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Denzai Holdings: Driving a sustainable future together

Interview - October 7, 2022

Since its foundation in 1972 as one of Japan’s leading heavy haulage companies, Denzai has now become a comprehensive platform provider for wind power plants.

MASATO UEMURA, PRESIDENT OF DENZAI HOLDINGS INC
MASATO UEMURA | PRESIDENT OF DENZAI HOLDINGS INC

The construction boom occurred here in Japan around 1964 at the time of the first Tokyo Olympic Games. Your company was established around the same time, in 1972, during said infrastructure boom and many of those construction projects from that time are now aging and in need of maintenance and repair. What is your current assessment of Japan’s infrastructural needs? What are Denzai Holdings unique competitive advantages that you can count on from this long history?

Unfortunately, the current picture is not very optimistic. The construction boom that upscaled the industry back in the 1970s and 1980s was a great period for construction firms in Japan. However, that is no longer the case. Every year since that period, the numbers have been dropping, both in terms of the number of projects being undertaken and also in terms of the amount of investment being made. On the national scale in Japan, there are currently two main projects. The first is the linear Shinkansen, and the second is the Hokkaido Shinkansen. These are the only two major large scale national projects which are being developed right now. While there are several medium and small-scale infrastructural projects running right now, they do not resemble the fame of the Japanese infrastructural projects of the construction boom era.

The industry we are in is the heavy lifting crane industry, and we are currently celebrating our 50th anniversary. Fifty years ago, this type of crane did not exist and as you mentioned, many of the roads and buildings here in Japan are getting older and there is a need for repair, renewable and maintenance. In order to keep costs low, and reduce the lead time, bigger cranes are required.

The spirit of our company has always been to be an early adopter of new types of machinery before other companies in our field. Additionally, we are always looking for new sectors to enter and establish ourselves as a leader in that field. You could say that it is the entrepreneurial spirit of Denzai Holdings.

There are many crane-related companies in Japan, but what makes us special really is our added value services. With Denzai Holdings, its cranes, plus engineering, with planning and consultancy, we provide that added value. We often consult machinery manufacturers to develop special kinds of cranes and trailers. Other companies will often use a rental model for their cranes, but we aren’t like that at all. This is a solutions company.

Often, we are collaborating with European special and heavy machinery manufacturers. We will discuss with them the requirements for machinery here in Japan. Makers will take those requirements and apply customizations to their vehicles and we will import this equipment to Japan.    

 

Population change is a hot topic here in Japan, and we can see two interesting trends happening. Firstly, Japan’s population is aging, currently, 28% of people are over the age of 65. Secondly, with a fertility rate of just 1.37, the Japanese population is expected to decline to under 100 million by 2060. This obviously means that there are fewer new projects in Japan, and it’s becoming ever more difficult to recruit talented graduates, with competition between firms being fierce. How is your firm reacting to these population changes? What challenges or opportunities are they presenting to you?

Several efforts have already been made by our company to overcome this current situation. It is a fact that Japan has both an aging population and a low fertility rate. All Japanese companies have to try to address this problem. One of the ways that our company has tried to overcome this situation is by introducing cranes with special coloring to make them look more attractive to younger people and children; when they see them, they are curious and can come to try them out. This gives them an opportunity to see if they like them, which could perhaps lead to them pursuing a career in this field when they grow up. It is very important to attract people to our field from a young age in order to sustain our human assets. In regard to Japan’s declining population, Japan’s current population stands at around 120 million people. By 2040, some predict that there will only be 80 million Japanese people, which would be a drastic decline. Currently, the crane lease business itself is at its peak. However, we predict a decline in the future. In order to avoid that, we try to carry out successful mergers and acquisitions (M&As). This will lead our industry to become more compact. Companies in our industry will be able to mutually address and overcome the population challenges that we face in the future.

We are in the crane business, but in every sector in Japan, you see important and recognizable companies. However, there are many lesser-known companies scattered in each sector. For that reason, M&As need to be done by companies such as Denzai, so lesser-known companies can sustain themselves and extend their lifetime in Japan, while also sustaining a good price in the market.

