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An insight into Japan’s logistics industry

Interview - September 15, 2021

We speak with Masakatsu Kuroiwa, president of transport company, NIKKON Holdings Co.,Ltd., who gives his valuable insight into the evolution of Japan’s logistics center and the company’s role within it. Mr. Kuriowa also discusses the company’s operations both in Japan and in Asia.

MR. MASAKATSU KUROIWA, PRESIDENT OF NIKKON HOLDINGS CO.,LTD.
MR. MASAKATSU KUROIWA | PRESIDENT OF NIKKON HOLDINGS CO.,LTD.

I am going to start the interview with more macroscopic questions before narrowing it down to your company. My first question is about the importance of logistics in Japan. It is an island nation on the east side of the world and at a time, was poorly connected when we go back thousands of years, as the Japanese industry became a global giant after the second world war, we saw the Japanese government and private corporations invest massively in logistics. According to The World Economic Forum, Japan is the twelfth most competitive country in terms of logistics today. Can you tell us, as a long-standing company in Japan’s logistics sector, what has been the importance of logistics companies in pushing Japan’s economy and industry?

I believe that in any country, the logistics sector is something that is developed out of pure need for transporting the goods from the manufactures to the buyers. However, we see that, before speaking on international business or even domestically, there has been a great role for logistics itself. Right from the beginning, we decided not to necessarily be limited by simply doing what is required of logistics companies but really trying to think outside of the box. At the beginning, we were actually started as a packaging company and we worked on packaging Honda’s motorcycles. Although the company was officially registered and started in 1953, the business itself started in 1950. We were already doing the job but in terms of officially getting all of the different licenses necessary for approval and being incorporated was in 1953. I believe that at that time, there were a number of different restrictions in place, in terms of logistical management of transport, mail orders, and shipping for example.

At the time, we were in charge of shipping for Honda while meeting certain standards. Honda was booming; it was selling and shipping huge numbers of its motorcycles, maybe about five millions. On that level, I think one of the reasons behind the success of Honda was its logistical power. At that time when we were shipping the motorcycles by cargo, there was a limit on how much the cargo could hold, which often puts the limitation on how much Honda could manufacture its products. Railways were mainly a means of transportation for passengers at the time, so everything needed to fit in a small space of railway cargo cars.

Based on the very strict standards and restrictions in the country for the transportation via railways, in many cases the number of motorcycles that could be transferred at once was limited. Also, certain railway standards only allowed transportation of goods late at night for example. There were many times the motorcycles would not fit in the cargo car and many were left behind, so we had to figure out how to transport them. In order to save some space on the truck bed, often we would devise a way to pack without wooden frames for motorcycles. We manufactured vehicles for transportation with a large loading platform by modifying the chassis of buses and we also invented the two-story truck bed.

We were the first company in Japan or probably in the world as well. From there, we started long-distance transportation by trucks, utilizing not only trains but through trucks across the country. I believe one of the reasons why the sales for Honda’s motorcycles were accelerating at a rapid pace was because we were able to support Honda where other companies may not have been able to by only utilizing the railways in the country.

Nowadays, 50% of our sales come from the automotive sector. Our company handles not only motorcycles but also most Japanese automotive manufacturers such as trucks, four-wheeler vehicles and the rest of them. In addition to the finished cars, we are taking care of all elements of the supply chain, supporting transportation, storage and processing the components and the services. With regards to the history of our global expansion which we began from the US in 1987, that also came out of necessity to support Honda.

Changes in the economic conditions in Japan forced many Japanese companies to manufacture and have facilities overseas. Along with that, we also began to expand globally in order to support our clients and provide our service with the same quality as it is in Japan to meet their logistical needs. We provide all different services, not only packaging and transportation but also parts assembly processing, product performance testing and supporting import/export trade as forwarding and customs clearance. I think we are quite unique because we are able to provide any services related to the logistics industry as a one-stop service. In Japan, each service is based on different local restrictions and standards, so that usually these different services for each process of the supply chain are handled by different companies. It is not easy for companies to do this in an integrated manner. Despite being difficult, we achieved constant development in response to the needs of our clients. We have this original system called Comprehensive Integrated Logistics where we are able to provide all the different steps needed for our clients.

 

What you mentioned is a very interesting evolution. With the Covid-19 pandemic, we see that the logistics sector has been greatly affected. There are two main trends that we have identified through our interview. On the one hand, the digital platforms such as E-commerce, as physical channels were sometimes closed down due to the Covid-19 initially; on the other hand, the shipments or the orders have changed from large units to smaller ones with large quantities to meet the demand under the state of emergency. How did your company adapt to these changes that were caused by the Covid-19 pandemic?

This is not just regarding the pandemic itself but we have constantly faced these things in the past, such as the Lehman shock. We have diversified our business to be as resilient as possible to adapt to the various ongoing economic challenges. In addition to the automotive sector, we have also developed our business into housing equipment, industrial machinery, and the food and beverage sector in order to absorb all kinds of impacts caused by the global crisis.

In terms of the pandemic, our overall sales and revenue fell by 10%; our global business particularly took more damages. Some of the logistic functions have been stopped domestically, but as a result, inventories of products and parts were piled up temporarily and the need for storage in the warehouse has increased a lot. We have been able to recover what we have lost in other parts through these businesses. Besides that, for example, this transparent acrylic board that separates us now is created by our group company, furthermore, we are also storing the masks and other products related to Covid-19. Of course this could not cover all negative aspects of the economic crisis but we are able to diversify our businesses and continuously change to remain resilient. We have always been a company that is looking to expand the potential of what we can do, take on that kind of flexibility and hold adaptive structure, which I believe stuck with us as part of our DNA. At least, we are moving in that direction.

