The Fair Trade Commission ordered Japan Post Co. to rectify its penalty system for parcel delivery subcontractors after finding that a post office in the Kanto region charged illegally high penalties for mistaken deliveries and customer complaints.

A mistaken delivery cost 5,000 yen to 30,000 yen ($32 to $190), and a complaint about the smell of cigarette smoke cost 100,000 yen, according to a list obtained by The Asahi Shimbun detailing breaches of contract and their corresponding penalties that were in effect in one prefecture in December 2022.

At multiple subcontractors, drivers who were in charge of parcels in question paid the penalties, the newspaper learned.

According to sources, the FTC investigated contracts between a post office in the Kanto region and subcontractors commissioned to deliver Yu-Pack parcels from 2023 to 2024.

The commission found that penalties for mistaken deliveries and complaints about thirdhand smoke odors were unjustifiably high and that the post office collected those charges from several subcontractors without sufficient explanations.

In June, the FTC concluded that the cases constituted violations of the Subcontract Law, which prohibits unjustly having a subcontractor provide “economic gains,” such as cash and services.

It gave administrative guidance to Japan Post, which operates the nationwide network of post offices, to rectify its “breach of contract” penalty system as penalties are stipulated under its contracts with subcontractors around the country.

The commission completed its investigation after examining the prefecture where the post office was located to prioritize seeking prompt corrective action for the identified violations.

The FTC did not flag Japan Post’s penalty system itself as illegal. However, The Asahi Shimbun found similar levels of penalties were charged in other prefectures.

According to Japan Post, the penalty system was introduced in December 2003.

Inhouse regulations as of December specified 5,000 yen for a mistaken delivery and 10,000 yen for a complaint about a smoky odor as guidelines, for example.

A standard contract is available, but Japan Post said it has given post offices certain discretion over details.

In an interview, Japan Post acknowledged that there are differences in the way that post offices have put the penalty system into practice.

The company said it plans to standardize penalty amounts and the breaches of contract for which they are charged as early as April.

The Asahi Shimbun obtained several contracts between Japan Post and subcontractors.

The wording was almost the same. The contracts said penalties are charged separately from damages.

Subcontractors receive between 100 yen and 200 yen for each Yu-Pack parcel delivered. This means penalties can be several hundred times higher.

The Asahi Shimbun found that penalties similar to amounts the FTC deemed illegally high in the prefecture were charged at post offices in the Kinki and Tokai regions as well. 

According to Japan Post, 93 percent of the 1,074 post offices handling Yu-Pack parcels and other packages nationwide outsourced collections and deliveries to subcontractors as of April 2023.

Post office employees also deliver certain packages, but they are not required to pay a monetary penalty for mistaken deliveries based on labor law provisions, Japan Post said.

In fiscal 2023, Yu-Pack parcels accounted for about 20 percent of the parcel delivery market, making Japan Post the third-largest player.

Yamato Transport Co. and Sagawa Express Co., the No. 1 and No. 2 parcel delivery companies, told The Asahi Shimbun that they do not charge breach of contract penalties.

Japan Post said its penalty system is designed to prevent mistaken deliveries and other problems and raise awareness about improving the quality of delivery service.

If penalty fees are set at the same level as or below the payment for each parcel delivered, their effectiveness as a deterrent against mistaken deliveries and other problems will substantially diminish, Japan Post said.

The company declined to comment on how subcontractors deal with penalties, such as whether they pass them onto individual drivers.

(This article was written by Nobuya Sawa, Yosuke Takashima and Yuji Masuyama.)