How Japan is creating a sustainable and resilient future for the logistics industry

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Naoko Tochibayashi, Communications Lead, Japan, World Economic Forum, Naoko Kutty, Writer, Forum Agenda

• New overtime regulations for truck drivers come into force this year in Japan.
• The so-called 2024 problem is forcing the logistics industry to reassess its practices.
• Public-private efforts can foster sustainable growth in the logistics industry.

As the economy continues its recovery from the COVID-19 pandemic, various challenges are coming to light. Among them, the “2024 problem” looming over Japan’s logistics industry stands out as an issue requiring urgent attention.

In Japan’s logistics industry, overtime regulations have historically been exempted on an exceptional basis due to labour shortages. However, starting this April, annual overtime work limits for truck drivers will be capped at 960 hours. This change stems from the Work Style Reform related laws, enacted in 2018 with the aim of creating a society where workers can choose diverse workstyles. These laws have been gradually implemented since 2019, focusing on correcting long working hours, expanding flextime systems, and ensuring fair treatment regardless of employment status, all contributing to improving Japan’s overall labour environment and productivity.

While the standard annual overtime work limit is typically set at 360 hours, the logistics and transportation sector faces a higher limit of 960 hours due to the unique nature of its operations.

While these regulations are expected to improve the working conditions for drivers, the labour shortage, especially among long-haul truck drivers, is accelerating, with an estimated shortfall of approximately 14% by 2024 and 34% by 2030 if measures are not taken. This impact raises concerns ranging from decreased revenue for logistics companies, reduced income for drivers due to shortened work hours, to increased logistics costs for shippers due to fare hikes.

Ahead of the impending logistics “2024 problem”, the Japanese government formulated a “Policy package for logistics innovation” and “Guidelines for shipper and logistics operator initiatives for logistics rationalization and productivity improvement” in June 2023. These guidelines require logistics operators, shippers, and consignees to reassess industry practices and make efforts to improve the efficiency of logistics processes. Building on these guidelines, efforts by both public and private sectors to foster sustainable growth in the logistics industry are gaining momentum.

Paving the way for solutions with the ‘physical internet’

Efforts to realize the “physical internet,” which applies the packet exchange mechanism of the internet to logistics to streamline logistics systems, are gaining momentum. The concept aims to improve the utilization rate of logistics resources by sharing transportation means and warehouses among companies. This involves transporting goods through warehouses along the route to the destination using fewer trucks, reducing environmental impact and constructing a sustainable logistics system. In pursuit of achieving this by 2040, the Japanese government has formulated a “Physical internet roadmap.” It outlines concrete steps that various industries should take by 2040, such as sharing and optimizing information on goods and transportation assets using IoT and AI, and standardizing logistics materials like pallets and container containers.

One notable initiative is the “NeLOSS” system, developed by Next Logistics Japan, a subsidiary of Hino Motors. It is the world’s first automatic dispatch and loading system using quantum computers. This system aims to maximize the loading rate and productivity of logistics trucks, which are said to fall below 40%. By automating the allocation and loading of cargo using quantum algorithms, NeLOSS reduces the time-consuming manual task, which typically takes about two hours, to just 40 seconds. It instantly calculates the optimal combination for loading cargo of different shapes, weights, and temperature ranges, and transports mixed cargo from various industries using the company’s developed double coupling trucks, which are equivalent to 2.5 large trucks.

With investments from 19 companies, including Asahi Group Japan, Nissin Foods Holdings, Bridgestone, and MUFJ Bank, Next Logistics Japan strengthens collaboration beyond industries, essential for realizing the ecosystem of the physical internet. Together with 42 other companies from different sectors, they are advancing the development of transport sharing mechanisms.

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Collaboration among consignees

The food retail industry is gaining momentum as they swiftly embark on logistics reforms. In regions like Kyushu, the Greater Tokyo Area, and Hokkaido, food supermarket operators have joined forces to establish study groups aimed at improving logistics. Recognizing the challenges of efficiently servicing numerous stores within the retail industry’s logistics network, these study groups prioritize cooperation over competition. Major supermarkets are collaborating to revise supply chain practices, extending order and delivery lead times and relaxing traditional rules that restrict procurement to the first third of a product’s shelf life, now eased to half. Additionally, they are exploring initiatives such as shared transportation trucks. With synchronized efforts from food retail industry players addressing both logistics efficiency and food loss reduction, these initiatives are expected to expand further in the future.

Modal shift: Increasing load efficiency while reducing emissions

Efforts to enhance transportation efficiency through modal shift, transitioning long-distance transportation from trucks to ships or railways, are gaining traction. Last September, Takeda Pharmaceutical collaborated with Mitsubishi Logistics and JR Freight to shift a portion of pharmaceutical transportation from trucks to rail. Using temperature-controlled railway containers, Takeda ensured compliant transportation with proper pharmaceutical distribution guidelines, expecting to reduce emissions by approximately 60% along transportation routes.

Moreover, Nippon Paper and Daio Paper initiated joint marine transportation using roll-on roll-off (RORO) ships in August last year. After Daio Paper ships products from its factory in Ehime Prefecture to the Tokyo metropolitan area, Japan Paper loads cargo from Chiba Prefecture onto the return trip of the same ship, bound for the Kansai region. This collaborative effort achieves both emission reduction and increased load efficiency.

Revolutionizing the logistics industry

According to the World Economic Forum’s report The Future of the Last-Mile Ecosystem, it is projected that the number of delivery vehicles operating on the roads of the top 100 cities worldwide will increase by 36% from 2019 to 2030. Seen as a crisis, the “2024 problem” presents an unparalleled opportunity to improve the working conditions for drivers, reduce environmental impact, and achieve digital transformation while responding to the rising demand in logistics.

Collaboration between the public and private sectors, innovative thinking unconstrained by traditional practices, and the adoption of cutting-edge technology will be the keys to forging a sustainable and resilient future for the logistics industry.