Going Dutch: TNTs interest in the US

Going Dutch

TNT International's interest in the United States turns out to have a domestic element

by Stephen A. Schapiro

While most express and regulatory eyes in the United States have been on Deutsche Post's prospective move into the domestic American market, TNT International Express has had other plans. The express unit of the TNT Post Group, the Dutch postal operator, is starting up a domes-tic delivery operation that looks to skim some of the cream off the top of the world's largest air express market and to at least partly close a long-standing gaping hole in TNT's international network.

TNT's announcement last month surprised some of the company's competitors and privately some sneered at an offering that will be limited and dependent on common carriage to move shipments between cities.

TNT argues its new service isn't so much limited as it is targeted and the timing does send a dart right at Deutsche Post just as the German postal giant is trying to fend off legal challenges to its effective control of DHL Worldwide Express in the United States. "Our interest in the U.S. is one of growth," said Curtis Watson, head of TNT U.S. operations. "Deutsche Post doesn't have any bearing on what we're doing in the U.S. and what we started two years ago."

Of course, that was just about the time that Deutsche Post's acquisition-based drive to become a global logistics player was hitting its stride. That effort has hit something of a road-block in the United States with the FedEx and United Parcel Service challenges to the citizenship of DHL's American arm, DHL Airways, and to the freight forwarding license that DHL hopes to use to expand its North American operations.

The challenge apparently had the German postal authority backpedaling last month as Chairman Klaus Zumwinkle told The Wall Street Journal that DHL's U.S. expansion is meant to in-crease international business, "not to go into the U.S. and sell parcels from New York to San Francisco."

Americanized

If that's true, TNT seems happy to handle that cross-country shipment. The new service will only be available in 14 cities and they will travel on common commercial lift and served locally with new TNT trucks and workers. TNT expects to add another five de-pots by the end of the year. "We have significant investment plans in the U.S. this year," Watson said.

At the same time, TNT is realigning its pricing and setting up a flat rate for the basic U.S. service that seeks to counter the zone-based pricing approach that has taken hold in most of the U.S. express market, adding complexity for all shippers and cost to those sending goods long distances. TNT is basing its intra- U.S. business on a flat rate of $7.35 for a package up to four pounds. By comparison, Tim Sailor of Navigo Consulting estimates companies with large discount contracts pay about $10 each for such pack-ages and an average retail rate of about $18.

"What they're trying to do is target specific markets by going to specific cities with flat rates," said Sailor. This hardly seems like the time to plunge into the American market. Ex-press traffic growth has been basically stagnant for almost a year and several analysts believe overnight business has actually declined for some operators, and perhaps for the entire market, since a sharp falloff in December. But TNT thinks its international customer base may be insulated from the dynamics of a U.S. economy that may be tilting toward recession.

Service Box

Watson said TNT is targeting its existing base of 14,000 export shippers in the United States that also ship domestically, but it won't rule out potential customers that only have domestic needs. TNT's big customers include financial institutions and law firms that come in through TNT's large business in Europe and the rest of the world. In fact, it looks like TNT started setting up the foundation for its new service when it won a large international express contract from the World Bank two years ago, taking that lucrative business away from DHL.

Obviously, TNT is in something of a box with the new service, with tight limits on weight and geography. But Sailor said TNT's growing network and broader domestic offering could be the start of wider changes in the American domestic express market. "The key to changing the U.S. market is if the government will ever change the restrictions of ownership of U.S. airlines," he said. "It is keeping a lot of people out."

Although Watson said the U.S. growth will require expanding its ground network, TNT has no plans to fly aircraft in the United States. But TNT already has a limited delivery agreement with Airborne Express in the United States and it wouldn't be hard to expand that without bumping against U.S. laws preventing TNT from flying within the country.

Of course, a big new express competitor in the domestic market won't make life any easier for Airborne, a distant No. 3 in the U.S. express business.

Airborne has its own expansion plan underway this spring to add a new ground service onto its faltering air express operation and the Seattle-based carrier is also turning aside questions of whether it is for sale to any big postal operators.

TNT isn't talking about any acquisitions in the United States, either, other than to note that the logistics business is just as important as ex-press traffic in its portfolio and that it is taking "an organic growth approach," said Watson.