There are definite signs that the Japanese economy is recovering, with a growth of 2.6% in the first quarter of 2000. A rise in interest rates may follow. They have been kept down near zero for 16 months to stimulate growth. This has also helped reduce the cost of borrowing for the Japanese government which has been running a huge deficit to finance public works.
On the down side, unemployment is at a post-war record of 4.8% and continues to depress consumer spending. But the Bank of Japan reported in May that capital spending by manufacturing companies was increasing, especially by those with export markets. “The improvement in Japan’s economy is becoming distinct,” the Bank said.
That may be the official view of the economy, but if you ask anyone in the crane industry you will hear a different story. Private sector capital investment remains slow.
“The market is not picking up. This year is even harder than last,” says Hiroyuki Suzuki, manager of Kato’s product planning group. “Officially, the wider economy is picking up but the crane industry is not seeing any of it.” Kenichi Sawada of Tadano agrees. He is section manager of the planning department in Tadano’s international headquarters. “The general economic situation in Japan is getting better. However, unfortunately we cannot see a sign of improvement in our field yet,” Sawada says.
The statistics bear this out. While excavator shipments rose 6.4% in the year to 31 March 2000 (fiscal 1999), domestic sales of construction cranes* were down 17% from ¥146.5bn in fiscal 1998 to ¥121.6bn, according to the Japan Construction Equipment Manufacturers Association (CEMA). In January 2000 shipments were down 9.2% on January 1999; in April they were down 21% year on year.
And last year was certainly bad enough. In 1998 (calendar year) the market for rough terrain cranes in Japan was more than 2,200 units. In 1999 Japanese manufacturers between them produced 1,500 RTs, for domestic sales and export combined. Demand for lattice boom crawler cranes (15t capacity and above) has fallen in Japan from more than 800 units in 1996 to 430 units in 1998 to 250 units in 1999. This calendar year at least began well for crawler crane manufacturers, with 106 units sold in Japan. But the first three months of 2000 were in fact the last quarter of Japan’s fiscal 1999 and sales traditionally rise in fourth financial quarters. Kobelco, which reckons it is market leader in the Japanese crawler market, forecasts that demand for the year to March 2001 (fiscal 2000) “will be essentially flat”.
Shipments of rough terrain cranes dropped 14% in fiscal 1999 to 1,070 units, from 1,240 units in fiscal 1998, according to Kobelco estimates.
Looking to the future, Tadano says that it hopes to see signs of an improvement in the market later in the year, but Kobelco believes that “with the government’s economic measures having little effect, demand for construction equipment in general could drop in fiscal 2000”.
Tadano expects export markets to hold firm, but Kobelco forecasts its shipments to North America and Europe to soften “on account of inventory adjustments, despite relatively strong demand”.
We reported in July that Kato and Tadano, Japan’s primary manufacturers of mobile cranes, both endured losses for the year to 31 March 2000.
Kato made a net loss of ¥2.62bn (about US $26m) on sales of 35.2bn Yen ($352m). In the previous year it made a net loss of ¥1.1bn on sales of ¥43.5bn.
Tadano made a net loss of ¥2.4bn ($240m) on sales of ¥61bn ($610m). In the previous year it made a net loss of ¥1.2bn on sales of ¥73.1bn.
A third manufacturer, Maeda Seisakusho, which makes truck cranes and mini crawlers, did manage to turn a net profit for the year, but of only ¥8m ($80,000) on sales of ¥46bn. Its operating profit of ¥94m gives it an operating margin of a mere 0.2%.
None of the three are predicting any significant increase in sales this year. Tadano is the most optimistic, forecasting a rise is sales from ¥61bn to ¥64bn, and a ¥200m net profit. Maeda forecasts a net profit of ¥250m on marginally decreased sales of ¥44m. Kato can only see itself managing to cut its losses to ¥800m on sales steady at ¥35bn.
“Generally speaking the market in Japan is still very bad for crane manufacturers and their customers,” says Kato’s Suzuki. “The problem is that there is less construction activity and the hire rates are low. Our customers are keeping their cranes longer – an extra three or four years.” One bright spot is the export market for used equipment. “The Asian market is getting better as a second hand crane market. Korea is buying used machines and prices are going back up a little,” he says.
