Tokyo’s logistics market is currently experiencing major changes arising from the boom of e-commerce companies and transportation companies. E-commerce has been expanding rapidly over the last few years, and customers expect same-day or next day delivery. The rising demand has led to negotiations about increasing shipping fees.

The main reason is a labour crunch: Japan has a tight labour force, with the unemployment rate at a very low level at 2.8 per cent and historically high level of job offer ratio at 1.51. Other reasons include the Abenomics’ work-style reform which aims to reduce long working hours – an initiative that is taking off in Japan.

Chart 1: Japan’s Labour Market Source: Statistics Bureau, Ministry of Health, Labour and Welfare Jul 2017

How the labour crunch is impacting e-commerce in Japan

As a result, some e-commerce companies have to delay deliveries or take fewer orders from customers to try to work out new solutions in the meantime. Some companies form alliances with other corporations to offer joint delivery, like to ship products in the same area together, which shaves off significant time and labour costs.

Some e-commerce companies also use the railway system to deliver products for long-distance delivery, which eliminates long driving hours. But this will increase transport costs, as trucks and drivers are needed to pick up goods at the station to deliver to customers. While some companies try to form their own transportation-affiliated companies to work around this, this often results in lower service quality as they are often not experts in the field.

On the other hand, while transportation cost increases, e-commerce companies will have to find other avenues to cut costs. One such way involves cutting down on their facility costs, for example, to consolidate warehouses and relocate to a more inexpensive facility. They can also relocate to facilities at a location that better suits their needs.

With several modern logistics facilities underway, this large supply pipeline will offer e-commerce companies more options next year. And with the rising vacancy rate, tenants will have leeway to negotiate rent with landlords. While rising transport costs are inevitable, there are many solutions for e-commerce companies and e-commerce companies are in good stead.

Chart 2: Future Supply – Greater Tokyo Logistics Source: JLL (July 2017)

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