The Up Side of the Downturn

Like most renewable energy sector participants, wind tower manufacturers have felt the impact of the recent worldwide economic downturn in a number of obvious and often painful ways. Many have been forced to cut workers and others have had to halt production entirely. But the new market realities have brought with them less obvious challenges, as well.

One example is the increased level of quality now being demanded by turbine manufacturers and wind project developers. Even two to three years ago, turbine manufacturers couldn’t find enough tower suppliers to meet their needs, so available capacity was often the primary driver for selecting a tower vendor. Given this supply shortage, many tower manufacturers were able to succeed by focusing on delivery of as many towers as possible, as quickly as possible.

Today, with some tower plants sitting idle and others operating at significantly reduced production volumes, turbine manufacturers and wind project developers have the luxury of being more selective. Many also have more time to evaluate potential tower suppliers, and are demanding higher quality and enhanced service at lower prices. Thus, it’s no longer enough to simply provide the desired number of towers for a project. To succeed in the current market, tower vendors must meet their customers’ enhanced quality demands, while providing more value for the same or lower cost than in the past. However, while these new market realities present challenges, they can also present potential opportunities.

Case Study — Korindo Wind U.S. Market Impacts and Adaptation

In the Los Angeles office of Korindo Wind, a division of PT Korindo Heavy Industry and member of the Jakarta-based multinational Korindo Group, President Ricky Seung and his staff routinely compress the equivalent of two days’ work into each day on the job. This hectic schedule results from their role of coordinating between the company’s Ciwandan, Indonesia, tower manufacturing plant; the company’s European customers; and clients in the United States, where most of their towers are installed.

Korindo Wind hasn’t been immune from the effects of the global economic downturn — indeed, Seung and his staff’s demanding schedule is focused on filling the Ciwandan plant’s 800 tower annual capacity, the equivalent of more than 2 gigawatts of installed capacity. However, the company has adopted a number of strategies to exploit opportunities presented by current market conditions.

Korindo’s plant was constructed in 2006 to service the global wind energy market. Since that time, more than 500 U.S.-bound towers have rolled off their production line, manufactured to the specifications of some of the best-known names in global wind turbine manufacturing.

That may come as a surprise to some in the industry, given that the company’s primary U.S. market competitors don’t have to ship their towers across the Pacific Ocean. But less expensive steel and lower operating costs in Indonesia combined with Korindo’s comprehensive delivery package allows it to offer favorable contracts and competitive pricing. Even compared to domestic suppliers, Korindo Wind’s landed price often is equivalent to or less than the cost of getting towers from a U.S. factory to the project site.

But cost is only part of the equation, says Seung, who adds that success in the United States requires three things: indisputable quality, unsurpassed service from plant to project site, and overall value to the customer.

Quality First

“Turbine manufacturers have raised the bar to a new level, and we think it’s great,” says Seung. “Korindo Wind has been manufacturing to the higher level since the beginning, so we have no problems meeting the new expectations. We have tremendous confidence in our quality systems, our people and our factory, so in many ways the situation makes our greatest strength even stronger.”

“Our overall quality system, including the quality management we do in our factory, is many steps above where most tower manufacturers are today,” says Korindo Wind Quality Manager Henry Kim. “Since we’re one of the few ISO certified tower manufacturers in the world, of course we meet those requirements, but we go beyond that at every stage.”

Kim is an American Welding Society (AWS) Certified Welding Inspector and, prior to joining Korindo in 2006, he was head quality manager at a competitor. He’s one of two quality managers in the Ciwandan plant, with more than 20 years of combined experience in wind tower welding and fabrication. Every Korindo Wind welder is AWS certified, and the 33-person quality team includes certified welding, coating and nondestructive testing inspectors.

Quality inspections are performed at every point of the process: raw material receiving, cutting, beveling, rolling, fit-up, submerged arc welding, blasting, painting and assembly. Every step is documented with precision to ensure traceability. If there is a problem down the line, the company can pinpoint where it originated and address it immediately. Then there’s a final shipping inspection before the sections leave the plant, a surveyor at the port ensures the integrity and quality of the sections has been maintained during transport, and another inspects them when they arrive at the U.S. port. Donald Rawson, an independent coatings inspector with a Level 2 National Association of Corrosion Engineers (NACE) certification, has inspected towers manufactured by four different companies. “I’d put their coating quality right up there with the top tower manufacturers. The last inspection job that I went out on for them was probably the best I’ve ever seen.” The real proof, though, is in a tower’s performance in the field. In more than three years of manufacturing and delivery, Korindo reports no significant quality issues.

