HITTING THE BOTTOM1 September 1999
Phil Bishop reports on the ailing Japanese market
The official prognosis of the Japanese economy is that it is not getting any worse. But how much comfort is that when the market, both at home and across Asia, has dropped so dramatically? Total crane production in Japan in 1998 fell in value by more than a third on the 1997 total. Then in the first quarter of of 1999 the total value of crane production was about two thirds down on the first quarter of 1998. Thus first quarter production fell from ¥86bn ($750m) in 1997 to less than ¥24bn ($200m) this year. That is quite a collapse for the industry to come to terms with.
Crane producers see a glimmer of hope from signals that sales of mini-excavators are picking up; June was the first month to show a year-on-year rise after 24 months of decline and received wisdom is that crane sales are on a cycle about six months to a year behind excavators.
Noticing this, Akio Nagasawa, general manager of IHI’s sales department II, says: “In the last part of this [financial] year it may start to pick up. That is my personal prediction, not the company’s”.
It is an analysis shared by Tadashi Suzuki, general manager of Tadano’s international headquarters in Tokyo. The government committed ¥40,000bn ($350bn) in February 1998 to public works, earthmoving kit has hit the bottom and turned up, and cranes should follow about a year after, he says. Therefore we should expect some signs of recovery beginning in the later part of the financial year.
Others are less optimistic. Tadayoshi Uchizawa, general manager of Furukawa Unic’s overseas department, says he finds it hard to see the market ever recovering.
Not long ago the demand for cranes in Japan was nothing short of phenomenal. The peak year was 1991, when sales of wheeled mobile cranes over 5t hit 6,700 units for the year. Sales gently declined afterwards, except for an upturn in the year to March 1997, when there was a rush of demand to beat the tax increase imposed in April 1997 from 3% to 5%. But in the past couple of years demand has appeared to be in freefall. The mobiles market fell from 4,574 units in the financial year 1996/97 to 3,239 the following year to 1,932 in 1998/99. Tadano’s Suzuki reckons that the natural market level for mobile cranes in Japan is around 3,000 units.
As for lattice boom crawler cranes, 46 units were delivered to Japanese customers in the first quarter of this fiscal year, April to June, 12 fewer than in the same quarter last year. For the fiscal year to 31 March 1999, 307 units were delivered in Japan. This compares with about 430 units in the calender year 1998, 740 units in 1997 and 850 in 1996. Every expectation is that the market this year will be a quarter the size that it was just two years ago. With Kobelco, Hitachi, Sumitomo, IHI, and Nippon Sharyo all competing fiercely, some consolidation would appear to be in the best interest of the supply side, but to date there is little evidence of it happening, beyond a few product marketing agreements such as those between Maeda and Komatsu, Tadano and Hitachi, and Kobelco and Hitachi.
As for the crane buyers, the construction contractors and rental houses, a cultural change appears to be taking place. It was a myth that the Japanese replaced their cranes every couple of years, but they were generally much swifter to renew than other nations, simply because they could get such a good price in the international used equipment market. Instead of waiting for the machine to depreciate 100%, they would sell after five to seven years, to get a better price. Today they are being more conservative and are holding on to their plant. Whether this continues if and when the Asian market recovers remains to be seen.
In an effort to compensate for the lack of demand both at home and in their traditional Asian export markets, Japanese manufactures are broadening their horizons more than ever before, making extra efforts in Europe and North America, and in some cases producing special models for specific export markets.
Loader crane manufacturer Furukawa Unic, for example, has produced the 30,000lb (13.6t, 15 US ton) capacity model UR-1504, which it exhibited at Conexpo in March. Too big for the Japanese market, this crane was designed specifically for North America. According to general manager Tadayoshi Uchizawa, the US market for 15 US ton truck loaders is 3,000 units a year, dominated by the likes of National Crane and Terex RO. Uchizawa says that Unic is now looking to produce a 20 US ton crane for North America. The USA is not a new market for Unic – it has already sold more than 500 units there – but with the domestic downturn exports have become more important.