 

With the COP26 climate change conference held last year, every country in the world is now being held accountable to the Paris Agreement. Each country now has its own policies for going carbon neutral, and the former Suga administration said that Japan must go carbon neutral by 2050. Recently we’ve seen the Renewable Energies Act put in place stipulations that 38% of all energy must be renewable by 2030. What do you think is the best energy mix for Japan moving forward?

Nuclear power used to be considered a stable source of power generation, however, the recent 2011 Tōhoku earthquake and Fukushima nuclear disaster have made the Japanese people feel very uneasy about nuclear power. Compound that with the rumors of the Russians attacking nuclear power plants in Ukraine and you have an unstable mix of opinions towards nuclear. Unfortunately, it seems that in recent years, the reputation of nuclear power has been damaged significantly in the eyes of the Japanese public.

This general uneasiness means we must think of alternative types of renewable energy sources. Japan has no natural resources, so wind power has become a frontrunner with the greatest potential. We are aware that the Japanese government has turned its attention to wind power too and we feel that our company has a strength in this field. If Japan can successfully harness the power of wind, it can truly become independent from other nations.

 

Denzai started off as a heavy haulage company for the erection and maintenance of social infrastructure. From what we can see now, you are focusing heavily on renewables, specifically wind farm operations. What goals do you have regarding this new business venture, and to what extent are you shifting your business towards renewable based projects?

The top priority of our mid-term strategy plan is for our company to realize our M&A activities, primarily in the next eight years as we build up to 2030. The aim is to increase our sales by 2.5 times what they currently are. Buying a new crane is very expensive, and the price for cranes continues to rise drastically. In the past two years, we have experienced a 150% jump in the price of a crane. Denzai decided to adopt a more pragmatic strategy and buy companies that lease cranes, or companies that are related to the installation of offshore wind turbines. That is the strategy we plan to pursue and maintain in the coming years.

 

With wind power, there are two options: onshore and offshore. Japan itself as a country is very mountainous, with estimates of 75% of all land in Japan being mountain-based. With onshore wind, you need a huge amount of flat land to install the turbines, and this clearly is an issue in Japan. Infrastructure wise, onshore is much cheaper, but when comparing the two, offshore generates much more power, only requiring a third of the turbines to generate an equivalent amount of power. When comparing the two, and the tradeoffs involved, which do you feel is best suited to Japan?

Japan’s national land area is very small, and with wind power generation being around for almost 20 years now, we see a lot of the good areas of land already being taken. In order to build more onshore turbines, we need to explore the idea of building them on the tops of some of the mountains. For obvious reasons, this is much more difficult. Additionally, onshore wind generation requires turbines that have long blades. For these reasons, we are not exploring onshore as much wind turbines right now.

Four years ago, we introduced the first turbine blade lifter to Japan. Blade lifters are a special system for transporting or moving wind turbines. Our blade lifter was able to carry over 550 metric tons. It is called the Goldhofer FTV 550 wind blade lifter named after the German manufacturer, Goldhofer.



Actually, the concept of this blade lifter with an attached trailer was proposed by our company chairman. Slowly, over the past four to five years, we have been making installation sites more accessible. The downside is that we see very few sustainable potential sites in the long term. This is why the Japanese government is putting such a strong emphasis on offshore development. Last Christmas saw an offshore contract project introduced by Mitsubishi Shoji. To set the record straight, we are not giving up on onshore entirely, but what we are trying to do is create synergies for both onshore and offshore.

Japan is a country surrounded by the ocean, and there are countless opportunities for offshore wind power generation. Our company started here in Muroran, Hokkaido, and there used to be two major steel companies here. Many related companies were built around those. Those two companies are no longer around and the city itself is declining too. Despite the population now only being 78,000, Muroran had a population of 165,000 at its peak. There are active attempts at revitalization and being a port city enables much potential. This is why we started the Muroran Offshore Wind Power Related Business Promotion Council (MOPA).

