COMPANY NEWS

Two generations of tunnelling at Herrenknecht 20 Sep 2018

Roland Herr for TunnelTalk
As one of the largest names in the industry Herrenknecht AG has built a solid reputation for reliability and professionalism while constantly evolving to ensure it remains at the forefront of development and change. As founder and CEO, Martin Herrenknecht has strong views on the challenges the company faces, such as competition from Chinese state-backed manufactuers; why he thinks lifting economic sanctions on Russia would be a good idea; and why Africa may be the land of opportunity. Here he sits down with his son and successor Martin-Devid to talk to international journalist Roland Herr about why he is still working harder than ever and about their strategy for the future of the family business.

Since the founding of Herrenknecht GmbH in 1977, by namesake, driving force and CEO Dr-Ing E h Martin Herrenknecht, the company has developed dynamically and shone again and again with technically sophisticated solutions to problems in underground construction. Meanwhile, Martin-Devid Herrenknecht, engineer and youngest of three children, has joined a family business that currently employs more than 5,000.

Martin Herrenknecht and son, Martin-Devid discuss company strategy
Martin Herrenknecht and son, Martin-Devid discuss company strategy

Dr Herrenknecht you celebrated your 75th birthday in June 2017 and can look back on an impressive lifetime of achievements. Have you become calmer as time goes on or do you have even bigger goals in mind?

I will leave you to decide whether I have become calmer or not. I think that is a standard that can only be applied from the outside. It is true that I feel responsible. As long as I am running the company I am directly at hand to solve problems or make important decisions. Of course my role as CEO (chief executive officer) is that I take responsibility and make sure that the company is run in the best possible way. So, I suppose you could say I have not really become any calmer.

For your many partners, customers and employees worldwide, you are an authority and they are glad that you are approachable in case of problems, is that right?

That is probably right. The company is on a good footing, so it is no longer really necessary that I always have to solve the problems. We have a new Board of Management with Michael Sprang as Vice-Chairman, after succeeding Kurt Stiefel as Chief Financial Office and now responsible for the finances; Günter Richter, responsible for Traffic Tunnelling and the Group Brands; and Ulrich Schaffhauser, with central responsibility for Utility Tunnelling, Mining and Exploration. Meanwhile I am fit and feel good and I am not a person who cooks at home or is good for cleaning. I would much rather be useful in the company.

What are your goals for the future?

We have to see how we can keep our competition in check, especially the Chinese competitors. As you know, they buy up everything they can. NFM, Wirth and Lovat, now Lovsuns – all companies that now have Chinese owners or shareholders. We were also made an offer – €400 million for 25% plus 1 share. We are not selling. If you like, we are the last of the Mohicans producing high-performance, innovative tunnel boring machines in the Western Hemisphere.

Martin: “We received an offer - we are not selling
Martin: “We received an offer - we are not selling"

What is clear from my point of view is that the Chinese now have the strategy of throwing machines on the market at dumping prices, or landing whole projects by offering financing and including the construction contracts and the supply of the machinery. This is not entirely unproblematic for the market as a whole. Because it means both the European and the North and South American construction companies are in the sights of Chinese ambitions. You have to do something to counteract that. Rivalry and competition is always good for business. However, you have to treat each other fairly. Otherwise it could happen that once the Chinese have achieved world market leadership, they put the prices right up.

Where do you see the biggest possibilities for the use of TBM today?

This is of course still China, but TBM possibilities are also in Singapore, Malaysia, Australia, New Zealand and we see enormous potential in Indonesia. Either we are already represented strongly in these regions or are just starting. In South America, an interesting market is developing. In Brazil, the situation will stabilise after the domestic political difficulties and Argentina, Colombia and Chile are expanding strongly. I am convinced too that there will be an interesting market in Africa over the next few years.

But Africa needs a different strategy, in development aid for example. I mean our taxpayer money needs to be used quite differently there. In my opinion, in construction projects, the equipment and machinery should come from the countries from which the taxpayer money and development aid actually flows. At the same time, at least 60% of the workers employed should come from the country of the project, that is, be Africans. They would benefit from development aid practically and in the long term. This requires a completely different strategy for the use of development aid funds. We need to build schools, promote education on the ground, and in this way create exactly the conditions that are necessary so that these people do not have to leave their homeland at all.

Martin: “Sanctions on Russia are detrimental”
Martin: “Sanctions on Russia are detrimental”

What are some of the projects you are involved in currently?

In Singapore we are very involved in the deep sewer project. I was recently on a trip with the German Federal President in Perth, Melbourne and Sydney in Australia, and have then visited Kuala Lumpur and Singapore. In France we are part of the ground-breaking Grand Paris Express project.

