Strategic trends
Our world is changing. The population is getting older. Intercontinental trade continues to grow. And digitisation means that people can send now documents electronically in an instant. All of these trends have implications for us, and for the transport and distribution industries as a whole.
Environment
There is growing consensus amongst the general public, politicians and others that climate change is threatening the environment. Increasing levels of carbon dioxide (CO2) in the atmosphere are trapping more heat, thus increasing global temperatures. This phenomenon, referred to as global warming, will give rise to all sorts of measures and regulations that try to abate the CO2 emissions around the globe. Since transport and distribution contribute nearly one-fifth to these emissions, the transport and distribution industries will be affected significantly by any measures or regulations. TNT has responded pro-actively to this challenge by launching its Planet Me initiative.
Demographic trends
Demographic trends are changing the composition of the world’s population. In the largest Western European countries, between 20% and 25% of the population will be 65 or older by 2020. Also, people will live increasingly in cities with more than five million inhabitants, posing significant distribution challenges. As a result of the ageing population, spending on healthcare will increase significantly, and there will be an increased need for special handling services in healthcare.
Restructuring of global supply chains
Driven by globalisation, intercontinental trade is growing continuously. Multinationals continue to move their manufacturing to countries with low-cost labour such as China. With an increasing middle class in the emerging countries, spending in those markets will rise, driving regional transportation and global flows as well. In contrast, environmental concerns may eventually lead to a renewed regionalisation of manufacturing and regional ‘self sufficiency’ models.
Digitisation
Digitisation is a trend that TNT has faced for some time. As a result of continuously improving technologies, documents can be digitised, transmitted and reproduced without requiring delivery of the printed material. Digitised design of goods and services, as well as globalisation of product development and promotion, will also influence delivery requirements.
Express market
TNT Express uses a clear market definition to clarify its position within the sector. This express market definition encompasses time certain, next day, and fastest by air or road day certain delivery for business-to-business consignments transported through a scheduled network with door-to-door track-and-trace of individual items/consignments. For 2006 TNT estimated the size of this market in Europe to be approximately €21 billion, based on analysis of available detailed data. TNT has the highest market share in Europe (17%), followed by DHL (16%), UPS (8%) and La Poste (7%).Key value drivers for the express market can be broken down into three categories: growth, pricing, and cost. The main growth drivers for the express market are GDP growth (+), increasing globalisation of supply chains (+) and a shift to deferred services (-). Important pricing drivers are consolidation (+) and intensifying competition (-). Key cost drivers are increasing scale economies through consolidation and organic growth (+) and a potential for network optimisation (+).
There are essentially two types of express players: the four global integrators UPS, FedEx, DHL and TNT Express, and local/regional players, with standard parcel operators (often related to postal incumbents) and Less-Than-Truckload (LTL) operators as potential new sub-regional entrants.
Mail market
The mail sector in Europe, in which TNT Post operates, has a market size of approximately €60 billion and is still a highly regulated domestic sector, with incumbent operators that are protected from competition in many countries through their monopolies, especially in Southern and Eastern Europe. The size of the market will continue to decline as a result of substitution of mail products by electronic products; this volume decline is most pronounced in countries where internet penetration is highest, i.e. in Northern and Western Europe. In the Netherlands, TNT estimates its market share to be approximately 88%. In other European countries its market share ranges between 1% (small countries) and 9% (United Kingdom) for addressed mail and between 7% (Germany) and 48% (small countries) for unaddressed mail.Going forward, the attractiveness of the mail sector will depend on the level of liberalisation, which drives competitive intensity. Once liberalised, the mail business has some barriers to entry, notably economies of scale (network density) and scope, and in some cases, technology. These barriers protect incumbents to some extent, but are in principle not insurmountable, and can be mitigated by selective market approaches, gaining access to the incumbent’s delivery network, and using other challenger tactics.
In Europe, three types of mail companies can be identified:
- the incumbents: in most smaller countries they are exclusively focused on domestic activities in mail and parcels, whereas the largest ones have extended into international mail and parcel activities. Oesterreichische Post AG is the only listed company in this group. De Post (Belgium) and Post Danmark are now partly owned by private equity firm CVC. Some incumbents, such as France’s Groupe La Poste and Italy’s Poste Italiane, also offer financial services and own a bank.
- challengers: they tend to focus on the “easier” market segments and less complex activities of (unaddressed) bulk mail, allowing them to deliver fewer times a week, collect electronically or in high volumes at large corporate clients, and benefit from pre-sorted volumes. From this position, they increase their service quality and frequency of pick-up, sorting and delivery step by step.
- integrators: only TNT and Deutsche Post have extended their home mail base into global express and/or freight and contract logistics activities, as well as selected European mail markets.