Mr. Masuda breaks down the future of the JP Holdings group, their sustainable initiatives, and the digital post office concept.
The COVID-19 pandemic has caused major disruptions to logistics, including soaring oil prices and delays in the availability of shipping containers, etc. What has been the impact on the JP Holdings Group and what has been your strategy to mitigate it?
COVID-19 has shown that people's lifestyles are changing, not only in Japan but around the world. For example, instead of going to the office to work, people are now staying home and working remotely. They are also staying home more often outside of work and shopping via e-commerce. This lifestyle is described in Japanese by the word "nesting": in 2020, Japan Post's parcel delivery service increased its parcel volume by about 11%. As a result, the number of packages in 2020 was about 1.09 billion, compared to about 980 million in the previous year; in 2021, we know that the number of parcels decreased because of changes in lifestyles and people's behavior. However, we assume that e-commerce will continue to flourish, and our goal is to be able to handle 1.36 billion packages.
Traditionally, packages were delivered to a person, but with COVID, the need for non-personal pickup has increased. Japan Post has traditionally provided a service that delivers packages to a designated location upon request, but in response to this growing need, we have made it possible for the person receiving the package to complete the transaction without meeting the delivery person. The delivery date and time can be notified to the recipient via smartphone, and if the recipient is not available, the delivery date and time request can be changed.
We have partnered with Rakuten as a means and strategy to continue to increase our competitiveness in delivery. Rakuten has a huge e-commerce channel and over 100 million customers, so we want to strengthen our delivery division by partnering with Rakuten. At the same time, Rakuten has strong DX, so we want to integrate and work together in terms of incorporating digital technology and digital talent.
Rakuten Group was founded in 1997 by Hiroshi Mikitani, the founder of Rakuten, and the Mikitani family established the company. The family owns the most shares, but apart from the family, Japan Post holds the most shares in Rakuten Group. By collaborating with them, we hope to continue to grow in the field of delivery and logistics and leverage each other's resources and strengths. In doing so, we believe we can continue to leverage our strengths together. Recently, we established a logistics subsidiary together, which recently celebrated its first anniversary. Rakuten has also built a state-of-the-art warehouse and transferred it to that subsidiary. In this way, we hope to make logistics in Japan a better environment with Rakuten's technology and our logistics network. Our rivals Yamato and Sagawa Express are doing a very good job and we respect them. We would like to continue this rivalry for the sake of Japan's logistics. I believe that a good competitive environment is healthy for Japan's logistics and through it we can create a very sturdy and robust logistics network throughout Japan.
Japan Post has already built an extensive network throughout Japan. There are approximately 52,000 post offices and convenience stores that serve as collection and delivery points for mail and parcels. Yamato has about the same number as our company, and Sagawa has slightly less. However, our post offices are unique in that they are located throughout Japan, even in mountainous and remote areas. By fully utilizing this network, we hope to continue to provide a full delivery network to everyone in Japan.
You mentioned the benefits that DX brings and that is why you are collaborating with Rakuten. Of course, digitization brings many benefits to logistics companies, with blockchain traceability being a good example. However, DX has also presented challenges for existing companies. For example, we are seeing startups entering the market to address last mile delivery. As a leader in Japanese mail services, what do you think are the opportunities and challenges that this new digital era?
What you just said is exactly right, and there are many new companies entering the market, and I believe they will still enter the delivery field. However, these companies are often concentrated in certain areas, for example, some companies offer same-day delivery limited to a small area of Tokyo. Japan Post, on the other hand, has a wide nationwide network that includes remote areas, so we can respond to the specific needs and requests of customers throughout Japan. What we are envisioning is a collaboration between Japan Post and these new types of companies. Where there is competition, we want to increase our competitiveness and enhance the delivery environment together. For us, embracing digital technology is critical to our future development. We are considering the introduction of drones to streamline deliveries in remote areas, and last year we experimented with delivery robots in an auto-locked condominium in Chiba Prefecture. In the past, post office employees made rounds to each floor of the condominium, but by introducing this automated robot, which communicates with the elevator via LTE, it is now possible to make deliveries unattended. When the robot comes to the door, it sends a message to the recipient, who can open the door and receive the mail from the robot. By leveraging digital technology and working with new potential partners, we hope to increase the competitiveness of all involved.
You mention innovative ideas such as remote delivery by drone and delivery robots; how do you envision 20 years from now? How do you think mail delivery will have evolved?
