Transporting goods and connecting people is Daisei Holdings modus operandi, and done so through its 43 companies operating at 221 locations worldwide.
The COVID-19 pandemic has severely affected human resources the past two years, most notably in the logistics sector. Air freight has been affected by the grounding of commercial air freight operators, and oil prices have seen a surge compounded by the conflict in Ukraine As a result, last year, 70% of worldwide ports have experienced shipping delays. For Daisei, what has been the impact of COVID-19 on your business and what measures have you taken to react?
TT: Daisei Holdings has a very diverse group, so the impact of the pandemic differed depending on the industry. For example, we provide logistical services to restaurant supply chains, and obviously, that industry got hit very hard. However, we also deliver temperature-controlled logistics services to supermarkets and convenience stores and that showed a good performance due to the stay-at-home demand. As a group, we are also doing business with Toyota Group-related companies, and that particular industry was deeply affected by supply chain issues resulting from the COVID-19 pandemic. On the other hand, another business that we saw growth in comes from a major apparel brand, which is a Japanese casual wear designer, manufacturer, and retailer. About 50% of all its shops were situated in shopping malls and most of them were temporarily closed, but the other 50% are either streetside or standalone stores and they were not affected that much.
As a Group, we think a lot about Toyota Group, and it appears as though they were heavily affected by supply chain disruptions. They do have parts and components in their stock, but the issue came from their auto factories not being able to operate as normal. This meant that they didn’t have a place to store inventory, particularly in central Japan. As a result, the fees for storing items in local warehouses went up sharply, so we had a really hard time securing a space to store our inventory as well.
One thing that grabbed the media’s attention recently was the closure of Toyota’s Shanghai factory due to the prolonged Shanghai lockdown. Toyota made a clear announcement that they were doubting the production level that this factory could have, and this comes at a moment when the role of China is being scrutinized by international players. During many interviews, Japanese firms have expressed that this may be a golden opportunity to take traffic away from China and for international companies to perhaps redesign their supply chains. Do you agree with this assessment, and do you have an insight that you could add?
TT: Recently we have been feeling that this is a good opportunity for export. China is quite a difficult country, and in fact, in the past, our group has tried to establish a logistics company in China. We quit however because the country is so difficult to operate in and we didn’t have any networking connections in China. If we had good networking in China we could establish a company there, but unfortunately, we are not a huge company like Nippon Express. We are not big enough to lead a supply chain restructuring by our own.
One of our growth strategies is carrying out M&A, especially the acquisition of companies in the logistics sector. We have strength in domestic logistics rather than global logistics, but we intend to expand our business overseas by utilizing M&A.
HK: We are facing serious problems in Japan. The first is the population issue, and as we all know the population is shrinking rapidly, which in turn means our market is shrinking. The second problem we are facing is one that we are referring to as the “successor problem.” Many Family businesses are currently facing this challenge all over the country. The children of the founders of family businesses are referred to as second-generation and a lot of them grew up in smaller rural towns. When they go to university, they would move to big cities from small country towns. When those people graduate and get a job, they don’t want to go back to their hometowns to take over the family business. One of our growth strategies is to pursue M&A of companies with such successor problems, leading to business expansion. By acquiring businesses and human resources through M&A, we hope to build a robust structure that can flexibly respond to the redesign of the supply chain surrounding China.
As has been widely publicized, Japan has a super-aging society with more than 28% of people over the age of 65. There are of course certain sectors that are more affected than others, logistics included. What are you doing in terms of longevity to ensure a stable supply of laborers in your HGV business, and furthermore what safety measures are you putting in place to assist those drivers and prevent accidents?
TT: This is a very difficult question, and we are placing high expectations on the advancement of technologies, particularly safe driving technologies and autonomous driving technologies. We will continue to keep a close eye on that development and will carefully consider whether those technologies are ones that we will look to adopt or not.
One thing that is noteworthy about our company is that most of our drivers are not experienced drivers. What I mean is that when they joined us they didn’t have any previous experience with truck driving, and in fact, their previous occupations were in factories or restaurants. Once they joined Daisei we made sure to train them properly and now they have become excellent drivers. We do have a very robust training program in place.
HK: Our DX Laboratory has started developing a system that can monitor the driving status of each vehicle in real-time. With this system, we will gain access to not only driving status but also each driver’s resting time information. Analyzing those data and improving the system will contributes to driver safety. We have also started to use AI to analyze operational data more deeply to understand the psychological state of drivers. This initiative has just begun, but we believe that if we can gain a better understanding of the psychological state of drivers, it will make it easier to ensure safety.
Daisei Every 24’s vehicles
Additionally, we provide a suite of e-learning systems so that drivers can learn the basics of the logistics business and safe driving techniques at any time, from anywhere. We are also utilizing a system for central management of our entire fleet, which equates to about 3,000 vehicles in our operations. With this centralized management system, we can keep track of drivers across the entire company, and at the same time, we can better optimize routes for delivery based on a myriad of factors.
What role does collaboration play in your business today, especially with international partners?
