WAITING FOR THE FUTURE1 February 1999
Alexander Dahm looks for pockets of hope amid the devastated crane market in countries of the Asia Pacific region
As the aftershock of the 1997 Asian currency devaluation continues, some areas of the crane industry are going through the worst recession that many can remember. Manufacturing turnover in Japan is estimated to be down 50% and the country’s total economic output in the third quarter of 1998 shrank 0.7%, with implications for the entire Asia Pacific region and beyond. Signs of hope are hard to find. Unemployment in Hong Kong is at record levels and its economy shrank by an estimated 5% in 1998. Even land prices have fallen by as much as 40%.
Despite this gloomy state of affairs, there are pockets of success in the crane industry throughout the region and, in spite of everything, there remains a degree of confidence about the future. A particular ray of light for the crane industry is the Hong Kong government’s high-rise housing programme. Hong Kong’s 6.8m population is projected to reach 8.1m by 2011 and it is official policy to have a population inflow of 150 people a day. With apartment blocks generally standing 40 floors high and often sited on hillsides or reclaimed land, there is much crane work, both for crawler-mounted piling rigs and for towers and mobiles.
But although there has been a decline in crane work in Hong Kong since the completion of the Chek Lap Kok airport, in no way has civil engineering work ground to a halt. Work has begun on tunnelling the HK$31bn (US$4bn), 12.5km extension to the Mass Transit Railway from Lam Tim to Tseung Kwan O. Construction of at least five new stations plus related commercial/residential development will follow on.
The HK$64bn (US$8bn) West Rail project, a 30.5km railway from West Kowloon to the northwest New Territories, starts this year with a scheduled completion date of late 2003.
Thomas Lau, managing director of equipment rental and trading house Ajax Pong, says that as many as 300 crawler cranes will be needed this year for the West Rail project alone. Lau says that 20% of the cash for government infrastructure projects is for machinery and 50% of the machinery will come from Hong Kong suppliers.
Other infrastructure projects include construction of the new CT9 container terminal and, in due course, the old Kai Tak airport will be redeveloped.
In Taiwan site work on the massive Bullet Train project, a US$12bn high-speed railway running 345km across the island, is due to begin in the first half of the year, contracts having been signed with a multinational consortium last July. Such projects do not exist in isolation and much other development will be generated, such as road building to stations and commercial property.
In Thailand, where the government has lowered interest rates to combat the financial crisis, work continues on certain export-related projects, such as a refinery where Walter Wright Mammoet’s Manitowoc M1200 Ringers are visible.
In Malaysia, too, there is still a market for the heavy lift contractors in the petrochemical industry.
Elsewhere in the Asia Pacific region, the picture is less promising. There is little activity in the crane industry in the Philippines or Indonesia, though the latter may improve if the result of the general election, to be held in June, brings an end to political turbulence and investor confidence is restored. Having said that, Grove’s Asia Pacific district manager John Stewart reports sales in Indonesia of a 130t all terrain and four 25t and 50t rough terrain cranes in the second half of 1998 – which is more than can be said for Korea, once one of the biggest markets for ATs but with no sales on the horizon, according to Stewart, probably even for indigenous manufacturers such as Samsung.
In Singapore, predominantly a taxi crane market for the building industry rather than a heavy lift engineering market, and there are still Housing Development Board projects such as refurbishment programmes. The Housing Development Board is client to as much as 70% of construction work in Singapore.
Though Singapore’s strong economy has been better able to escape the ravages of the contagion than most of its neighbours, it has still suffered and most government projects have been postponed. Consequently work is scarce for large mobile cranes such as Tiong Woon’s Demag AC 1600. Tiong Woon has experienced a 30% drop in rates and a fall in utilisation to 60%. Other rental companies have seen their rates fall as much as 50% since mid 1997. But Tiong Woon is offered some protection by demand for its crawler cranes remaining reasonable in Singapore. Tiong Woon’s business is down much more in Malaysia, Indonesia and the Philippines from where most of its cranes have been pulled back to Singapore and some may be sold off.