Kato is traditionally more conservative than Tadano, both in its export efforts (witness Tadano’s acquisition of Faun in 1990 and setting up Tadano America) and in its financial disciplines.
While Tadano’s wider international vision has enabled it to take a strong lead over its great domestic rival, Kato can at least take comfort that it is managed in such a way that it is partially protected from the worst effects of the downturn. Until 1994/95 Kato was producing about 2,000 cranes a year. Now it is around 800 or fewer. But the company has not had to lay off lots of directly employed staff because it has had a policy of employing a lot of subcontract labour in the factory. The directly employed labour force has barely changed in size, Suzuki says. There are hardly any subcontractors remaining in the factory anymore, however.
At Kobelco, sales of crawler cranes to North America were strong, the company says, helping it to achieve ¥14.25bn from crane sales in the year to March 2000. It expects no great increase in sales this year, but says “cost reductions are anticipated to improve profitability”.
The biggest market in Japan remains the 25t rough terrain segment. This is a road going crane that in Europe has become familiar as the city crane class. In fact there is a slight difference between an RT and a city crane in Japan: on an RT the boom is stowed away in a horizontal position above the cab; on the city crane the boom is angled downward towards the front of the machine, allowing the driver to see over it.
RTs/city cranes are used in Japan in the way that ATs are in Europe and account for about 95% of cranes in the big cities.
A 25t RT is the most commonly used machine, (followed by the 50t and then the 10t), the hire rate of 25 tonners has fallen more than other classes and owners of these cranes are often forced to send them out to work at, or below, cost. With 10t cranes there is at least a little more flexibility as they are likely to visit more jobsites in the course of a day.
The market for larger cranes, 100t to 500t, was never a big one but it remains good. Only the larger rental companies own cranes of this size, and as there was never the over-supply that there was in the 25t class, there is still enough work for the larger cranes to make money on them. Cranes of 100t capacity and above account for only about 5% of Kato’s production, by unit.
Kato is still investing in product development, Suzuki says, but given the value of the yen it is hard to promote new products internationally. Kato has been particularly hit by the fall in the euro. The 90t all-terrain with a Volvo cab and engine that Kato exhibited at Bauma 1998, the KA 900, is a case in point. When this machine was first launched in Europe ¥1,000 was worth E63. By the middle of this year it was worth E101 – a 60% increase.
“The KA 900 is a very good machine but the exchange rate is bad for us. Before the exchange rate fell, it was priced about the same as a Liebherr 90 tonner. Today, a UK customer would have to pay 20% more.” At the same time, the yen has fallen against the dollar, making Japanese products more attractive in the USA. Unfortunately for Kato, it has no presence in North America.
Next up from Kato is a 40t city crane, in response to demand in Europe where Dematic’s three-axle AC 40-1 has proved popular. Just as Kato responded to the launch of the Demag AC 25 city crane by shipping its CR 250 to Europe to compete, once again Kato is following the Demag lead. The intention is that the CR 400 (its likely designation) will be exhibited at Bauma 2001, though that depends on exchange rates, says Suzuki.
Tadano is also active in new product development, despite the difficult financial circumstances. In particular it is aiming for the North American market. The 60t-rated rough terrain TR-600EXL was introduced and exhibited last year at Conexpo (it is called the TR-650 XXL-3 in North America). Its five section boom reaches 42.2m, the longest in its class according to Tadano. Within the next couple of months the North American market will also see the ATF 1300XL, which is an Americanised version of the 110t-rated, five-axle all-terrain ATF 100-5 from Tadano Faun in Germany.
As a new-generation global model, a new 45 US ton capacity RT will be released firstly for the North American market at end of this year. It features a newly designed, four section, round hexagonal, 33m boom, as well as a left hand drive Crevo-type cab with power window and single axis pilot control system.
Within the next couple of months Tadano will also launch a new Crevo series of rough terrain cranes as an upgrade of the model TR-100ML.
Elsewhere on the product development front in Japan, we reported in last month’s feature on crawler cranes that Hitachi last year completed its CX series of crawlers with the introduction of the 200t-rated CX 2000 and Sumitomo last month began international promotion of its new series three 90 tonner, the SC 900-3.
*CEMA’s category of ‘construction cranes’ consists of crawler cranes, truck-mounted cranes, rough terrain cranes, jib cranes, high-lift work vehicles and all-terrain cranes.
