Japan has a long and storied recorded history, from dynasties, shoguns and emperors to today’s democracy and modern economy. During the last 50 years of development, the rental industry has played a key role in the construction of major population centers, an extensive highway and rail system and factories that produce state-of-the-art machinery, automobiles and electronics.
Today, much of Japan’s available land is developed with densely populated urban centers. In that respect, not much has changed since Rental Management visited Japan and Osaka a little more than six years ago. The country is about the size of California, only with more mountains, earthquakes and volcanoes. Its 130 million people are crammed into only 13 percent of the space and the urban sprawl from Tokyo to Osaka never stops.
When Rental Management visited Tokyo and Osaka in late October 2007 to participate in the 50th anniversary celebration and party for the Osaka Kensetsu Kikai Lease Association (OKKLA), RM was honored to also meet with selected manufacturers and the presidents of each of the top three rental companies in Japan — Aktio Corp., Nikken Corp. and Nishio Rent All.
What has changed in the past six years is the rental business. While the roots of the rental industry in Japan are strikingly similar to the development of equipment rental in the United States, Japanese rental companies today are dealing with how to increase share in a flat or declining market and struggling with pricing pressures and shifting customer needs.
According to figures from Japan’s Ministry of Economy, Trade and Industry supplied to Rental Management by Nishio Rent All in Osaka, the construction machinery rental market has been in decline since reaching more than 1 trillion yen ($8.8 billion) in 2001. The most recent figures show the construction machinery rental market to be about 867 billion yen ($7.7 billion) and that the top three rental companies — Aktio, Nikken and Nishio — account for more than 20 percent of the market.
Naotake Numata, associate director and general manager of the sales and marketing division for Kobelco Construction Machinery Co. in Tokyo, says both the demand for construction work and rental equipment are down.
"Public works is shrinking, but private sector work is going up. Automotive manufacturing is healthy. Companies like Panasonic and Sharp have huge factories and the industry needs and uses excavators, dozers and cranes," Numata says.
He also says a new area of growth is emerging from the need for material handling of scrap. "Recycling is very strong and the market for aerial platforms is very good," he says.
While construction and rental revenues overall are flat or in decline, equipment manufacturers in Japan continue to do well. Numata said total shipments for construction equipment manufacturers in Japan for 2007 was expected to be 799 billion yen ($7.05 billion), an increase of 8 percent over 2006. He also says the forecast for 2008 calls for an increase of 3 percent in total shipments to 823 billion yen ($7.27 billion).
"Exporting equipment is strong. The manufacturer market is growing and exports were up 1.6 percent in 2007," he says.
In rental, Numata says fees have been going down because of heavy competition and the demand for second-hand machines.
"Rental fees are going down, but when you sell the equipment five or six years later, the sales price is going up. The turnover of fleet is now much faster," he says.
Many Japanese rental companies also sell their used equipment overseas either through subsidiaries or directly to Japanese contractors working on projects in different parts of the world. When those companies sell their used equipment, they usually buy new replacement equipment, which continues to make the rental channel attractive for Japanese manufacturers.
For example, in 2006, 59 percent of Kobelco’s heavy excavators were sold to rental companies and Numata says the percentage could reach 62 percent in 2007. For used equipment, 72 percent of second-hand machines were sold abroad while 28 percent were sold domestically in Japan, he says.
"The construction market is going down. Public works is down and the total is down, but manufacturer shipments are up and the second-hand market is big," Numata says.
Japanese manufacturers also are under pressure to develop more environmentally friendly equipment with fewer emissions to produce less air pollution. Manufacturers, Numata says, do not have a choice and must comply with new rules associated with making machines that use cleaner engines and are following the same requirements for "tier" development of engines as is necessary in the United States.
A Tier 0 engine does not have any emissions controls while Tier I, Tier II, Tier III and Tier IV engines are required to meet increasingly stringent emissions reductions. Equipment users are not prohibited from using older machines, but those who buy new machines must purchase equipment with the latest available tier engine. Numata says those who rent construction equipment will ask for low-emission machines if there isn’t a difference in the rental price or if a local government requires using cleaner equipment.