Of course, we would also like to be part of the Brenner Base Tunnel, where we have already managed quite well. This epoch-making project is about 45% financed by the European Union. I hope we will have good sales opportunities in the 2018 TBM tender processes for the project. The first three machines on the project from Herrenknecht are being used in the south, in the Tulfes section, where a hard rock machine is working on the exploratory tunnel and two further TBMs are on order for the main railway tunnel drives.

Also worth mentioning is Norway, where four double shield machines with segmental lining in hard rock are being used with great success on the Follo Line railway tunnel project. Particularly noteworthy is also the Deutsche Bahn Stuttgart 21 project with the very challenging work for the Filder Tunnel and Bossler Tunnel as well as the Albvorland section, where work just started. In Italy, the St Lucia Tunnel with a large EPB machine is very interesting.

Twin breakthrough for the Follo Line
Twin breakthrough for the Follo Line

In Russia, our TBMs are used for metro construction. However, here we are seeing that, because of the economic sanctions against Russia, Russian contractors and clients are more or less compelled to buy from the Chinese. Fundamentally, though, they would much rather work with us. Personally, I believe the sanctions are detrimental, and Russia should be given access to finance from European banks again. Russia is a strategically important neighbour for Europe and Germany.

Martin-Devid Herrenknecht, you are the only one of the three children working in the company. Tell us about yourself, your professional background and your interests?

I belong to the second generation. Since my parents' house is just 800m away from the company, it was part of my world from a very early age. Since childhood I have been strongly rooted in the company. I often sat in the passenger seat when my father was on his way to a customer and watched what he does when problems arise and how he acts. To be part of it all so early means that you know many colleagues in the company and also some of the customers with whom we have completed successful projects with over decades. In addition to this strong personal relationship, I often worked here in the company or on jobsites during my vacation.

I completed my mechanical engineering studies in Munich, and then, with various positions in other companies, including hydraulic companies Bosch-Rexroth and at the Plant Zero prototype laboratory at BMW, – I gained a little distance from home. In 2014 I joined Herrenknecht on a permanent basis as head of projects in China, Mexico and Qatar. At the moment, I am working increasingly within the Group and with a stronger focus on the Group Brands in the technical area. One topic that interests me personally is digitalisation in construction and, at our company specifically, pushing projects in research and development. What I especially like is our medium-sized structure, which allows us to launch our own projects. I really enjoy the variety of areas we work in and the diversity of day-to-day business.

Martin-Devid: “Different cultures handle technology differently”
Martin-Devid: “Different cultures handle technology differently”

So digitalisation is one of your special areas of interest?

Yes, definitely. Digitalisation in construction, specifically in tunnelling, is an exciting topic. In particular, there are huge opportunities in the interaction between contractors, planners and us, the manufacturer of TBMs. How is the market evolving in this context and how do we evolve to be positioned optimally are key questions we keep asking ourselves.

Does digitalisation relate more to production or is it rather in the direction of BIM (building information modelling) on jobsites?

We are approaching this with an open mind. There are wide-raging discussions going on in the market and our main task is to find out what is really happening. This raises questions such as: Can digitalisation be financed? Does it make sense for production or for the implementation in a project? What measures and innovations are necessary in machine technology to meet new requirements? Of course, we are also fortunate that we build prototypes and project-specific one-off machines and are therefore always among the first in the development chain. Not to forget the risk we are exposed to within the project business, especially in the discussion about BIM where there is still a great deal of uncertainty, and in some cases bafflement, about what can, or should be used, as well as when, where and how.

Which areas of the company do you find particularly exciting?

Above all, I am fascinated by the project business abroad, with its variety of cultures that you get to interact with, or sometimes have to interact with, and how differently people handle technology in different cultures. In Germany, in Europe, for the most part, everything is perfectly organised. On other continents, you have to have a completely different approach to people, partners and employees in order to complete a project successfully. Then you can appreciate the technical accomplishment and the expertise behind our work, behind the know-how of Herrenknecht. I find it fascinating to continue developing mechanised tunnelling technology. For example, optimising the accessible cutterhead concept without over-engineering the technology. The benefits for the customer, together with safety, efficiency and cost must always be in the foreground.

Dr Herrenknecht, as the revenue of the company increases, how do you see the economic opportunities unfolding worldwide?

