TNT defends strategy on SMEs and mixed parcel-pallet network

TNT has defended its strategy of targeting SME customers and delivering shipments all the way upto 500 kg and above within its core network, despite the additional complexity and costs it

CEO Tex Gunning admitted to analysts yesterday at the company’s Capital Markets Day thataccepting such a wide variety of shipment sizes created “not the ideal industrial process”, but heclaimed that the advantages outweighed the challenges.

“That’s a question that we have been struggling with also for a long time. Of course, if wewould have designed TNT 20 years ago and we were the main player in Europe, I think we would havedesigned it differently and looked to an industrial process that optimises everything, that iscapital intensive, and where you limit yourself to 30 kg – and you optimise every single corner ofyour whole industrial process,” he said.

“But that is not what happened, so we are where we are. So you will have additional complexitycosts if you have to sort parcels and you have to sort heavier weights or pallets.

“How do you make money? I think the answer is that the money then comes not so much through thefocus on the product but more the focus on the customer. You ultimately create value for thecustomer because they get an easy one-stop solution, and therefore you start to focus on customerprofitability.”

But he stressed that “of course” you have to still optimise your whole infrastructure. “So ifyou look at the hub we have in Paris, you see on one side of the hub is parcels, on the other sideis pallets, and they all come together again in the out freight,” for example in the line haul.

“Also, for 500 kg shipments, of course, we then have special services and these are chargedentirely different tariffs,” he stressed. “And, so I have to optimise customer profitability.”

While not the ideal industrial process, managing director for network operations MartinSodergard said that a lot could be done to make it efficient. “We have already gone a long way downthat road to optimise around that profile, so all the way from pickup through depots, each one ofthese steps are designed to do both at the same time.”

He said this was “a hard trick to do”, but he had “done that before in another business”. LikeTNT’s International Europe managing director Ian Clough, Sodergard spent more than 20 years at DHL,including managing DHL Express’s European air and road networks.

“And once you have done it, it is hard to replicate,” he added. “Once you go down the parcelroute, all your infrastructure is parcel only, or you go down the pallet road. So, we have foundways in each of our facilities and in vehicle optimisation to do both at the same time.

“So yes, one of them on its own would be slightly more productive, but we are not far off. Andas Tex said, the value is driven then by the SMEs, who want one provider and not a van coming at 2o’clock and a truck coming up at 3 o’clock.”

Asked about the cost dynamics of TNT’s increased focus on SMEs, Clough responded: “Undoubtedly,particularly from a pickup density perspective, there is a greater cost to picking up 1,000consignments from 500 SMEs than picking up 1,000 consignments from one pickup location. And then interms of the rest of the process, in some areas SMEs are more cost intensive, but it depends on howyou service them.

“As we move and drive more e-commerce traffic, and as we dramatically improve the way weinterface with ad hoc-customers, then actually – other than the pickup – the cost dynamics are notdramatically different for an SME than a major customer. In fact, even in the customer service areawe may be able to significantly reduce that cost burden, because my experience in the last fewyears, particularly with SMEs in growing businesses, they are not that interested in talking to ahuman being.”

He continued: “They are really interested in getting the service that they paid for and havingtracking available, or whatever they want available, but they would far rather do it via some kindof online interface than a traditional way of calling customer service and going through thatprocess.”

Clough said TNT also invested a lot of money with its major accounts in terms of supporting themfrom a customer-support perspective. “So, the cost differential is really around the pickupdensity,” he added. “From the delivery end, it really comes down to the industry that the variouscustomers are in.”

He said the delivery density of 200 pickups from SMEs was likely to be better than that for amajor customer who is delivering to 50 different locations in different countries across Europe. “So that is really driven by what the customer is, what the customer’s business model is, and it[the cost difference] is really in the pickup density. But then that is massivelyover-ridden by the purchasing power of these major multinationals versus the basic pricing ofthe SMEs.”

Sodergard added: “I talked about standardisation in the operation, which we are driving, andthat goes quite easily with SMEs. But the very large customers invariably have their individualdemands that they want within a network like ours, so sometimes it actually goes the other way withthe major account, that you’ve got to do something non-standardised.”