TNT Express taps new markets
With its European network fully integrated and optimised, TNT Express is looking to enter into alliances with other air cargo carriers as it turns its focus to expansion in key developing markets around the world. Donald Urquhart reports from Liege, Belgium.
August 1, 2008
By Donald Urquhart
With a differentiated product offering and diversified network and customer base,the global express group is confident it can continue to build domestic platforms in key developing markets, which have growth rates of over 18 per cent, despite some pessimism in the market.
Europe’s largest express-delivery company, said rising fuel prices and the slowing US economy aren’t hurting itsexpress-delivery division. “I would say TNT is coping well with the uncertainty in the economy right now,” said Marie-Christine Lombard, group managing director for TNT Express at a recent press briefing at the group’s Liege air hub.”So far no impact,” she added.
But there is clearly an air of caution as the group actively works on integrating acquisitions in three developing markets spread across three continents. Lombardsaid she is now investigating the possibility of some form of alliance with other aircargo carriers to strengthen the group’s global interconnectivity.
“I’m not saying we will succeed, I’m still in the process of investigating what we can do in this area I think yes we have some interested players at the moment,”she said.
“I think there will be some capacity in the market and it will be in the interest of everybody to try to optimise that capacity,” she added.
“Its about having some commercial partnerships on some lanes and would not involve capital investment. I don’t envisage that TNT Express is going to sign a deal globally with anyone. In part because that ‘whoever’ doesn’t exist- they don’t have the coverage or services that we need.”
Instead she envisions some formof commercial alliance that is a “little bit tighter” than simply sharing space,something more akin to the TNT B747-400 ERF that is wet-leased to EmiratesSkyCargo.
TNT would not likely go as far as its German competitor, DHL which formeda joint venture cargo and express airline,AeroLogic, with Europe’s second-biggestairline, Lufthansa, earlier this year, Lombard said.
“We are investigating these possibilities,but we are not in the bread and butter cargo business. We do some cargoto fill our under-utilised capacity, but itsvery, very small. It’s petty cash for us, but we do it because if you can fill your planes 90 per cent instead of 70 with some cargo, why not?” she added.
“I’m not saying we are not going to invest in more aircraft, but with added capacity you have a fixed cost and then if you don’t have the volumes you expect, its a problem. You have excess capacity in the industry at the moment and I think it would be waste quite frankly, from both an environmental and business stand point to have something that already exists.”
Lombard added that if a complementary partner cannot be found, TNT will then look into acquiring its own capacity,”but I think it makes more sense business-wise and society-wise to look what we can do with existing players.”
The move is aimed at strengthening the connectivity between key emerging markets where it has made important acquisitions recently that will help it to ‘leap-frog’ the growth of domestic platforms in those countries.
This includes TNT Mercurio in Brazil, Speedage in India and Hoau in China. In each of these locations TNT is now applying its expertise in building air-road networks that will plug into its intra-regional and inter-continental networks.
In essence TNT’s strategy is to replicate its successful intermodal network in Europe in which road and airhubs are optimised to provide a range of time-definite services.
The intermodal aspect is key to keeping costs down for both its customers, as well as itself, by transporting as much as possible by road and only using air when necessary.
In Europe this is accomplished by an express road network with 750 trucks plying the roads each day covering 32 countries with 86 international depots connecting 523 domestic depots and 16 main road hubs.
This extensive road network is connected to an air network which operates via 47 aircraft – ranging from BAe 146-200QTs to A300-200Fs and B747-400ERFs. The air network covers 71 destinations and has its main hub inLiege through which a full 70 per cent of European air consignments move.
The Liege hub can sort 48,000 shipments and 150 containers per hour,a capacity that will soon be doubled.
Europe-style network for Asia
TNT is now well on its way to implementing an Asian version of its European intermodal network, having earlier this year completed its Asia Road Network (ARN) stretching from Singapore to China.
In all the company plans on investing nearly â‚¬100 million in South East Asia to establish a leadership position in the region over the next five years, it said.
The ARN is the first in Asia, which covers 125 cities stretching across 5,000km from Singapore, Malaysia, Thailand, Cambodia, Laos, Vietnam, to China.
“In Europe, we can do a lot by road. We will use our road network in Southeast Asia and China to connect air freight in saving operational cost,” said TNT Express marketing and sales director, Jan Willem Breen.
Breen said 90 per cent of TNT’s operation in China and Southeast Asia is handled by the ARN with only 10 percent of parcels, express and freight delivered by air. In Europe, 70 per cent ofthe goods are delivered via road throughits extensive route network.
The start of the only scheduled road services between China and five countries of Southeast Asia, using the ARNbegan in early July.
From China, international road services to Southeast Asia will first be available from the south of the country. In a second step, TNT will link the ARN to its Chinese domestic network to offer customers seamless road connections from many parts of China to Southeast Asia.
The ARN connects to TNT’s international express network at Nanning, the capital of the Guangxi Zhuang Autonomous Region, and Guangzhou, the capital of Guangdong Province.
Promising an up to 30 per cent lower cost option than air freight, but faster transport times than sea freight, the ARN features fully inclusive secure, door-to-door, day-definite distribution service with track and trace capabilities, supported by a 24/7 real-time GPS tracking system. The trucks depart on schedule like trains, leaving to arrive atone of TNT’s hubs and depots, in time for parcels to be unloaded, sorted, and shipped out again or delivered locally.