I think Muroran has a lot of potential for revitalization. Our hope is to attract more manufacturing companies to establish their bases here, by using the city’s promotion of offshore windmills. In turn, this may promote an increase in the city’s population and therefore lead to a revitalization of local food establishments and hotels. Tourism is another thing we are looking to promote,          

 

Your company has a number of unique technologies as we have already alluded to. You are using some of the world’s biggest cranes and some of the world’s biggest transport trailers. We saw that the Ishinomaki wind farm was one of your most daunting projects where you transported turbine blades that were each 50 meters long, and the turbine itself more than 50 meters wide. You were able to scan the whole route with 3D technology to minutely plan the nuances of the operation. Could you tell us more about these unique technologies that you possess?

Route analysis involves 3D mapping, which provides us with insights into what is happening in a specific area. For example, there may be some obstacles such as roads and other transportation systems. They need to be factored in when conducting a small scale onshore or offshore wind turbine project. It is very important to have a clear picture in order to provide transparency to our customers. The customers are provided with a clear insight into the project, and it also increases their trust in Denzai.

Another important factor that needs to be mentioned is the experience of our crane operators. Our crane operators have many years of expertise and are highly skilled in the operation of our cranes. We are proud to say that our company has had zero accidents, not only in the installation of wind turbines but in the operation of our cranes in general. This outlines the excellent performance of our company. Anyone that has money can buy a big machine, but the experience cannot be bought with money.

 

Denzai was the first Japanese company to do offshore wind farm construction in Taiwan. You also operate in Korea, Vietnam, India and Bangladesh. You possess an integrated transport system which extends to both land and sea. Which particular countries in Asia will you be focusing on as part of your mid-term strategy to continue to grow?

We are still prioritizing the Japanese domestic market. Regarding offshore wind turbine installation, the next country we will focus on is Vietnam. At this moment, we are looking to expand our domestic business in Japan, and our overseas operations in Vietnam. By being present in Vietnam, we will be close to Indonesia, Malaysia and Singapore.

 

I would like to ask your opinion on the government support here in Japan in terms of helping this transition towards renewable energy. Recently the Japanese government introduced the feed-in tariff (FIT) system where electric utilities merchants purchase renewable-generated electricity at guaranteed prices and contract durations set by the Ministry of Economy, Trade and Industry. End-users then pay a surcharge which quickly compensates those renewable energy companies’ investments, allowing them to recoup their investment quickly. What is your assessment of this incentive system?

One case study saw Mitsubishi Trading in three places and the electricity cells were 12 JPY per kilowatt. The Japanese government wants this reduced down to a single digit. We are not politicians, so we are not exactly sure how it works, but it seems there is an expectation for us to cut costs. If the government doesn’t provide financial aid then it isn’t achievable and right now what the government is providing is not enough.

There are many factors as to why the government wants to achieve this single-digit cost. One factor lies in the differences between the European and Japanese markets. European nations such as Denmark have their own factories fabricating their wind turbines and components. They have very little if any need to import or hire vessels for ocean transportation. If you look at our budget for wind turbines, 95% of that is earmarked for shipping costs, manufacturing costs and operation maintenance. 

 

We see that your firm has developed this advanced system called Denzai Data Care. It's almost like a digital twin for wind production and allows you to monitor costs. Japan is known worldwide for its adoption of process automation technologies, but not so for its digitalization efforts. Can you tell us how Denzai Data Care is improving the operations of wind farms and what other digital tools are you integrating into your operations?

Wind turbines are made by different manufacturing companies. There are many companies, however, they do not have a unified system for maintenance, with each company using its own specific systems. There are no counterpoints that can be judged or obtained as a data source, which could be used to provide more effective maintenance. To address this issue, Denzai came up with a solution which we were running at our own experimental level. We first developed our state-of-the-art wind power monitoring system in South Korea. A wind monitoring system is important, as wind does not always blow. If a manufacturing company constructs a wind turbine, and there is no wind, the profitability of that project is zero.

In order to lower the sales costs of wind power generation, the windmills have to be stable in generating electricity. That means it must continue to rotate and not stop. Offshore windmills make it difficult to go in regularly and check the operation. The Denzai Data Care takes care of that monitoring. All the equipment has plenty of monitors and sensors to check things such as temperature, vibration levels and noise data. We are able to preempt issues with this data and prepare any prospective parts for repairs.