Overall, the A 340 stiff-boom truck loader, rated at 2.93t, is Unic’s best seller. The 3t sector is the biggest market segment in Japan because such cranes are suitable for trucks under 8t GVW, which do not require a special licence to drive.
With Tadano as the major competitor in the truck loader crane market, Unic allies with Aichi, sharing certain distributors.
Uchizawa says that Unic and Tadano each have a 40% share of the Japanese truck loader market, with Maeda, Shimaya and Kato having most of the rest. A few Hiabs are also sold, particularly for scrap handling and orange-peel grapple applications. Unic also sells Palfinger knuckle-boom cranes, as Unic Pal.
Tadano’s Tadashi Suzuki has a different view. He says that Tadano and Unic share nearer 95% of the Japanese market, which was around 14,000 units last year. In 1997 Tadano was producing, in total, 15,000 units a year by itself.
A new concept from Unic is the mini truck crane, mounted on Isuzu or Mitsubishi carriers. At the start of the year it launched the UT 300, a 2.9t capacity truck crane with a 19m boom, and a 5t version, the UT 500. “Just city size!” is the slogan for these models, adopting the increasingly prevalent terminology used to describe all kinds of compact machinery in Japan, designed to operate in busy city streets. About five units of these models were sold in the first six months. Just like on conventional larger truck cranes, the operator sits in a rear-mounted cab.
At the recent Conet show, held in Tokyo in July, Unic launched the UR-A500CL, a mini-crawler that lifts 2.93t at 3.4m.
Unic does not attempt to compete in the European loader market, since it is dominated by knuckle-booms, but it is working to get CE marking for its crawler-mounted UR cranes. This is a niche market, with sales in Japan of about 40 units a year. Now under development at Unic are new models of mid-range loaders. The view is that the market is ready for renewal.
At Tadano, Suzuki says that all market segments are down almost equally dramatically. The 10t mini-RT segment was the biggest, and this is down the most.
Tadano has cut its payroll by 264 to about 1,400 employees and, like Aichi, decided not to exhibit at Conet. Something had to be done. Declining demand has meant that production is down from 2,200 cranes in the year to 31 March 1998 to 1,600 cranes last year.
For the year to 31 March 1999 Tadano reported its first ever loss – ¥1.2bn before tax, on sales of ¥110.5bn. In the previous year it made a ¥5.1bn profit on sales of ¥134.5bn. For the current financial year a profit of ¥1.5bn is forecasted, with sales steady at ¥110bn.
One of the initiatives to boost exports is the formation of a team dedicated to used crane sales across Asia.
Tadano still claims the title of the worlds biggest producer of mobile cranes though. With the world market estimated at 8,200 units, this gives Tadano 27% global share for last year. For Japan, it puts its share at 46.4%.
Because it produces different models for domestic and export markets, and manufactures in Germany, Tadano claims to have the biggest crane range too. Suzuki says that Tadano’s range has 4.8 times the number of models that Liebherr has, 1.8 times that of Kato and 1.6 times that of Grove.
Suzuki says that product development is one area that has not been cut back. The most recent new crane products are the 550t-capacity AR 5500M and the 400t-capacity AR 4000M, launched in January 1998. Both of these are on seven-axle Faun carriers and the larger one is the biggest hydraulic mobile on the market in Japan. Sales volume is small, inevitably in single figures. For this year, and the next few, the programme is to modernise the whole fleet, starting with the Crevo range of mini-RTs/city cranes. The main emphasis will be on tightening the environmental standard, such as noise and exhaust emissions.
Unlike Tadano, Kato has not felt the need to reduce staffing levels. With 1,000 employees it reckons it is sufficiently flexible to manage the downturn. But like Tadano it also reported a pre-tax loss last year, of ¥1.1bn on sales of ¥43.5bn. In the previous year it made a ¥605m profit on sales of ¥65.4bn.
With regard to new products, the KA-900 generated a lot of interest at the Conet show in July, with three or four potential sales nearing conclusion. This crane was shown in Europe last year at Bauma, since when eight units have been sold there.