Lombard said the extension of the ARN into China is timely as regional trade is expected to thrive. Under the impending China-ASEAN Free Trade Area to be set up with six ASEAN countries in 2010, the estimated bilateral trade volume between China and ASEAN willreach US$250 billion, up from US$160 billion in 2006.
“China is a very important market for TNT’s strategic growth in the region; similarly, the Chinese market is also integral to many of our regional and global clients,” Lombard said.
Thailand’s express capacity boosted
As part of the development of its Asian capabilities, TNT has also recently tripled its express service capacity in Thailand. Last month it in augurated its new hub in Lam Luk Ka district, Pathum Thani, more than tripling the capacity of its previous hub in Klong Toey, which could handle 40 tonnes or 4,500 consignments per day.
By integrating the warehouse and distribution centre under one roof, TNT expects to reduce transit time by at least two hours, according to Onno Boots, regional managing director of TNT Southeast Asia.
Southeast Asia is the company’s fastest growing market with demand growing rapidly for shipments of equipment and machinery, high-tech and healthcare products, said Boots. The freight market in Asia, he said, was expected to post 13 per cent compound annual growth over the next five years.
Alan Miu, TNT Thailand’s country manager, said global air freight traffic was anticipated to record average annual growth of 5.8 percent from 2007 to 2026. Asia would take the lead within tra-Asia trade forecast to increase at8.6 percent per year until 2026, he said, citing figures from Airbus and Boeing’s Global Market Forecast.
Singapore expands too
Singapore too, has seen a capacity boost with the recent launching of an expanded Singapore Country Depot, which TNT said will serve as a model for the rest of its operations in the Asia Pacific region.
Both the depot and a new Customer Contact Centre are located within TNT’s 180,000 square feet premises which also houses TNT’s Life Sciences Express Hub,the company’s largest dedicated life sciences facility in the world, and other regional distribution centre operations.
The depot will also serve as the sorting and distribution centre for shipments brought in via the ARN.
“Singapore saw a 15.6 per cent increasein external trade last year and is one of TNT’s fastest growing markets. Atthe same time, demand for freight express services between South East Asia, China and Europe, especially by customers in the high-tech, equipment and machinery and healthcare sectors, have been strong and make up almost 50 per cent of total air trade volume according to a study by TNT,” said Damien Tan, managing director, TNT Singapore.
“The key challenge in times of growthis to maintain high service levels. These new investments in infrastructure go towards enhancing the overall service levels for our customers and positions TNT Singapore for a significant role in TNT’s long-term regional growth strategy,”he added.
New service offerings for Asia
Another key development in the region was the recent launch of TNT’s range of freight services for time-sensitive heavy shipments in Southeast Asia. Modelled after similar services on offer already in Europe, the Express Freight, Economy Freight and Freight Plus services offer customers a door-to-door,day-definite delivery service based on specified transit times schedules, fast tracked customs clearance and full track-and-trace visibility, according to TNT.
These services are yet another piece of TNT’s strategic puzzle as it ramps up its capabilities in Asia by leveraging on the connectivity offered by its new road and air networks.
Based on studies under taken of regional market needs, TNT expects the take up rate of these services to be high. The large demand is mainly driven bycustomers in the high-tech, equipment and machinery and healthcare sectors that are increasingly moving large volumes of high-value goods between Southeast Asia, China and Europe.
TNT’s recent acquisition of Hoau in China , as well as an extensive knowledge of Chinese customs requirements, coupled with the recent re-routing of TNT’s Boeing 747-400ER Freighter with thrice weekly freighter service between Singapore, Shanghai and Europe, ensures TNT has unrivalled connectivity between Southeast Asia, China and European airand road networks, the company said.
The inclusion of Singapore is largely result of a business opportunity from the health care sector which enabled TNT to tap a new vertical market that helped prop up yields.
Although the east bound traffic from Europe to Asia is only reaching an average 39 per cent load factor, Mark Bradley, responsible for network development at TNT, describes it as a success.
When the 747 flies back to Shanghai it carries a variety of traffic, TNT core traffic and other traffic which is less yield relevant,he said. “The addition of Singapore allows us to bring a new market into the same route and prioritise differently,so yes 39 per cent, but much better than the original business case,” he said.
“But I can tell you that out of Liege to Shanghai today we are departing full. The issue is that its not necessarily all TNT Express traffic and its not necessarily high yield generating traffic.
“But we’re often much better than other carriers out of Europe. Singapore adds a new connectivity and at same time allows us to fill with a higher percentage of high yield traffic”, he added.
New focus on branding
On TNT’s brand positioning in Asia, Lombard conceded the group had not put enough investment in this area. “It is true that China and Asia in general, is very sensitive to brand.
“So we have a plan to invest in our brand, TNT has under invested in our brand and its not good at the end of the day, because this brand deserves investment and deserves to be known.”
In Europe she said TNT was not concerned it had lost any business opportunities because of lack of branding because it is known by the clients and at the end of the day “we are business-to-businessentity”.
“But in Asia it is a different story, and we have made a commitment to invest in our brand,” she said, adding that by building more connectivity between Asia and Europe will increase the flows being delivered into the region “and once you do that, you create more awareness of TNT and you get the flows back.”