Martin: “Know-how comes from experience not copying”
Martin: “Know-how comes from experience not copying”

After an order book of €1.236 billion in 2015 and €1.267 billion in 2016, we were able to achieve an order inflow in 2017 of about €1.308 billion. In addition to the core business, we are also specialised in mining, where, for example, ore mining is undergoing increasing modernisation worldwide. In tunnelling we will continue to maintain the revenue level and we will further expand the mining division with €100 to €150 million. With special equipment we are also well positioned in the vertical drilling exploration sector for the oil industry. In the North Sea for example work on numerous existing oil wells needs to be carried out professionally. We are also involved in the construction of foundations for wind turbines in the North and the Baltic Seas. I am convinced that wind farms in the North and Baltic Seas generate the most energy and projects proposed by the Green Party for setting up wind turbines here in the Black Forest cannot even begin to be anywhere near as productive. Another new development is a method for laying underground cables from the North and Baltic Seas to Bavaria and into Switzerland.

So that means Herrenknecht is growing well beyond tunnelling itself?

The Traffic Tunnelling and Utility Tunnelling Business Units are a solid and broad base for our company. Here we have to face the state-backed competitors from China. We have our strategy to counter this. First and foremost we want to convince our customers with maximum quality and efficient service. A good example is the Bosphorus Tunnel in Istanbul, Turkey, which would never have had a successful breakthrough with Chinese companies. Unfortunately, the crazy thing is that today only the prices count. Whether an offer involves a high percentage of service often does not play a significant role. However, I am firmly convinced that the area of services, in particular, will become increasingly important in future tunnelling projects. Herrenknecht has 40 years of project experience, a tremendous amount of expertise, that our customers can rely on. Know-how comes from gaining and having experience, not from copying.

Dr Herrenknecht with all the awards for your outstanding achievements of which one are you most proud?

Breakthrough after a drive under the Bosphorus
Breakthrough after a drive under the Bosphorus

The STUVA Prize, which I received in 2005 in Leipzig, was certainly a recognition as was the ITA Lifetime Achievement Award in 2016. The Werner von Siemens Ring is also a special award, as well as the Mechanical Engineering Award in 2017 and a personal honour for me, is the Federal Cross of Merit. These are awards that not everyone gets and I appreciate that about them. Awards and prizes are nice gestures also for the employees. Therefore, I usually accept awards in the name of my employees who are significantly involved in our success For me personally, the most important award is that we get an order and at the end of a long day, I find my very personal confirmation in the projects we are involved in: the Brenner Base Tunnel, the Gotthard Base Tunnel, Stuttgart 21, the Bosphorus Tunnel, the 4th Elbe Tunnel Tube, the development of micro-machines and many more.

What topics are particularly close to your heart?

The training of young people, the training of the next generation in all different areas of the company, is especially close to my heart. We accomplish this, for example, with a good technical and professional apprenticeship in the Herrenknecht training workshop. Management training is another aspect, in order to hold our own worldwide and to promote education in science and technical subjects. As a result, we support the Max Planck High School every year, the Karlsruhe Institute of Technology, the Ruhr University Bochum, the Technical University Braunschweig, the RWTH Aachen University and many other research institutes, as well as social and local centres, and several athletes and sports teams. That is a total of more than 150 different donations each year.

Martin-Devid: “It is great Elon Musk stirs things up”
Martin-Devid: “It is great Elon Musk stirs things up”

Martin-Devid, in early 2017 you came into contact with Elon Musk. Has anything come of that?

Elon Musk personally is interested in tunnelling and sought contact with Herrenknecht. He estimated his involvement in tunnelling at about 2%. We were in negotiations for the purchase of a Herrenknecht TBM, but it did not eventuate. In the end he bought different used machines. He is known for his way of just doing things. He sets a completely different pace with its own dynamics. His ideas are not new however. We have made considerations in these areas for a long time, and others are doing the same. Ultimately everything has to be technically and economically feasible. Personally, I think it is great that Elon Musk stirs things up. At the same time, we hope he can stay the course, learn from the mistakes he makes and perhaps also raise his 2% involvement in tunnelling a little higher.

Dr Herrenknecht:

Musk certainly has some ideas that can fascinate. For example, Hyperloop or also Cargo Sous Terrain and CargoCap are projects that are interesting. If in the end it turns out that you travel at less than 1,000km/hr in the capsule and operate an inner-city network, of course, that would be acceptable too. Transporting waste or supplying department stores in this way would be an important approach to reducing traffic in our cramped inner cities. I doubt that drone technology will be the answer for deliveries. In my opinion, underground construction is still the best, most environmentally friendly and promising solution. The future of our big cities is definitely underground, no matter if it is sewage, water, gas, traffic or storage. Precisely that is already the solution in Singapore, where, for example, large road projects, and the targeted expansion of the metro infrastructure is all underground. That, I am convinced, is the future.