Efficiency Enhances Value

Korindo Wind has been exacting in the development of its operation from the beginning. The management team that runs the Ciwandan plant brought nearly 50 years of combined experience in wind tower manufacturing and quality assurance to designing the ISO 9001:2000 certified facility.

“Because of our depth of knowledge and experience in manufacturing towers, we were schooled in potential defects before we even built the plant. We’ve taken a pre-emptive approach and applied lessons learned to our layout and processes,” Kim said. “That saves time and money, not just for Korindo but for our customers.”

The plant features all the same high-tech, precision manufacturing and measuring equipment that can be found in the best of its competitors’ facilities, and the quality team does ultrasonic and nondestructive testing on site. The plant’s linear production line is a model of efficiency. Raw materials enter at one end and completed tower sections exit the other with zero waste of time or material in between, allowing production of more towers faster and at lower cost, without compromising quality. And, located just one kilometer from the Port of Ciwandan, Korindo’s plant can ship towers cost effectively anywhere in the world.

Port-to-Project Delivery Completes the Value Package

Korindo Wind has never been late on a delivery. That carries a lot of weight in an industry where timing is everything and delays can cost millions per day.

“We actually can’t be late because the vessels are scheduled in advance and we have to pay thousands a day just to have them sit in the port,” said Seung. “Whatever it takes to stay on schedule, we’re going to get it done.”

To make sure that happens every time, Korindo Wind has developed a “comprehensive tower solution” encompassing everything from raw material sourcing, to manufacturing and assembly, to delivery duty paid (“DDP”) transportation. The company also owns and manages reverse logistics for the specialized H-frames needed to safely stack tower sections on ships. With DDP, the seller — in this case Korindo Wind — retains all risks and is responsible for all costs until the sections reach the agreed-upon destination. That can be a port or, because the company has strong ties with a domestic heavy hauler, all the way to the project site.

The logistics package addresses any concerns customers may have about getting towers to their U.S. project sites, according to General Manager David Choi. “It’s a fullservice deal,” he said. “We provide the stacking frames and insurance, we coordinate the ships and handle the ocean freight, we take care of the duty and clearing customs, and we handle all of the port work and storage. It’s almost as if you’ve purchased from a domestic supplier, but you have the option of going to the port closest to your project site in the States or anywhere in the world.”

Choi says the logistics service provides certainty to customers in what can be a highly volatile shipping market, because Korindo Wind has negotiated a maximum rate with an ocean freight business partner. And, because all the towers arrive at the port closest to the project site, domestic logistics and state-by-state permitting challenges are minimized, as are inland transport costs, which can be substantial. Just to load a section and move it down the street can cost $10,000, or as much as $50,000–$100,000 to haul it from a U.S. plant to a project site, depending upon the distance.

Another, not quite so obvious, advantage is that all the sections arrive at the same time, ready to install. “It’s a project manager’s dream,” Seung said. “He knows exactly when 20 towers will be arriving in the Port of Houston, for example, and he can schedule cranes accordingly. Those cranes cost an incredible amount for every day they’re on site. With Korindo Wind, they’re not going to be sitting idle waiting for a top section that’s still on the line in a plant somewhere.”

Korindo Wind inspectors go over the sections at the port, and the company takes care of repairing any minor handling damage that may have occurred in transit. The company works with independent maintenance and repair providers to address issues once the towers are installed.

“We do everything in our power to ensure customers get exactly what we’ve promised,” Seung said. “It all flows from Korindo, which has kept customers at the center of its corporate philosophy and vision more than four decades.” Given the challenges of the recent economic downturn, Seung is betting it’s a strategy that will pay dividends both for Korindo Wind and its increasingly discriminating customers.

Korindo, founded in Jakarta in 1969, is a multibillion-dollar company comprising 14 divisions serving diverse industries worldwide. They are engaged in timber and forest management; paper manufacturing and recycling; and the manufacture of heavy vehicles, commercial vehicle parts, chemicals, palm oil, heavy vessels and containers. Korindo Group companies also engage in trading, financial services, insurance, real estate development, logistics and shipping businesses. Korindo Group companies employ more than 30,000 people who export products and services to every corner of the world, including the United States, Japan, Korea, China, Singapore, Taiwan, Malaysia, India, the Middle East and Europe. For more information, go to www.korindowind.com.