Inevitably, utilisation rates are also down in Hong Kong, falling significantly from a figure of almost 100%. Some ATs and RTs are operating for only 10 days a month on average. Monthly loan payments on a 50t truck crane of HK$50,000 (US$6,500) cannot easily be met on a typical daily rental rate of HK$3,600 (US$460). This is without even considering additional daily costs such as HK$700 (US$90) for the operator.
Lik Hung Crane Hire appears to be doing better than most. It has one of the newest rental fleets in Hong Kong which has remained constant at around 30 cranes and is maintaining 70% utilisation, albeit at reduced rates. Director Nelson Kan estimates that 80% of mobile crane hirers in Hong Kong are not busy enough to turn a satisfactory profit.
Strategic location and distribution of larger cranes between Hong Kong Island and Kowloon is now more important than ever because of the HK$11,000 (US$1,400) charge to take a crane between about 80t and 120t through the tunnel. Cranes too large for the tunnel must go by barge, at a cost of up to HK$20,000 (US$2,600).
Hong Kong’s decline of crane utilisation is mirrored across the Asia Pacific region, regardless of the impact of the few mega-projects. Though Hong Kong’s economy still grew 4% in 1998, sales of new cranes were down 50%, according to one major distributor, such is the glut of cranes left idle, many with finance still owing on them. Re-selling them is tricky, given that any potential buyers can get a good deal on a new crane from Japanese manufacturers struggling with the low value of the yen. Having said that Frank Chan of Continental Equipment in Hong Kong has received many enquiries from the Middle East, India and Pakistan for his used cranes and has made some sales there, particularly in India.
When it comes to crane sales in the region, Tadano and Kato continue to battle for dominance, particularly in Hong Kong and mainland China, but there is increasing competition from European manufacturers. Tadano is aiming at a 38% market share for the 25t to 50t truck crane sector in three years’ time. This will eat into Kato’s past claim of a share of more than 80% but will not be achieved by cutting prices, according to Tadano South China senior manager Peter Shum.
Grove’s National Crane hopes that its new larger models (National Crane launches… Nov98, p13) will challenge the traditional dominance of Kato and Tadano in the truck crane sector. National’s manager of Asia Pacific sales Matthew Svoboda cites improved reach and the ability to transfer the crane to a new truck as important advantages.
City class cranes, or mini-RTs, such as Tadano’s Crevo series, are still considered too expensive in Hong Kong and China despite strong sales in Japan. However, Ajax Pong runs five Kato MR100s and Continental has several city cranes from various manufacturers.
On the plus side, such has been the downsizing of fleets (Ajax Pong from 140 to 60 units, Continental from 30 to 10 units) that when the market does pick up again, there will be an urgent requirement for both new and used cranes.
Overall, however, 1998 was a year in which crane buyers were hard to find. Total imports of new and used cranes into Singapore, for example, fell from $350m in 1997 to just $60m. Inevitably, it was the dominant Japanese manufacturers that bore the brunt of this fall.
And 1999 is unlikely to be very much better for the manufacturers. Already one Hong Kong mobile crane hirer has postponed delivery of a new 500t Liebherr LTM 1500 AT from March until November at the earliest.
Strategies for beating the recession vary. Lik Hung seeks to develop relationships with the bigger contractors and do as much night work as possible, which can bring a 50% premium on day rates. Others are opting to diversify. Ajax Pong, which has seen a 40% drop in turnover since September 1997, is moving towards more general facilities management and has long term plans to set up manufacturing and assembly plants in several countries. Coastal Equipment in Singapore has an agreement with Sykes Pumps which now has an office and equipment there, expecting business in sewage pumping and land reclamation. Continental Equipment, which relied heavily on trading used equipment internationally before the downturn, has bought its first tower crane, a 300tm model, for the rental market.
The tower crane rental sector is generally reckoned to be faring a little better than the mobile crane market in Hong Kong, but many of these too lie idle, particularly luffing jib models. This is attributed in part to the cancellation of private developments and the suspension of some government housing projects. Proficiency Equipment’s fleet of 70 cranes was only running at 60% utilisation at the end of 1998, though this was largely due to the fall-off in business in Malaysia and the Philippines where Proficiency used to rent cranes.