Also at Conet, Kato showed a new version of its MR-220, a 22t mini-RT. Designated MR-220SP, it has been given new lifting capabilities and a hydraulic powered jib. Kato expects to sell at least 50 units of this crane this year. It is similar to, but heavier than, the 25t capacity CR 250 City crane that has become familiar in Europe. The MR-220SP weighs in at 26t while the CR 250 is less than 24t. The MR 220 is basically just for the Japanese market, but it may also be sold in Taiwan.
A 40t version of the CR 250 can be expected soon to challenge the Demag AC40-1. Expect to see it launched at Bauma 2001, as Kato will not be exhibiting at Intermat 2000. The 10t CR 100 is already available in Europe.
Now that Liebherr is offering a large all-terrain crane for which the boom must be removed to transport it by road – the long boom version of the LTM 1500 – Kato is hoping that a new market may be developed. Large Japanese ATs are not roadable under European regulations without the upper being removed. If Europeans become comfortable with the idea of dismantling an AT between jobsites, perhaps then Kato can market its six-axle, 200t-capacity KA 2000 in Europe. The whole superstructure would need to be removed, rather than just the boom, which is the case with the Liebherr crane, but it still just means the one trailer.
That may prove wishful thinking on Kato’s part, but such is the enthusiasm for developing export markets among Japanese manufacturers today that there are those within the Kobelco operation advocating a return to truck crane production to capture overseas sales. Such a move is unlikely though, says Tadahiro Akihara, assistant manager in the international operations department. Kobelco gave up producing truck cranes in 1985 and moved to rough terrain manufacture, as RTs are predominant in the Japanese mobile crane market.
Kobelco, part of Kobe Steel, has seen a significant corporate reorganisation this year. In an attempt to give its various divisions greater autonomy, and the ability to respond more quickly, Kobe Steel has loosened the grip of central control. As of 1 April, the construction machinery division became the Construction Machinery Company, and the general manager became president. Previously Yutani made excavators, Kobe Steel made cranes and lots of different arms were responsible for marketing. On 1 October the Construction Machinery Company merges with two other subsidiaries to form a new company. Kobelco is considering, as a next step, rationalising crane production. There is enough space at its Takasago plant to shut down Okubo and consolidate at a single site.
Kobe Steel’s construction machinery division had total sales of ¥125.5bn for the year to 31 March 1999, down 25% from ¥168bn in the previous year. Domestic sales were down from ¥107.3bn to ¥78bn for the year, and overseas sales were down from ¥60.7bn to ¥47.5bn.
For the current year, sales are forecasted to go back up 18% to ¥148.7bn, with ¥92.1bn from domestic sales and ¥56.6bn from overseas.
In its latest annual report Kobe Steel said: “Although the increase in public works projects in the second half of the fiscal year was a positive factor, the unclear outlook for fiscal 1999 dampened purchases of construction equipment in the period under review. Anxiety over the financial system, bankruptcies of general contractors, and customers’ financial difficulties also contributed to lower demand.” Kobelco was also hit by an abrupt halt in exports of used machines to Southeast Asia, which impacted on domestic sales. It expects no recovery yet in Southeast Asia but US demand is expected to remain firm and Europe is now being vigorously pursued, with Grove UK signed up as a distributor (Kobelco steps up its international sales drive Jun99, p9).
Akihara expects no upturn until 2001, with this year and next remaining stable.
Kobelco reckons to be Japan’s market leader in crawler cranes. In the first half of financial 1999 it will make about 60 cranes for the Japanese market and about 70 for export, including 20 for the USA, Akihara says. This is the first year that Kobelco is exporting more than it will sell at home. In 1996, for example, 240 crawlers were manufactured for Japan, and 80 for export.
Product development at Kobelco is focused on extending the HD piling crane concept from the 70 series to the 50t, 60t and 80t lift cranes.
Like Kobelco, IHI also expects to sell more crawlers overseas than at home for the first time this year, aided greatly by its deal to supply Terex/American Crane.
IHI has already supplied Terex with 17 units of the 70t CCH 700 (the 80 US ton HC80 in Terex nomenclature) since striking a supply deal earlier in the year and is contracted to supply a further 30 units before the year-end. Negotiations continue over IHI supplying Terex with 60t and 100t models as well. These cranes need to be modified first to meet local needs.
