Fragile 

How Covid-19 could bring change to the logistics sector in Japan

July 2020 Feature / Text by Justin McCurry

The coronavirus pandemic has revealed the fragility of our interconnected global economy. The world is now counting the cost of broken supply chains and a resulting shortage of materials and products.

Maritime data analyst Sea-Intelligence reported that the Asia–North Europe trade lane — one of the world’s busiest lanes — saw 38% of shipping capacity cancelled towards the end of April, and it has predicted an overall drop in global shipping of 25% for the first six months of 2020. The industry could be facing billions of dollars in losses.

Meanwhile, Japan’s Ministry of Finance announced that total exports for May had fallen 28.3% and imports by 26.2%. As a result of the coronavirus, Japanese manufacturers have encountered difficulty in securing auto parts and phone handsets from China, for example, which has prompted the government to encourage domestic manufacturers to transfer those production bases to countries in Southeast Asia.

Against this grim backdrop, European logistics companies with a presence in Japan have been forced to rethink how they do business as they seek to navigate their way out of the crisis. But the outbreak has also given them an opportunity to address structural challenges as they look ahead to a post-pandemic world.

There have been “major disruptions in transportation and logistics overall” as a result of Covid-19, says Jonathon Kottegoda-Breden, president and CEO of the Japan and North East Asia Cluster at Schenker-Seino.

Among the examples he notes are variations in storage needs, cancelled sailings, and capacity reduction, as well as constantly changing situations at points of origin and destination.

The coronavirus has also created major problems for airfreight, according to Christian Wolf, managing director of JAS Forwarding Japan, a global logistics firm founded in Italy.

“The biggest problem is that global travel restrictions halted passenger operations and this also places pressure on cargo capacity,” he says. “Despite the decrease in volume overall, one of the challenges during this period has been matching demand against declining capacity — to find the right solution at the most cost-effective price in the shortest time.”

For some logistics firms in Japan, the effects of the coronavirus have not been overly pronounced.

“We have not been affected that much with regard to inland logistics,” says Hans Werner Burg, representative director of Leschaco Japan, an international freight forwarding company headquartered in Germany.

“Most operations — such as sea-port container terminals, container depots, repair shops, and trucking companies — have continued to operate as before,” adds Burg, whose firm specialises in liquid chemical shipments.

He notes that Japan’s state of emergency was less strict than other countries’ stay-at-home orders, enabling Leschaco to avoid the heavy disruption that it and other firms experienced in countries such as India.

Before the pandemic, Japan’s logistics sector was already facing challenges, including a serious labour shortage. According to the Ministry of Land, Infrastructure, Transport and Tourism, the number of deliveries made in Japan increased 1.3% to 4.31 billion in fiscal 2018, leading to a shortage of drivers and extra strain on already busy delivery staff.

A 2016 viral clip of a Sagawa Express employee angrily kicking parcels he had been unable to deliver underlined the pressures the industry has come under due to the popularity of e-commerce, which has delivery firms scrambling to meet the needs of today’s consumers.

The coronavirus has only added to consumer expectations. Rather than take the potential risks associated with a visit to a physical store, people are increasingly turning to online shopping during the pandemic.

While e-commerce has proved a boon for the logistics and freight sectors in general, European firms have had to contend with several obstacles in Japan, according to the 2018 EBC white paper.

Aside from the challenges created by Japan’s worst labour shortage since the early 1970s and an uneven take-up of digitalisation, it notes that, “companies struggle with Japan’s high cost base, inadequate infrastructure, heavily congested ports, and rigid customs clearance procedures”.

Despite the myriad challenges, the pandemic may be the ideal opportunity to transform the industry in Japan.

As the perennial problem of a labour shortage will only be magnified by Covid-19, Leschaco’s Burg suggests that Japan’s government support the logistics sector by further relaxing its immigration laws once the pandemic is over.

“It should be easier to hire foreign employees and to have expats come over to work,” he says. “The hurdles in terms of education requirements and work experience are quite high and not suitable to helping the industry tackle the general labour shortage problem.”

Greater digitalisation will also benefit the sector in the long run. Japan’s addiction to fax machines and hanko personal seals is well known, but in the age of home delivery, the old way of doing things is a huge obstacle to efficiency and, by extension, a threat to the bottom line.

With increased digitalisation, “not only will logistics [costs] go down, but times from order to delivery will do the same”, the EBC white paper notes. “Many neighbouring countries are far ahead of Japan in this area.”

Wolf agrees that there is a need for Japan to address its dependence on analogue practices.

“That is something that has to be pushed forward,” he says. “There is still too much paper, and there are too many faxes, circulating in the logistics industry. Paper invoices also have to be kept, and customs authorities and the tax office do not allow electronic storage. The hanko habit also needs to change.”

Schenker-Seino’s Kottegoda-Breden says his firm, which employs more than 600 people in Japan, has stayed 100% operational across the country since the start of the pandemic thanks to its digital infrastructure.

“Staff are able to operate remotely on all our operating systems, sending PDF invoices — and not originals — via e-mail, using electronic document signatures,” he says. “We implemented the paperless concept for internal procedures several years ago, and we hope such practices can be adopted across many Japanese companies and institutions.”

While it is evident that change is possible, it is up to the authorities to take the next step. Undoubtedly, the disruptions that have occurred because of the coronavirus have made everyone aware of the logistics sector’s vital, but under-recognised role in the global economy.

“It is the backbone of many industries,” says Kottegoda-Breden. “And now people are beginning to realise that.” •