We spoke with Kanda Holdings to discuss their digital initiatives to grow their international logistics business and strategy to expand their global network.
In the past two years, covid-19 has caused major disruptions in the logistics industry. What impact have these disruptions had on your business?
Although our business is mainly transportation of covid-19 closely related to daily lives, we also deliver pharmaceuticals to hospitals and hygiene products and food to distribution centers of drugstores and supermarket. We have been working hard to deliver products as quickly and reliably as possible to improve the situation of insufficient inventory in stores due to hoarding by consumers. Meanwhile, in international logistics, although overall cargo volume declined for a time due to cases of plant closures due to raw material shortages and reduced passenger flights, the subsequent easing of economic restrictions has led to a rebound in cargo volume and higher transportation rates, resulting in record earnings for the business.
Before Covid-19, Japan was largely left out of the global logistics conversations in favour of regional neighbours. In an attempt to lessen reliance on China, we’re seeing a trend of international firms diversifying Asian trade routes. What role do you see Japan playing going forward?
I appreciate that there is importance for diversification of trade modes. As a logistics company, the important role for us is to secure different routes to suit different needs, for example with flights, ships, and cars on land.
Currently, the Ministry of Economy, Trade and Industry(METI) and Ministry of Land, Infrastructure, Transport and Tourism(MLIT) is leading an effort to realize a "Physical Internet,". It means that all physical information in the logistics industry - cargo, warehouses, trucks, etc. - will be connected like the Internet. I'm also a member of the conference. We believe that if such efforts are developed on a global scale, all cargo will come and go without being restricted to any one country or company, and without any awareness of transportation mode or route, thereby establishing efficient logistics in the true sense of the word. We believe it is important for us to play a role in this process.
How do you think digital technologies will impact the logistics field? Can you tell us how your company uses digital technologies to solve clients’ problems?
The mission of logistics is to deliver covid-19 safely and reliably to customers.
However, with Japan's aging and declining population, it is clear that it will become increasingly difficult to secure human resources, especially in the labor-intensive industry, like a logistics field. Under these circumstances, we believe that the movement to replace industrial, service robots, and RPA will steadily advance for labor saving.We believe that for a logistics company of our size, it is crucial the ability to install new technologies in the right place at the right time. We also believe that visualizing all kinds of information, constructing more efficient logistics, and providing services will lead to solutions to our customers' issues. We believe that not only the hardware but also the software technology that controls the hardware is important, and in August of last year, we acquired a software development company through M&A to create a group that can support our customers from the software side.
A shrinking population presents two problems, one being a shrinking consumer base and a reduced workforce. How is Kanda Holdings reacting to these two particular problems?
I'm duplicating an earlier question, The first one is digitization. We have already launched an internal research project to study about the latest technologies, and verifying its practicality. In recent years, we have also established a drone training site. In Japan, drone transportation is not yet legally instituted, but we are working on it because we believe it is an investment for the coming future. Using these technologies, we are promoting manpower-saving and energy-saving at logistics sites and working to build logistics systems that do not rely solely on manpower. Another one is to expand into international logistics. Japan's population is decreasing, but the world's population is increasing. Therefore, we have already expanded into Thailand, and we feel that there is a potential need in that market.
How were you able to make your e-commerce product, Pegasus Fulix, so affordable? Aside from the price, what makes it stand out from other overseas shipping services?
We make this possible by what we call "Pegasus Economy Next" provided by our operating company, Pegasus Global Express. This service was commercialized by differentiating it from the same-day flight services offered by major integrators. We use next-day flight as our basic service, consolidate the cargo and receive a volume discount on the purchase price from the integrator. This service is based on Pegasus' long-standing business experience with them, Although there is a one-day delay for the customer, a significant discount is applied, and in addition, we offer our unique service of preparing invoices and other documents free of charge, making this a highly beneficial service for all three companies, including ours, and one that has received a very favorable reputation.
Aside from logistics, you are involved in various complimentary businesses such as real estate, finance, and insurance. What kind of synergies are you able to create amongst your various business lines?
These businesses other than logistics are provided to meet the needs of our customers or to ensure the smooth operation of the group. Real estate is mainly for the repair and management of logistics centers that take care of customers' covid-19, finance is to support the cash flow of group companies, and insurance is mainly for automobile insurance and covid-19 insurance to ensure the safety of cargo. We believe that these are tools to provide optimal logistics services to our customers.
What role does collaboration work for your company? Are you currently looking for new collaborative partners, especially abroad?
We don't think ourselves a very big company yet, and we are not able to cover everything in the country by ourselves. We form alliances or outsource work to other companies. We support cross-border shipments and outsource operations to other companies. In terms of future partnerships in international logistics, we would like to form partnerships with other companies as needed to support our customers who want to expand their business overseas in terms of logistics, as we are doing in Thailand, and help them build their supply chains.
At the end of the financial years of 2021-2022, you reported a net sales increase of 40billion yen to 47.6billion yen, but your ordinary profit increased from 2.4billion to over 3 billion yen. What accounts for this increase?
There are three major factors: First, we negotiated rates with our customers and improved profits in a business that had been suffering from a downturn in earnings. Second, the company was able to keep containers and take advantage of business opportunities in an environment of rapid rate hikes in international logistics in reaction to the Covid-19 disaster.
Finally, there are cost savings. In addition, general expenses have decreased due to action restrictions by covid-19.
How do you plan to further develop your international business?
Speaking of future international expansion, unfortunately, we have decided to terminate our operations in Indonesia, as many plants have closed due to the covid-19. However, looking at the demographic changes in the future, it is clear that Japan, unlike the rest of the world, will have a declining population, and we realize that we must look to expand our business overseas. Therefore, we intend to focus on the Asian market, especially in
East Asia, where market expansion is predicted to continue. It is also important to be careful not to repeat the mistakes of the past, and we intend to proceed cautiously, collaborating with partnership firms and others.
Do you expect contactless robotic delivery to become the norm, and when do you expect that to happen?
Japan is still in the process of developing laws regarding drone transportation. In our company, we are already using drones to check solar panels and other equipment, and we also provide drone training at a drone school. This year, the law is being amended to allow flight level 4 (flight in manned areas), which was previously allowed up to flight level 3 (flight in unmanned areas). We started our drone school three years ago, and since that time, we have been working to train pilots to be able to fly at Level 4. If flying at this level 4 becomes legally possible, we believe it will bring us closer to the realization of last mile delivery. Japan is prone to earthquakes, and this will contribute to the transportation of relief supplies in the event of a disaster, and there is also a need for emergency transportation of medical supplies, which is our specialty. We also believe that it will be useful in delivering covid-19 to elderly people who are inconvenienced in shopping, such as in depopulated areas. To this end, we are having employees at various levels obtain licenses to operate drones.
If we come back to do this interview on the last day of your tenure as president, what goals would you want to have achieved by then?
As long as I am president, I believe it is important to make the company a place where all employees can be proud and happy. We believe that there are three goals for a company to achieve these goals: 1) no traffic accidents, 2) no fraud or misconduct, and 3) employees respecting each other and communicating actively. These three goals are very basic, but it is precisely because we have adhered to them that we have survived our long 80-year history. As long as I am the president, I will continue to perpetuate and grow the company.