In 1996 IHI delivered to domestic customers about 150 crawlers of 50t capacity and above, says Akio Nagasawa, general manager of sales department II’s international division. This year it expects to sell 60 units at home, and export 70, including the Terex machines.
The Terex deal marks IHI’s entry into the USA. It was a market that the company was reluctant to enter for fear of product liability issues. “But when the market went down, we had to go whether we wanted to or not,” says Nagasawa. Under the deal, Terex takes product liability risk, of course, but then that is reflected in the price IHI realises.
IHI has just started promoting its 3t mini-crawler, the CCH 30T, in Japan. The model was developed in response to a request from its UK-based European distributor AGD, to whom IHI delivered 25 units.
Further new product development has fallen victim to cuts necessitated by falling sales, however.
Buoyed by the success of its US company, Link-Belt, Sumitomo has been able to maintain its product development programme with upgrades of its 50t and 65t crawlers coming onto the market in April. These cranes are the SC 500-3 and the SC 650-3, part of the Pax range. The latter is a domestic version of the SC 700-2, which in the new version becomes the SC 700-3. The first two units of the SC 700-3 are due to be shipped to Tat Hong in Singapore this month.
These models feature a new winch system, with line pull increased from 15t to 17.5t and line speed increased from 95m/min to 120m/min. The improvements have been achieved by changing the ratio on the gears and the variable motor. Also new is the electronic motor control, with a grip throttle, like on a motor bike, to control acceleration, pump displacement and motor displacement. The manufacturer says this gives smoother control of the load.
Next on Sumitomo’s agenda is to bring out a version three of its 80t, 100t and 150t models, giving them the same treatment as the 50t and 65t models. Still not part of the Pax series are the old 35t, 40t, 250t and 750t crawlers. As demand is concentrated on the mid-range, Sumitomo has made do with older versions of these models so far.
More than 1,000 units of the Pax crawler series have now been delivered since the July 1992 launch.
Purely for the domestic market, Sumitomo also offers lattice and telescopic truck and AT cranes. Last year it brought out a 250t-capacity AT, the SA 2500. Demand has been slow, though. Two units were built and sold last year; no orders have been received since. There is also a line of 120t and 170t ATs in stock, so the only AT in the production schedule is a single SA 2500. After that, trucks and ATs will only be built as orders are received.
Clearly Sumitomo is strongly supported by demand from its USA operation. Sumitomo manufactures Link-Belt models 208, 138II, and 218, and the uppers for the 248 and 238. Only the 278 is all Link-Belt’s own work.
New crawlers have also been launched by Hitachi. The CX 900 came out last year, followed by two new crawlers this year, the CX 1800 and the CX 2000. In spite of Tadano and Kato dominating the limited truck crane market, Hitachi entered the fray last December with its first wheeled model, the 50t CX 500W truck crane. Five units have been delivered to various dockyards in Japan. None have yet been exported.
Maeda, part of the Maeda Corporation, one of Japan’s biggest general contractors, produces a small range of mini-crawlers ranging from 1t to 3t capacities. It is also one of Komatsu’s biggest dealers, operating in five prefectures of Japan and responsible for 12% of all Komatsus sales.
Maeda’s relationship with Komatsu extends to it manufacturing the LC 503-1 and LC 755-3 for Komatsu and supplying boom assemblies for other models. The two companies also co-operate in crane research and development. One of the fruits of this co-operation is the LC 1285, a 5t-capacity crane based on Komatsu’s PC 128 excavator.
Maeda actually started in the loader crane business, but struggling against competition from Tadano and Unic , moved into mini-crawlers. It also has a line of powered access equipment, manufactured by its subsidiary Nadano Industries. To enable sales in Europe, CE marking has been secured for the HF-120 platform. Maeda is looking for more sales agents in Europe, having appointed AB Kranlyft of Sweden as distributor for Scandinavia, Benelux, UK, Spain and Greece. Marg Notz, the Hitachi dealer, covers Switzerland and Germany. It expects to export about 100 units of cranes and access equipment to Europe before the financial year closes on 31 March 2000. After Europe has been conquered, North America will be targeted.