While construction equipment rental revenues in Japan have been in decline, each of the top companies have found different ways to build business in a mature marketplace.
Aktio, for example, expanded to Singapore many years ago, operating a branch that sells its used equipment. The company also has acquired several other Japanese rental businesses, including some party and event rental companies (see story on page J6). Aktio now has more than 500 locations and reported sales of 87 billion yen (US $768 million) in 2006.
"We are growing. We have 500 locations nationwide and you have to add the revenues of the No. 2 and No. 3 companies to total Aktio’s revenue," says Mitsuo Konuma, the 70-year-old president and founder of the company.
Aktio bills itself as the company that helps customers solve problems because of its size, scope and available inventory, Konuma says.
"Japan is a developed country. Infrastructure has matured, but a customer can ask us how they can achieve what they need to do. We have specialized teams and we want to be a team with the customer. We can offer anything. They can come to the Aktio group to get a solution," he says.
Nikken Corp. in Tokyo is Japan’s second-largest rental company and is owned by Mitsubishi. The company has focused on expanding rental into new areas and building new facilities in different territories to cope with the shrinking construction equipment rental market (see story on page J14).
"We’re now recovering," says Yoshikazu Nakanishi, Nikken’s president and CEO. "We’re filling market share and have bargaining power. We will gradually increase our rental price and the future for the rental market is very bright."
Nikken also is finding a market overseas, selling its used equipment to Japanese contractors who are working on projects in Asia and the Middle East. The company also has a subsidiary in the United States — Americ Corp. in Elk Grove Village, Ill. — which is charged with finding and purchasing new types of items to introduce into the Japanese rental market. Americ also offers a line of portable ventilators and sells used equipment.
In Osaka, where the Osaka Kensetsu Kikai Lease Association (OKKLA) celebrated its 50th anniversary in late October (see story on page J8), the rental industry also is well-established and very competitive. Osaka-based Nishio Rent All, the third-largest rental company in Japan, says it has evolved and grown over the years by diversifying (see story on page J12).
"Different specialties co-exist. In 1956, Nishio started in the rental business with road construction machines," explains Yoshiaki Nishimura, Nishio’s overseas affairs division manager who presented an overview of the Japanese rental market to Rental Management.
Nishio learned about diversifying when company executives visited the United States in the 1970s. "We started with cranes for building construction, aerial work platforms and booms and small tools. Then we added event and exhibition equipment and tunneling equipment. We diversified our products," Nishimura says.
The company also is focusing on technological developments related to wireless cameras and remote controls, allowing unmanned construction equipment to be used in hazardous areas with an operator located more than a mile from the site.
Another area that has helped establish the rental industry in Japan is disaster relief. Due to frequent earthquakes and floods, local and prefectural governments often depend on rental companies to supply equipment needed for recovery.
Konuma says Aktio is prepared to help whenever needed. "Two years ago, an earthquake destroyed a town. We opened an office there and later we dispatched not only people, but 500 units of equipment at the same time. The government relies on Aktio," he says.
While the large players in the Japanese rental market diversify and expand, there also are smaller independent companies who have found different niches. Nissho Kikai Co. in Osaka, for example, thrives by renting equipment to other rental companies (see story on page J11).
Due to the high cost of buying real estate or leasing property and buildings, not all rental companies can afford to own, maintain and store all the equipment a typical general tool rental company might have in the United States. That’s where a company like Nissho Kikai has found a niche, supplying everything and anything to other rental stores.
One of the company’s warehouses in Osaka is stacked with equipment on each of the three floors and Yasumichi Himeno, Nissho Kikai Co.’s CEO, says they continue to add more inventory each month.
Others have found success by specializing in scaffolding, pumps or tunneling equipment. The experiences of all these rental companies in Japan can be a lesson on how to survive for others who might face a mature or declining market in the future.
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