If you look at our onshore wind turbine business over the past ten years, we see multiple incidents where turbines have broken down due to high wind. This is a big loss, and in order to prevent such incidents, we make accurate predictions and open the data that has been collected to energy developers. 

What we do is collect a year's worth of data and transmit that data to our data center in Kawasaki. Then prepare spare parts in advance, in the warehouse near each wind production site. We inform our customers that with the turbines, in around three months the gearbox needs to be changed. With the data collection, we can schedule recurring maintenance at sites. When you consider our service, it's a full solution for customers. We provide spare part outsourcing, transportation, and technical maintenance teams.   

 

Could you highlight for us any projects that you are particularly proud of, or found challenging? What are some of your favorites?

Of course, no site is easy, every site is challenging to some degree. They all present their own unique challenges, but for me, the onshore wind power generation plant in Aomori prefecture was the hardest. The height from the base to the top was too much, even the biggest crane in the world couldn’t reach it. To navigate this issue, we raised the ground level on an egg-shaped steel stand and then put the crane on top of the raised ground. I don’t think any other company in the world could reach that high.     

Denzai was responsible for this project, from project planning, all the way to transportation and installation. We succeeded where many others would fail. Denzai has created a new technical planning method to put a crane on top of a 3-4 meter stand.

Another project we are proud of occurred at Haneda Airport. It happened before the Tokyo Olympics during the COVID-19 pandemic when tourists were not allowed in the country. They wanted to extend the runway in order to accommodate more planes. The idea was to extend the runway out into the sea using high steel pillars. Overall, this project took around 18 months to complete and with all the transportation we were doing, we made sure to never suspend a single flight.

 

You completed a number of M&As recently, such as KHI, Kashima Crane Corps, Sawada and Ito Corporation.  What benefits do those strategic acquisitions bring to your business, and what new capabilities do they allow you to have?

We are already seeing the benefits from our domestic M&As, but also from our overseas M&As too. For example, the Singaporean company Huationg Holdings was added to our group in 2020. We also established R&D developments in Denmark and South Korea to develop a state-of-the-art wind power monitoring system. Russia was very important in the provision of raw materials and crude oil, however, with the current situation between Russia and Ukraine, and the sanctions that have been imposed, many companies are now looking to other countries for their raw materials. Singapore is one of those countries, due to the presence of Exxon Mobil, which has a mega power plant built there. Denzai and Huationg holdings are doing the maintenance for Exxon Mobil. This is one example of the many good results our overseas business is providing us with.

 

You have R&D overseas operations in Denmark and Korea. What benefits do those locations bring to your business? On the topic of co-creation, are you actively looking for new partners or countries to showcase your technologies?

Regarding R&D, we have no further plans to go to other countries, besides the ones that we already operate in. However, as Denzai Group, one area that we would like to go to in the future is Dubai. Dubai is currently one of the biggest markets not only for construction but also for oil and gas. The demand for oil and gas is skyrocketing right now, as companies are keen to find alternatives to Russia. Crane leasing is therefore forecasted to be even greater as demand increases in Dubai.

 

Imagine we come back five years from now, and have this interview all over again, what would you like to tell us? What are your dreams for this company and what goals would you have accomplished by then?

The business itself is becoming more compact. It is natural that companies introduce more M&As, which will increase sales. This is a goal that I personally am aiming to reach in the next five years. We are living in an unstable and ever-changing world. We can make projections and build up our ideas, but as the world changes, we need to adapt to the current situation. However, one of the strengths of our company is that, for the past 50 years, we have always followed the principles and philosophy of the company. We are able to get results faster than our competitors, and we want to ensure that this remains the case going forward. If the conflict between Russia and Ukraine settles down, we may be able to use our cranes in the rebuilding of the infrastructure in Ukraine. I would like to provide help to the people in need. Cranes are used for construction, and it would be my dream come true to see our cranes helping rebuild Ukraine after the disaster that has occurred there. We would not only help the people there to rebuild their country, but also provide them with workplaces, as there are many experienced and capable crane operators in Ukraine. That would be a great result. 

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