Actually, our goal for the next 10 years is to put drones to practical use and make full use of autonomous delivery robots and autonomous delivery trucks. While automated delivery trucks may be difficult in the city, we envision them traveling from point to point on highways, and we actually think it is quite feasible. On the other hand, for drones to be accepted as a tool for delivery, two points must actually be overcome: first, the technology of drones must be improved; namely, drones must be able to operate in a more efficient manner. Second, Japanese regulations currently impose strict safety standards when the total weight of the drone body if its payload exceeds 25 kg, so if technological progress leads to larger aircraft that can meet certification standards, it will be possible to deliver even larger packages. If technological advances lead to larger aircraft that can meet certification standards, it will be possible to deliver even larger cargo. We hope to integrate these various technologies into our overall service.
We are also conducting experiments to this end, and have recently experimented with unmanned drone delivery. As the population ages, there is a shortage of delivery personnel, so there are high expectations for services that make full use of digital and technological capabilities, especially in the last mile of delivery.
You mentioned that one of your company's strengths is its range of 52,000 post offices nationwide and the fact that they are not only present in their respective regions but also play an important role in the community. Could you elaborate on the concept of the digital post office? How will digital technology change the role and function of post offices in the community?
The number of post offices is about 24,000 nationwide. 52,000 is the number of pickup and delivery locations, including those at convenience stores. This digital post office concept combines digital technology using smartphones with services that are unique to real post offices. Currently, financial counter services for individuals are not available on weekends and weekday evenings. Therefore, this digital system was introduced to provide some services 24 hours a day, 365 days a year via smartphones. However, a smartphone application alone cannot provide all conventional services. Basically, with this digital service, we are trying to simplify the necessary tasks and streamline the workload of the staff. Instead of needing a specialist at every post office, we can now remotely connect our customers with experts and specialists. This includes services such as intricate consultations, e.g., asset management.
In this way, we will realize a futuristic post office by providing customers with both digital and real services. We will incorporate new systems throughout Japan. Recently, we introduced a self-checkout system at the post office on the first floor of our headquarters that allows customers to weigh their own mail, pay for it and turn it in, and purchase merchandise and other items.
Please tell us about the privatization of the Japan Post Group, both concerning the system and structure surrounding privatization, as well as its benefits and impact.
Privatization began in October 2007, but that was just the beginning. Initially, the Japanese government owned 100% of the shares and the company was a joint stock company in form only, but the Japanese government gradually released its shares to the market. Currently, the privatization process is underway, but in the case of Japan Post, the Japanese government owns one-third of the shares, which is the legal minimum. Japan Post Bank/JP Holdings holds 89% of the shares, but is aiming to sell 50% in the near future and 100% in the future. We hope to reduce this share in the future. We believe that by reducing the number of shares in the group companies, the additional restrictions under the Postal Privatization Law will be removed, and the group companies will be freer to operate.
Our goal now is to continue with the process and eventually achieve full privatization of the group companies. However, since we already have much more freedom in management, we can collaborate with other private companies.
You are the president of Japan Post in this privatization process and it is not without its difficulties. In addition to the financial aspects, there are also political issues. You have a very interesting background as a former governor of Iwate Prefecture. How do you think your background as governor of Iwate Prefecture has helped you oversee this situation?
After serving as governor of Iwate Prefecture, I was in charge of postal privatization as Minister of Internal Affairs and Communications in the Shinzo Abe administration. Privatization is a very political process, so that experience worked to my advantage. I think my experience in privatization, which is a very political process, has been an advantage for me in my work, because I have good connections and good relationships with the ruling party.
One of the benefits of privatization is that it gives us the independence and flexibility to work with other companies like Toll Holdings in Australia. Can you give us an update on your relationship with the Toll Holdings Group and what role it plays within JP Holdings?
I think the aim of acquiring Toll Holdings was a good one. The Japanese market is shrinking, so we need to find new ways to do business, and I think the overseas market is a good move. However, the express business has not been doing well over the past few years, and as a result, we sold the express division last year. However, Toll's logistics and forwarding businesses remain and these are performing well. Toll's headquarters functions are partially located in Singapore. We are a group that will not expand worldwide all at once, but first into the Asian market, and working with Toll in Singapore is an opportunity to strengthen our global business.
Unfortunately, I have not been able to visit Singapore yet because COVID is not over yet, but the head of Toll is visiting our headquarters in Japan. After this pandemic is over, I would like to visit Singapore to speak directly with Toll management.
