Michael Drake, North Asia regional managing director of Netherlands-based express delivery firm TNT, first joined the company in 1993. He has overseen the acquisition of Hoau, China’s largest private ground-transportation company, now called Tiandi-Hoau, and has made some high-profile deliveries: In September 2007, TNT was responsible for carrying two giant pandas from Sichuan province to Spain for a 10-year stay at the Madrid Zoo. He spoke with CHINA ECONOMIC REVIEW about the Hoau acquisition, opportunities in the downturn and the future of transport in China.
Q: As a supply chain firm, you’re on the front lines of the export downturn. Are you seeing signs of a recovery?
A: Without doubt, southern China seems to have been hit the hardest, and there’s been a move to the north and somewhat to the west. I’ve visited places throughout the country and volumes are down, but many of the companies I’ve seen still seem quite bullish that things will recover. We’ll all survive, and we may even be stronger for it. Without doubt there’s a lot of pressure. There are a lot of companies coming to us and saying, “You need to lower your costs.” But on the other hand, we are getting lower costs from our suppliers, airlines, and so on. I do feel that there is a sense that things are getting “less worse.”
Q: What about your own international business?
A: One of our goals is to be recognized as the leader to Europe. Although everyone now has kind of jumped on the European bandwagon because America’s not doing so well, we’ve actually proven ourselves in delivering to Europe. The other side of it is that all customers in China are looking to reduce costs, so they’re much more open to speaking to suppliers. We have a couple of very interesting solutions that can reduce overall supply chain costs. In the last few months we’ve won quite a lot of new business. Before, these companies were too busy making money to worry about looking for new supply chain solutions. Now that they are under a great deal of pressure, they are more open to new solutions and suppliers.
Q: What effect is the government’s economic stimulus package having on supply chains?
A: In a general sense, if they are investing in infrastructure, that’s a good thing for our company. The other thing that they are doing is looking at stimulating business. If businesses are being stimulated, they’ve got things to ship, which is also good for us. Logistics is one of the focus industries that the government wants to understand and stimulate. So we are involved in trying to understand where and how we can take advantage of it – and that’s about efficiencies as well as some form of stimulus. Of course, turning attention to domestic consumption has got to be good for a domestic transport company.
Q: TNT became a major player in the domestic road transport market with the acquisition of Hoau. Can you talk about the acquisition process?
A: We spent two years buying this company. That’s a long time to go through due diligence and get it all into shape. But we were brave and we were lucky from a timing point of view because things got more stringent after that. It’s been a challenge, but I’m pleased to say that I think we’ve handled it very well. When you take over a company, it’s natural that everyone in that company gets nervous. This is where communication becomes extremely important; to make sure everyone is aware of what the company’s goals are, and that they do have a future. Sometimes new people come in and think that they know it all. In Hoau, I believe we have shown a tremendous amount of respect for what was already there. You start to mold what’s there, not change everything and implant your foreign ideals. And you need to put in place a new leader who people can then associate with and respect. Finally, I think Western companies often want to change everything very quickly. In my opinion, this can be a disaster. Of course there is a need to go fast from a fiscal point of view, but it’s not necessarily the best way to go about it – there has to be a balance to ensure robust, long-term success.
Q: How do TNT and Tiandi-Hoau work together on a daily basis?
A: They largely don’t. They have different value propositions. One is international and the other is domestic. One is air and one is road. Yes, the glue is the road transportation, but what they do is quite different. There are some commonalities – there’s expertise transferral, systems transferral. The largest thing at the moment is customers. On the international side, one thing that all our international customers ask is “Can you solve domestic China?” There’s no shortage of companies that want to use Hoau. I want to make sure we pace that. Sometimes, they want service levels that just aren’t realistic. But a lot of our international customers have now become our domestic customers. It’s a rich pipeline.
Q: What sort of competition do you face in the domestic market?
A: There are two state-owned enterprises which are bigger than us, China Post and China Railways Express. Of the private companies, we have the biggest network and probably the most revenues in the less-than-truckload (LTL) domestic market. We’re a common carrier. We’ll send parcels and freight anywhere and everywhere in China. It’s very competitive, and it’s very price competitive.
Q: What’s your response to that price competition?
A: What we are trying to do is get out of that cycle by moving up the value chain. That’s why we are very focused on building a better LTL business, because for the next 10 years or so, that’s going to be the bulk of our business. We are also introducing a new day-definite service, a higher level of service. So far, it’s been very successful. It will grow, and we can turn that on faster depending on the demand. But you don’t get too philosophical and get ahead of the market because you’ll end up in trouble. The new day-definite service is, however, the beginning of the future for us.
Q: How do you see China’s transportation networks evolving?
A: Europe and America have big transportation networks, and I don’t see any reason why China will not move in a similar direction. You have some of these “truck on every corner” kinds of companies, and that’s what I envisage for TNT in China. One thing that is relevant to this is that our history actually is in road. We started as a road company in 1946 in Australia. One of our big value propositions in Europe is the fact that we can offer air and road where our competition cannot. We can offer you express as well as economy service. For example, if you land at Amsterdam, how do you get from Amsterdam to Sweden? It’s a long way. Most companies will fly there. We offer customers a choice of two levels of service – we can fly it or truck it. Ultimately, that’s what we will offer in China.