most European and US logistics companies may still feel shut out of the domestic logistics market (with the exception of DHL which has been present in Japan for many years), pressure may come from regional competitors, especially the Chinese. SF Express has been cited as one logistics provider showing significant interest in penetrating the market.

There is no doubt that the Japanese logistics market is not as introspective as it once was. The trend for Japanese manufacturers to shift their production abroad – to low cost production markets such as China, for example – has increased the need for Japanese logistics companies to follow their customers. They have aggressively acquired smaller logistics companies in the US and emerging markets, particularly in the $50 – 100m range. This trend of supply chain regionalisation has also suited global logistics companies which have significant capabilities in these markets.

Overall Japanese logistics companies are benefiting from the upturn in the economy and are set to enjoy a good year. However there could be a further catalyst for change in the small and medium sized sector of the market due to what has been called ‘the generation change’. Many local logistics companies were established after WWII as family businesses and finding successors to take these companies over is proving challenging for many. This is a specific issue which may eventually result in the consolidation within the industry, leading potentially to a more appropriate level of foreign investment in what after all is the world’s third largest economy.