TOKYO, Oct 5 (Reuters) Nippon Express Co Ltd, Japan's largest general transport firm, and Japan Post Holdings Co have agreed to merge their domestic parcel delivery services and may form a broader alliance, including capital ties.
The deal comes on the heels of state-owned Japan Post's splitting its businesses -- mail delivery, banking, life insurance and over-the-counter services -- into four companies under a holding firm this month.
Nippon Express had been seeking to tie up with a partner and streamline its business, as its parcel delivery sales have declined amid fierce competition in a market led by Yamato Holdings.
Yamato commands 37 percent of Japan's door-to-door parcel delivery market, followed by unlisted Sagawa Express Co with 32 percent while Nippon Express places a distant third with 11 percent.
Japan Post has around 8 percent.
Japan Post Service Co, Japan Post's mail delivery firm, and Nippon Express aim to set up a new company next October to oversee the integration.
''Alone, we did not have economy of scale -- together we can combine Nippon Express' expertise and Japan Post's extensive network,'' Japan Post President Yoshifumi Nishikawa told a news conference.
He added that cross-share holdings may be considered when Japan Post makes its stock market debut although no time has been set for that.
The two are also considering other ties. Nippon Express' services also include truck and marine freight transport as well as railway and air freight forwarding.
Nippon Express' stock ended up 1.9 percent at 641 yen in afternoon trade while the broader market was flat.
Although Japan Post's banking and insurance businesses are set to be privatised sometime by 2017, the government does not plan to privatise the mail delivery and over-the-counter service operations.
REUTERS KR ND1744