"The biggest express delivery market is domestic"

Peter Bakker

The Netherlands-based TNT is the world's fourth-largest express delivery group, behind UPS, FedEx and DHL. While its competitors seem more focused on making the most of a globalised economy, TNT's CEO Peter Bakker believes that 95 per cent of the volumes in express delivery services will be shipped intra-continent.

Bakker says that strong regional and domestic networks will play a much important role than global ones. His current strategy in India, too, is to strengthen the company's domestic road-based networks, leveraging the fruits of a fast-growing economy.

On a recent visit to India, Bakker spoke with Amit Ranjan Rai on the company's India and global strategy. Excerpts:

What has been TNT's growth strategy and how has its performance been?

A little more than a year ago, we launched a strategy called "focus on networks". And this strategy is primarily focused in places where there is potential for volumes to grow, so that we can lower the cost and improve the service and, therefore, grow even bigger in those places.

We are a $13-billion company, growing 7-8 per cent a year, we are the most profitable players in both post as well as express services in the markets in which we operate.

In Europe, we are the best postal company "" if you look at the quality and profitability, you will always see TNT high up on the ranking.

But you are still not the biggest in Europe?

The biggest is probably Deutsche Post [owner of DHL]; that's because the German market has more inhabitants than any other country in Europe.

In express services, we are the market leader in Europe. We are not active in North America, but we will become the No. 1 in most other big emerging markets.

For instance, in 2006, we acquired the Hoau Group [a domestic road freight company] in China and with this acquisition TNT currently operates about 1,120 depots in that country. DHL still has only 72-73 branches.

Similarly, in India, the other major emerging market, we acquired Speedage and have expanded from 23 depots early last year to 615 today. UPS, FedEx and DHL along with Blue Dart have far fewer depots.

A number of Indian companies have businesses focused on the US, but TNT has hardly any presence in that country. Won't that affect your India business?

It would if TNT's focus was on the export business. My plans would be certainly wrong if we were flying big aircraft and those aircraft don't go to the US. But my main thrust is the domestic market. I'll make sure that my network is the best when it comes to moving parcels east to west or north to south in the country.

Internationally certainly, a lot of flows are from India to the US, but it is equally true that a massive trading partner for India is the European Union.

In fact, we did a comprehensive study on trade flows between India-US, India-Europe, India-Asia and India-China, and clearly India-Europe is a much larger trading bloc than India-US.

I expect that if we take a long horizon of 10-15 years, then Asia as a whole, particularly India, China and the Asean countries "" these are the fastest-growing economies "" would be the place to be. A lot of trade will emerge between these countries.

The other European major, DHL, is trying to tap the US market, and even if it is not doing so well there currently, perhaps in the long run it would strengthen its position there. Why are you not focusing in the US market, while your competitor is?

UPS and FedEx have 75 per cent or more market share in the US. Unless you get close to UPS and FedEx in terms of market share in the US, your network will not be efficient enough. I'm not here to comment on DHL's strategy, I have only seen that they have lost $1.5 billion in the past two-and-half years. They would never be able to close the gap I'm talking about, and we would never move into the US. We don't have to.

Your next question may be then that perhaps we are heading for trouble.... No, we're not, because 95 per cent of all the express volumes in the world are on the continents and 5 per cent is between the continents. So if I'm not in the US, I cannot play in the intercontinental business to parts in the US, so I lose out on 5 per cent of the market. But I can still play in 95 per cent of the business.

What is your strategy for growth in India?

The strategy is the same we've followed in Europe "" have a strong domestic network that expands to the rest of Europe. We are the market leaders in many countries in Europe with over 40,000 trucks running and 46 aircraft flying.

In India, our current focus is to build a strong domestic network "" which would be road-based "" but given the size of the country, we would strengthen this network with domestic air network as well. And then, of course, integrate this network with the rest of the world for international shipments. This cannot be done overnight, it will take a few years.

We are uniquely positioned in the market. UPS and FedEx have much larger fleet of aircraft than we have, but they don't have that strong domestic capability.

They cater primarily to imports and exports to and from India. DHL acquired Blue Dart a few years ago, but then it is primarily a domestic air company, not so strong when it comes to domestic road capability.

What makes you so confident about your domestic road networks-based strategy?

Our strategy in India would be to leverage on the growth in the domestic economy. While a lot has been said about expanding the export business, and the manufacturing industry to play a key role in driving exports, we believe the major push for the Indian economy in the next 10 years will come from domestic developments. So TNT is now focusing on strengthening the domestic road-based networks. I would say that it is simple economics.

When an economy develops the way India has, the average income per household goes up and up. Economists will tell you that at an income of somewhere around $3,000 per household, these household invest in durable goods.

If someone wants to buy a refrigerator, he would buy it from a shop locally, which means you need a transport solution that reliably get these products to shops around the country.

As the country develops, more and more cities would have more shops, and the network would expand. You need more road-based than air solutions for this network to grow and to contain costs.

What kind of footprint does Speedage's acquisition provide you? And why haven't you changed the Speedage brand to TNT?

Speedage is a national player. It has about 80-85 per cent of coverage that the No.1 player in this business in India has. It's got a footprint and delivers parcels all across the country.

As for changing the Speedage brand to TNT, we would consider that over time. You need to be careful when you acquire a company.

This is a service industry, so the motivation of the people is a very important component of what you're trying to manage. We believe that when you acquire a company, which we have done in many countries around the world, you should not walk in and paint everything in your colour; people "" not only the employees but also the customers "" will feel themselves alienated from the company they used to do business with or work for.

We want to be careful here. It must be quite a different thing to work for a totally Indian company with an Indian ownership to all of a sudden hearing that a European company has now acquired you. I know some of the companies in our industry are like that.

When they takeover a company, they implement the processes of their company the next day. We are different. I would like to see as many TNT trucks on Indian roads as possible, but every Indian who sees those trucks, should think that it is an Indian company. If you don't do that, you can't play in the domestic market.

But we will move Speedage to TNT over time, but again in a sensible way. Repainting every building and truck just to have the TNT logo on is going to raise the cost, but it doesn't do anything for the customer.

Any other acquisitions planned in India?

The road transport part with Speedage is now big enough. There are areas that we need to work on to complete the road network "" I think we can do it almost organically.

But in the air and international capabilities we need to find more and better solutions, and if acquisitions can help, we will be interested.