Toll actually has very good connections with the Singapore government and through them has built a good network in neighboring countries as well. This is a catalyst for the company to promote its business in Asia beyond the larger global market, in addition to the significant growth of the logistics sector in the region.
You mentioned that once COVID is finished, you will focus more on your overseas business. Are we to understand that you are considering new acquisitions or new business development in Asia? If so, what kind of acquisitions and where exactly are you targeting?
We are always looking for potential new partners. When we seek partners, it means alliances or M&A, and we are realistically considering various possibilities. However, in the case of COVID, there are many unpredictable factors, and we are still in the process of considering exactly what options and strategies we have in place to become a major player in the Asian logistics market. Unfortunately, we are not at a stage where we can provide definitive information at this time.
The Japan Post Group has a strong network in Japan. We would like to promote the Group's strengths to our partners and other countries. Domestically, we have a very strong logistics network, but overseas, we will promote business not only with Japanese companies but also with other delivery services in Japan and abroad by strengthening our business with Toll. If you look at Asia now, there are many countries with rapidly growing populations, which means that the industry is growing and has great potential. As an experienced logistics company, we want to fully utilize our knowledge and experience to contribute to the development of local countries. Currently, we are intensively researching the linkages between the growing industries and the logistics sector in Asian countries to find ways in which we can contribute to the development of Asia in the future.
Right now, as you know, Myanmar is experiencing political instability, and we were helping them to establish a nationwide postal service until before the coup in February 2021. the ASEAN region is at different stages of development in different countries. Thailand, Vietnam, Indonesia, etc., are all growing countries, and we would like to focus on each country and help them meet their needs at different levels and contribute to their development. At the same time, we would like to fully utilize our network in Japan and support businesses in Japan with our financial services. Ultimately, our goal is to create a winning relationship and mutually grow together throughout Asia.
What are the environmental initiatives of the JP Holdings Group?
We are actively working to achieve carbon neutrality and have set a goal of reducing our GHG emissions by 46% by FY2030 compared to FY2019. The Japanese government has set a similar goal, but instead uses 2013 as the year for comparison, so for our company, which has adopted the 2019 standard, we are doing something very strict. Our means to achieve this goal is the electrification of our collection and delivery vehicles. We currently use 110,000 four-wheeled and two-wheeled vehicles, and our goal is to convert half of these four-wheeled vehicles and 40% of the two-wheeled vehicles to EVs by FY2025. Last year, we installed quick charging stations at post offices. These stations can be used not only by our vehicles but also by the vehicles of people in the neighborhood, and we hope to contribute to the local community and foster the value of our services.
We have partnered with Honda for motorcycles and with Mitsubishi Motors for small, lightweight automotive EVs. Currently, we have a project that has received government subsidies and has been approved as a national project. This is aimed at optimizing delivery routes, allowing delivery routes to be optimized and modified according to various factors such as delivery volume and climate. Currently, AI is used to collect and analyze data to determine more optimal logistics routes.
Could you give us an overview of your “JP 2025” mid-term strategy, and the key goals you intend to achieve by 2025?
First, the objective of "JP Vision 2025" is to build a co-creation platform. The vast network of 24,000 post offices nationwide is a national asset, and we want to open this platform to other private companies to utilize the post office network. In this regard, we are also working with Rakuten and our rival Sagawa.
Next, we have three pillars of business: logistics, finance, and insurance. Another pillar is the real estate business. Originally, the postal service was centered on railroad transportation, so there are many large post offices in front of train stations. Since they have high value as land, we would like to utilize their real estate to provide good services to the community and users.
We would also like to work on creating new businesses in other areas. The realization of our mid-term business plan will come through the integration of DX and digital technology, and that is the key.
You are the president of a company that has been around for over 100 years and is going through some very significant changes, from the integration of digital technology to privatization. It's a very exciting time, but also very challenging. Imagine that this interview comes again on your last day as president of JP Holdings Group. What are the goals and dreams you would like to achieve by then?
The services provided by the Japan Post Group have relied heavily on human resources; today we have more than 400,000 employees. Japan's population is rapidly declining, and that population has become the world's first super-aged society. Therefore, it is difficult to rely solely on human resources, so it is important to keep adopting new technologies and using them well to grow the company.
Of course, it is necessary for humans to control and make the final decisions, rather than being dominated by AI technology. The world is constantly changing, and we as a company must adapt to these changes and continue to enrich people's lives. Information security is also important because we are entrusted with our customers' valuable data, and by taking full advantage of new technological advancements, we hope to continue to be an indispensable part of people's lives.