TNT Focuses on Emerging Markets

July 1, 2008
On the tightwire of global express services, TNT concentrates on keeping its balance.

TNT faces the same challenges as every other logistics provider and user of logistics services: record fuel prices, slowing Western economies, congestion and productivity issues and rising environmental costs and pressure. The express group is focusing its attention on using its strengths to enter developing markets where it has the best prospect to become the leading provider.

Marie-Christine Lombard, group managing director express, describes TNT’s strategic focus in simple terms. It has reached the position of number one in Europe in national and intra- European express flows. It is building uplift capacity from China to fuel its European network and it is working to establish an intra-China network. In the Rest of World category, it is number one in selected emerging markets and is developing further opportunities.

Prior to selling its contract logistics unit (the current CEVA), TNT announced a strategic direction that would focus on networks. The company has continued to develop its air and road networks, says Mark Bradley, director of global network and operations, “taking a global approach of ensuring the networks are planned, aligned and optimized so that we make accurate and smooth capital investments to support growth.”

Being strong in core markets allows expansion into other markets, including China. TNT’s announcement that it would begin Liege-Singapore-Shanghai-Liege service in its own 747 freighter is a prime example of how the company applies lessons learned in the express business to enable it to develop tactics that support its larger global strategy.

Before the Singapore leg was added, the imbalance in the Europe-China lane was significant. While China-Europe averaged 92%, utilization, the return leg from Liege to Shanghai was only averaging 39% of capacity. Lombard noted that TNT was using commercial uplift on the lane and that was not only expensive, it was less reliable and less connected to TNT’s hub in Liege. Modeling the multi-stop route showed that the change could provide good utilization on the Liege-Singapore leg and on the Singapore-Shanghai segment. The Shanghai-Liege route was, at times, at 100.1%, said Lombard, “You just can’t fit any more on the plane.”

In fact, TNT needed only 5% utilization outbound from Europe to keep the 747 freighter operation in the black, and it had surpassed that in early trials. The service launched June 25th.

From 2004 to 2007, TNT engaged in the first phase of a transformation that included stripping out its logistics services operation (now CEVA Logistics) and its freight forwarding group. It was back to the core of optimizing and operating express networks.

TNT’s density in Europe operating a road and air network in 35 countries provided the base for its operations and its experience. The European road network features 16 road hubs and 85 international depots connecting another 415 regional depots. On the air side, TNT operates from 70 gateways in Europe, Liege being its principal express hub.

Examining its global strategy, Lombard comments that TNT’s lack of a presence in the intra-US express market is at times a great regret, but at other times, “we thank God we are not there.” TNT continues to deliver into the US market using regional carriers and subcontractors and it will connect US customers with other global destinations, but it has no desire to enter the intra-US express market.

Just weeks after DHL had announced it would outsource its US domestic express air lift to UPS, Lombard was explaining the TNT position saying, “If you come too late to the market, you can’t take a position.” Given its focus on emerging markets where it doesn’t face large, entrenched competitors, TNT’s goal is to be the lead express provider in the markets where it operates.

Lombard explained the acquisition of Hoau in China in the context of the company’s larger strategy. Hoau was already a leading less-than-truckload (LTL) carrier covering all of China, she pointed out. Hoau’s 1,100 depots and 150,000 clients provide a strong platform for TNT in China. As an LTL operation, however, Hoau’s focus is on filling its trucks. Utilization is high because they don’t operate to a schedule, they optimize vehicle capacity before the trucks leave the depot. That isn’t TNT’s model, and it has begun moving Hoau to scheduled departures that are necessary to support express operations.

The situation with Speedage in India, another acquisition, is similar to China for TNT. That road network provides an LTL platform TNT can transform into a national express network. When you match schedule and capacity, it creates a strong barrier to entry in a market. TNT’s sophisticated modeling tools have helped it optimize its European road network and integrate with its air operations, and it is this model TNT is migrating to developing markets.

The company has also developed a road network in Southeast Asia which Lombard says has exhibited 23% growth operating within and between the Southeast Asian countries and Southern China. A similar developing road network in the Middle East experienced 53% growth, she added. So, TNT isn’t forgetting regional markets as it targets growth in the Middle East, Africa, Southeast Asia and South America.

The South America experience is a little different, admits Lombard. There, TNT acquired Mercúrio in Brazil. Mercúrio is a 60-year-old company and a leader in Brazil. It also already has express characteristics, says Lombard. Bradley digs a little deeper into TNT’s factbased and scientific approach utilizing a data warehouse to feed information into strategic planning tools to help build an optimized air and road network. This is consistent and constant process of alignment, analysis and restructuring to suit the economic environment, says Bradley. It’s not just about building a pan-European approach but taking a global approach with consistent deployment throughout.

Bradley points out that TNT first develops a baseline to determine the demand and service profile in the region. It models current performance in service, service offering and cost characteristics, and simulates and models various alternatives. TNT can then take a clear strategic direction and do the tactical and transition planning, he continues.

TNT’s analysis of its European road network extends through 2017 and they have identified six potential new hubs on the east-west axis going through Europe: Bratislava, Slovakia; Lyon, France; Munich, Germany; Prague, Czech Republic; Stuttgart, Germany; Vitoria, Spain. TNT Hoau in China is mostly in the East of China. India has five key hubs: Sinnar, Nagpur, Mahipalpur, Martingale and Calcutta.

The road network in Southeast Asia serves Singapore, Malaysia, Thailand, Cambodia and feeds into China. The European air network operates a single hub based in Liege which connects with 65 airports utilizing 42 aircraft on 500 flights per week carrying a weight ex-hub of 2,200 tons.

In North America, TNT provides international express delivery services to and from the US and Canada. It has three international air gateways in New York, Los Angeles and Miami.