Variable Density TBMs underway for Line 2 in Kuala Lumpur
Variable Density TBMs underway for Line 2 in Kuala Lumpur

There have already been thoughts, for example, about crossing under Paris from north to south in an 18m diameter double-deck highway tunnel to accommodate high traffic volumes. High-speed rail links planned in Thailand and between Kuala Lumpur and Singapore, the development of expanding the old Silk Road or long-distance rail connections in Russia and high-speed rail links to connect the cities and minimise road traffic in North and South America, show the direction transportation planning is going on every continent. The trend within the megacities is also very clear. Again in Singapore, for example, vehicles are limited by requiring that you sell the old car before you can buy a new one. In parallel, an excellent public transport infrastructure must be created and the goal in Singapore is to find either a subway or a bus station within a walking distance of 300m at the most.

Has an innovation limit for new technologies in tunnelling been reached or where is the journey going?

With absolute certainty, in the area of digitalisation alone there are wide-ranging requirements for visualisation, data acquisition and the evaluation of algorithms, also with regard to BIM. Also I see significant development potential in the accessible cutterhead concept. If, for example, you have to change the tools on the cutterhead in situations, such as the drive under the Bosphorus, at 11 bar, you cannot just send in divers. Here we have a development where we can measure the rotations of the discs and thereby determine which disc cutters are working properly and which are not. This allows us to change the cutters before major damage occurs. Another development could be the partially automated control of the tunnel boring machine.

In Paris, at the ITA Awards in November 2017 a robot received an award for the tool change on the cutting wheel. How do you both see this development? Martin-Devid Herrenknecht:

Of course, the development toward automated processes – especially in tunnelling, in tunnel boring machines – is unstoppable. Associated with this is a high level of occupational safety, paired with economical workflows. It is about developing the best possible solutions. It is precisely in this context that contracting companies such as Bouygues, Vinci, Eiffage or Gamuda are incredibly important to us, because these businesses drive developments forward.

An assembled Herrenknecht TBM ready for launch
An assembled Herrenknecht TBM ready for launch

Dr Herrenknecht:

20 years ago, Professor Maidl and I were in Japan and saw a development department with 20 engineers looking for solutions for automatic segmental ring building. Today's state of the art meanwhile makes it possible to tackle automated segment installation once again. Bouygues is one of the few innovative tunnel construction companies. French contractors in general are very inventive, technology-friendly and push the technology where they can. The Germans on the other hand, are very cautious and shy away from the new. If they could, they would like to build a wall around Germany. Like scared rabbits, they try to stick to the norm. And yet we are exposed to a dynamic where you really have to be on your toes. The Chinese, for example, want to get out of their situation at any cost, working 12 to 14 hours a day, so that the children are better off than their parents. And that is exactly what drives the Chinese and what we are meanwhile missing.

New developments in tunnelling continue to depend on the companies to drive this forward. What is happening in this respect from your point of view?

There are customers who are very active in this regard. Ghella and Acciona, for example, who are building tunnels using double shield machines in Norwegian hard rock with a segmental lining, I would not have dreamt of that a few years ago, in extremely hard rock of up to 300 MPa in compressive strength and with fissures in the rock full of groundwater in front of the cutterhead. Or hard rock machines in the Caucasus with the Russians, with screw conveyor discharge in the center and not with a belt conveyor. These are new developments that we push forward together with our customers. Also now in Australia or Singapore, where customers express specific wishes and requirements for TBMs, here we are very much called upon to find innovative solutions. These are developments by contractors that have long ceased to occur in Germany. Most of our developments now take place abroad.

Martin-Devid: “When the top responsibility comes, I won't say no”
Martin-Devid: “When the top responsibility comes, I won't say no”

Here in Germany, for example, they did not dare tackle the Steinbühl Tunnel because of the present karst. In Kuala Lumpur, Gamuda has pushed new developments and developed the Variable Density TBM because of the karst problem. In Germany they are over-cautious and as soon as something happens, such as the collapse at the Rastatt Tunnel, the entire construction of infrastructure is called into question. This attitude is very dangerous, as we have seen in the development of tunnelling in Japan. Japan once led the development of tunnelling 20 or 30 years ago, and today Japan has lost all significance on a global scale. China is really on the rise, with huge financial reserves, but that will eventually come to an end.

Martin-Devid, a rather personal question: as the son of the company founder, you are bound to be subject to extra scrutiny, in the company as well as outside. How do you deal with that and above all, where do you see yourself in the company in the future?

Here in the company most people know me anyway, and have done for a long time. So, it was not a big adjustment for me, and everyone else, when I joined the company. Many customers have also known me for many, many years. For the future, and above all, the focus is on safeguarding the company and on the quality of our products and services. It is important to me and to us that the company is sustainable for the long term and continues to expand. As far as the operating activities are concerned, I am gradually familiarising myself with all areas. Among all the old hands, I clearly express my opinion on the subject at hand. And when the top responsibility comes, I won't say no.

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