TT: It is rather difficult to collaborate with other companies, and logistics companies in the domestic market are a rather closed community. So far we haven’t really had the mindset of collaborating with partners in the same industry. Of course, we see new players coming in, such as Uber or Grab, and we feel that these companies will be the catalyst for much more cross-industrial cooperation.
HK: The joint delivery business, in which we cooperate with other companies to deliver packages, plays a key role in the Daisei Group's business. We outsource delivery areas where we are weak to our partners and combine our operations with those of partner companies to carry each other's cargo, leading to greater efficiency for both parties. In terms of handling both peak and off-peak periods, we do not ask a single company to operate dozens of vehicles during the busy season, but rather ask several subcontractors to do so in small quantities to prevent risk. Having a broad network, we can flexibly respond to customer requests.
We often talk about the benefits of digital technologies, but they also come with challenges for traditional companies. This includes new entrants leveraging on digital technologies to disturb and replace former business models. What have you identified as some of the challenges that you expect from digital transformation?
TT: We have started DX projects with other companies in other sectors. There are in fact multiple DX projects underway with other companies but unfortunately, today, I cannot discuss them. I can say however that by doing these DX projects we can gain access to valuable databases that we otherwise wouldn’t have access to. With digital technologies, we can visualize complex logistics across multiple bases and work on redesigning and improving efficiency at a level that was not possible before. We believe that we must pursue projects that replace traditional business models, without fear of the impact on existing businesses.
HK: A lot of logistics companies are afraid of Amazon and see them as a real and present threat. To counter this, some of them are partnering together solely to fight Amazon. To be completely honest, while there are some logistics companies that are facing DX challenges head-on, there are others that are still stuck with analog and paper-based systems. Before utilizing effective DX in their company they need to digitize their old data, which is step one. We are very aware of this and have been digitizing our business all across our group. Once we complete this first step we can then break through the current situation and be ready to partner with others.
Daisei Group comprises a diverse array of companies. On top of subsidiaries in third-party logistics (3PL) and multi-modal transportation, you have expertise in electrical engineering, system integration, insurance, and even some ryokans and onsens. What are some of the main synergies that you are able to create with such a diverse group of companies?
TT: My father, who founded the company, had a very pessimistic view of the future of the logistics industry. That is one reason why our group is so diverse. You could say that he was sowing the seeds in all sorts of different industries to see which ones bear fruit.
When the first generation of group companies was established they did not really have any synergies between each other. Today however, as the second generation of leaders has emerged, those second-generation companies are trying to work together as group in order to generate strategies and make synergies.
HK: There are 3 synergies we have in mind, the first is to create logistics demand within the group by increasing the number of companies outside the logistics business. The second is to improve the quality and efficiency of logistics services through the system development business. The third is to build a circular economy within the group by owning a recycling business. Through this business we also hope to pursue sustainability in our logistics business.
All in all, I would like to emphasize that the logistics business is connecting products with consumers. With our group companies’ diverse portfolio, we can also do production and consumption businesses.
One of Daisei Holding’s group companies is JET8, a multi-model transportation firm specialized in transporting medical devices and construction equipment for urban infrastructure. Why did you choose to focus JET8’s business on these two sectors specifically?
TT: We wanted to run an air cargo business but differentiating ourselves from other players was difficult. Consequently, we analyzed what niche market we could sell to. Temperature control and the transport of temperature-sensitive products was our solution.
HK: Our group company, JET8 Cargo, has also started a business in fertilization. They collect sperm and eggs in Japan and then transport them in containers that keep the temperature under -270 degrees Celsius. Those containers are taken to help with IVF treatments.
JET8 was established in 2008, and back then the CEO, Mr. Masahiro Nishi said that he wouldn’t be able to beat giants like DHL, UPS, and FedEx, so he tried to find a more niche market that he could serve. That market was international direct-to-consumer (D2C) and customer-to-customer (C2C) services for products requiring strict temperature control, such as medical or pharmaceutical gene therapy. He knew that giants such as DHL wouldn’t take such cargo for our customers, so he wanted to provide some value-added services.
You’ve mentioned that you are the second generation of executives at the company. Is there a goal or objective that you would like to achieve as the second generation?
TT: Our group is very diverse, so I think we have a lot of possibilities with big chemical reactions. My father was very strong and had a very strong leadership style. My style however is totally different. In Daisei Every 24, we only have few female leaders, so I think that is something I would like to address and perhaps give some much-deserved opportunities to our female employees. My eldest daughter has been living in the UK now for over 10 years and she attends grad school majoring in accounting. Two years ago she had an internship with our company, and she asked me “why is the company so analog?” She has a lot of opinions about the company and fortunately, she is interested in our family business. If she were to join the company perhaps she could create something new.
HK: What I want to achieve is the creation of a company that can do good for three separate 3 entities: good for the buyer, good for the seller and good for society. While being good for buyer and seller is nothing unusual, serving for the good of society would be a true accomplishment. Daisei Group was established as a logistics company on April 23rd, 1969, and marked its 53rd anniversary this year. Today, more than 7,000 crew members are working for the entire group. I feel it is my mission to create a group that enriches people's lives, not only our customers but also our crew members and their families.