For much of the work in progress in Hong Kong there is a trend towards larger, higher capacity (up to 200tm) saddle jib cranes that can lift 6t or more at 30m, to handle the precast concrete elements being used increasingly for housing block construction.
Ajax Pong is also expecting a rise in demand for tower cranes in Hong Kong and says that it may expand its six-strong fleet with up to 20 new saddle jib models.
In Singapore and Malaysia new legislation requiring tower cranes to be fitted with safe load indicators has brought a further cost to doing business. Econ Machinery is responding by making its own unit that sells for US$3,000 instead of US$7,000 for a leading European crane manufacturer’s version, says sales director Joseph Lim.
Econ Machinery has had an office in Hong Kong for only a few months and won one of its first jobs because it was able to supply a flat top tower crane. The restricted jobsite at the bottom of a hill in Chai Wan meant that there was not enough room for a mobile crane large enough to lift 11t jib and counter jib sections of a saddle jib crane with a tower head. But the flat top Linden crane could be erected in 3t sections by a small 25t mobile crane.
A noticeable trend in Hong Kong is an increasing realisation of the importance of service and maintenance as projects are so time sensitive that even half a day downtime on a tower crane is unacceptable and if a crawler crane breaks down more than a couple of times there is little chance of repeat business.
Crawler crane rental rates, following the pattern of other crane segments, have also fallen. In Hong Kong, for example, a 150t Kobelco 7150 piling rig was earning HK$300,000 (US$39,000) a month in mid 1997 but now the figure is nearer HK$180,000 (US$29,000), according to Continental Equipment’s Frank Chan who has four units on hire.
But unlike mobiles, utilisation remains good. Proficiency Equipment is maintaining between 80% and 90% utilisation of its 20-strong crawler fleet, according to new general manager Wilkin Lam.
Proficiency Equipment has nine cranes on a five block housing development at Lai Chi Kok in Hong Kong. Most of these are 65t to 150t Liebherrs and the remainder Kobelco 80t to 150t models. The cranes are driving 2.5m and 3m diameter piles for the 30-plus storey buildings and Proficiency says it gets a good return in a short time on Liebherr cranes.
Christian Lins of Liebherr (HKG) is happy with crawler crane sales in Hong Kong which, he says, have picked up significantly in the last few weeks of 1998 when seven units of the HS 883 HD model were sold. This coincided with the start of the Hong Kong University project and major housing schemes. Although the currency crisis is not over, Lins is particularly positive about the foundation market in Hong Kong because of the impending infrastructure projects.
Last year Liebherr introduced a new control system option to automate chiselling operations on the HS 883 HD. The Automatic Chiselling System can operate chisels over 25t by simultaneous control of two 30t winches. The operator pre-selects the number of blows needed to break the stone, the free-fall height and control of slack in the rope to prevent damage.
According to Kobelco more than 50% of foundation jobs in Hong Kong are done by Gammon which has more than 100 Kobelco crawlers. The most important of these are the 90t BM 800 and 100t BM 1200 models which are designed specifically for foundation work as is the 150t BM 1600.
In December Kobelco launched two new BM series heavy duty cranes, the BM 500 HD and BM 700 HD.
In response to customer requests they are designed to be more durable with higher performance. They feature more line pull from larger winches, thicker ropes and a new brake which is a hydraulically actuated drum type design.
Project TK055, part of Hong Kong’s MTR extension is in its early stages and Ajax Pong has a Kobelco 7080 crawler on site along with a Kato truck crane.
Proficiency Equipment did a trial pile on the West Rail project last year and there is now 18 months of piling work on this one job. The company continues to favour IHI crawlers and the Liebherr 883 with its 600kW engine and it is maintaining fleet size and a five year average age of equipment figure despite the economic climate. Proficiency used to ship its old crawler cranes to the Philippines for sale but now most go to eastern Europe.
To conclude, the general feeling within the crane industry, among both suppliers and crane users, is that in Hong Kong business will be picking up by the middle of the year and booming again in two to five year’s time. Elsewhere, recovery may take a little longer, but optimism remains and signs of recovery should be visible in the stronger economies by next year.
Capturing the mood, Shinsuke Izumi, director and general manager of Kobelco in Singapore, says: “The future is very bright, but when is the future?”