 

Very interesting how your company has developed through the years. This was something that we found quite interesting during our interview, as you mentioned that you started as a packaging enterprise and then you evolved. Today you offer transportation services for both four-wheeler vehicles and two-wheeler transportations, and you also have a warehousing business. What are the synergies that you are able to create between these three divisions? How do they benefit your clients? How are you able to offer these integrated and comprehensive services between packaging, transporting, and warehousing for automotive makers?

I would share with you that there are different rules based on each sector for logistics. It means that each of the packaging, the storage warehouse, or the logistics company has their own restrictions that are based on the location as well as the sector, they have their own time schedules. Let’s say, for example, a third party warehouse can only proceed the loading and unloading between 10 AM and 4 PM at a certain client’s storage. Even if their truck arrives at 9 AM, they have to wait until 10 AM. However, because we have our own facilities, we can manage our schedule flexibly; we can even start at 6 AM if necessary. Hypothetically, we could even work twenty-four, seven, three sixty-five. We are flexible for all of our business from packaging to transportation. Another inefficient example with packaging, because it is difficult to control the lead time transportation schedules are uncertain and delayed frequently. Since our company contains all the facilities for package, storage, transportation, we can work efficiently without any delays. For us, we are always looking at what our clients need, and we are able to create the most efficient services and optimise the processes for our clients. I think that is the greatest synergy that we have created and it is our notable strength. With regards to your question, we are involved in the food and beverage and industrial machinery other than the automotive sector, each sector has its own conditions. Some prioritize cost, time, or quality. We can adapt to any of them and adjust our services accordingly to the needs of our clients. As a result, we build relationships with trust and to cater to many different types of clients.

 

I have a question now with regards to global trends. Your company is an international firm. You mentioned before that you expanded in the US as your first international base. You also have subsidiaries around Asia and North America. Currently, with North America’s purchasing power and Asian manufacturing power such as China and recently Vietnam and Thailand, which are becoming the big factories in the world. Also the trade route between Asia and North America has never been greater, it occupies around 30% - 40% of global trade. Can you tell us a little more of how your company provides services that connect these two key regions of the world?

With regards to North America, we only transport goods there from Asia, but the route is only one-way. As we set up a local office there, we have gained a lot of understanding of the market prices and the needs in the North American market. Conversely, we believe that if we had remained in the domestic market here in Japan, we would continue to lose our competitive strength. In that sense, by having those subsidiaries outside Japan, we are able to put our eyes on the changes in the market prices and the demands because it is always subject to change. We have considered additional ways to expand globally, but eventually we landed on the idea that we would only adapt to the changes of the time. If I were to add to that, we also have a system in place to meet the needs of  our clients. For example, when the clients prioritize time over cost, we can deal with it via air cargo. Conversely, when the clients prioritize cost over time, we can provide ship services. In that sense, we are not working on any certain set standards but rather our standards are placed by our clients

 

Looking at the future, as an international firm with bases all around the world, can you tell us a bit more about your international strategy? And what are some of the market and transportation routes that you would like to either strengthen or open?

One thing for sure is that we already have overseas offices. I want to continue to strengthen the role of our Japanese offices or Japanese capabilities to enhance the entire chain. What I mean by this is that there are still rooms to leverage upon Japanese logistical strength both on the software and hardware elements. Regarding logistics, we know the European companies are leading but there are different strengths that Japan has. One of them is that no matter what the titles of the employees are, from the top management to the new staff, everyone engages in the process of work as one team. I believe this can be further implemented to the overseas offices and its local staff. If we continue to adapt to the needs of our clients, we will maintain our strength overseas as well and continue to grow in the future.

 

Japanese companies are also mass-producing in Asia such as in Vietnam or China. Do you cater for international companies that come to Asia? Is that part of your strategy? Would you be looking to cater for these international European or American firms that are in Asia?

If there is a need for us by any makers around the world, we will do whatever we can to support their needs. But of course, since the logistics rules and restrictions vary from country to country, when expanding your business, you need to understand the taxation, laws and other rules. Just to add, when it comes to our global strategy, obviously there are different elements that are very difficult to enter into the local market. If there is less than 50% initiative for us to gain, our benefits will not come out. In terms of our global strategies, we would like to expand and continue to go forward where there are without any regulations. For example in the US, there are less restrictions in place, hence it is more suitable to expand businesses. Historically in Japan, there were different rules and restrictions set by the local prefectural and municipal governments. We were able to break through that by acquiring different local companies which comply with local rules, and expanding from there. When investing in a certain overseas market, we need to follow-up properly in order to have a solid infrastructure and organizational structure. Sometimes our staff need to travel there to solve problems and initiative is important. That is something that needs to be taken into consideration when expanding globally.

 

How do you ensure the reliability and safety of your international routes for transportation and business trips?

One thing for sure is that we prioritize safety over anything else that is the most important thing for us. It is how we can contribute to the society which is our corporate mission. Precaution measures and risk reduction measures for safety have always been our first priority.

 

Kuroiwa-san, I have one last question for you and it is a little bit personal to get to know you as the president of this company and to know your personal ambition. Imagine if we come back in five years and have this interview all over again. What would you like to tell us? What are your dreams for this company? What goals would you like to have accomplished by then?

As a company, we have a vision of how we want to be and to grow in five years. Six years ago, we actually switched to a holding structure, and at that time we created a new growth strategy. Personally, I don't even know what to imagine about myself five years from now. You might find me fishing or something else.

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