Australia's Toll Holding CEO wants slice of China's logistics market
As Toll Holdings Ltd moves to bed down its 6 bln aud-plus acquisition of stevedoring company Patrick Corp Ltd and the 1.1 bln aud acquisition of Singapore-based logistics group, Sembcorp Logistics (SembLog), Australia's largest transport logistics group is starting to focus on China.
The group is planning to capture a big slice of the logistics business as the flow of manufactured goods from China to Australia and other parts of the Asia-Pacific region continues to grow at an unabated pace.
The acquisitions, which have expanded Toll's asset base to 11 bln aud and put it among the world's leading transport logistics groups, have expanded the group's footprint across the Asia-Pacific region to 17 countries from five.
Toll chief executive Paul Little told XFN-Asia the SembLog acquisition has given his group an entry into China at time when there is significant market positioning within China among the global logistics giants.
'Our vision really has been the desire to efficiently develop supply lines around Asia. We've been aiming our business in that direction for sometime so the Patrick and SembLog acquisitions will really launch us forward — I think particularly in Asia where there are compelling big bets being made in terms of our industry,' Little said in an interview .
'If you look at FedEx recently buying out their partner in China and TNT making a fairly large acquisition up there, so the money is sort of on the table in terms of logistics, I think our timing is very important. Really, we are in the right place at the right time.'
FedEx Corp's unit FedEx Express unit is buying the remaining 50 pct stake in a Chinese joint venture currently held by its long-term partner Tianjin Datian W Group Co Ltd (DTW), as well as DTW's domestic express network, for 400 mln usd.
TNT meanwhile is acquiring Chinese freight and parcels transportation operator Hoau Logistics Group, based in Heilongjiang.
For Little, the China trade represents a golden opportunity for Toll to apply what he describes as its trailblazing business model, already proven to be a success in Australia and New Zealand, across the Asia-Pacific region.
'In our industry there are what we call 4PLs (fourth party logistics) — these are people that put in place a factory to consumer supply chain service but they do it by outsourcing every component of the supply chain.
'Our view at Toll differs from a typical 4PL in that we believe you need to have a high level of involvement or influence or control over assets to be able to really get the best outcome, but also to truly integrate all the aspects of the chain,' Little said in an interview with XFN-Asia.
'Just to collect all the various components together under one umbrella, in our view, won't drive the efficiencies needed, we're a bit different from anyone else. (Ours) is a model that has worked very effectively in Australia so we believe it will work in Asia.'
At present, Little argues that while importers of goods from China, such as the large retailers, benefit from buying directly from Chinese factories, 'the wheels tend to fall off a bit when they try to bring that product into Australia in an efficient manner because, simply, the supply lines and the efficient supply lines aren't there at the moment.'
'If you're an importer importing goods into Australia, you would need to deal with seven or eight different entities to get your goods into the country,' Little said.
'In our view at Toll that is very inefficient, costly and results in longer transport times than are necessary. We believe by integrating the supply lines we can save customers a lot of money and also improve inventory control.'
Little said the SembLog acquisition has moved Toll closer to being able to offer an integrated logistics service across the Asia-Pacific region.
'The major reason for us wanting to acquire Patrick and the SembLog business in Asia was to give us more of the components needed to offer an integrated supply line service,' he said.
'It gives us a presence in places like China and India where SembLog has reasonably extensive operations. It gives us something we can build on so we can have the foundations needed to offer this cross-border integrated service.'
Little said the SembLog acquisition means Toll now can seriously begin to contemplate muscling into the China trade.
'From Toll's point of view we've got Australia nailed, SembLog is very much about driving our capabilities in terms of China/Australia trade. We've got to crank up the model and I guess be there for everyone to have a look at.'
But it is not only the China/Australia trade that Toll is eyeing.
'I think one of the benefits of focusing on Australia initially is to get the model right but at the same time, there will be opportunities, I am sure, for inter-Asian operations of a similar nature,' Little said.
'We know already there's a high level of interest out of China into Japan as we've got a business in Japan that currently uses other service providers. I think once we get our model up and working, the growth opportunities, the potential just in Asia — including Australia and New Zealand in the broader sense — is tremendous, and then of course we can look at Europe and the US.'
But at this stage, Little said 'we really need to crawl before we walk with what we're trying to do.'
Little said Toll needs to add a few extra components in China before it can offer a fully integrated logistics service.
'In China today Toll does not have a freight forward capability. It has a very good warehousing operation but we've got to add some pieces. We then need to extensively trial those before we start selling it in the market,' he said.
'It is fair to say freight forwarding is one of the components that we believe we need to put in place for our cross border supply chain model. There are other bits and pieces that we need to but that's one of the obvious ones.'
Little said Toll is likely to acquire an existing freight forwarding business in China to plug the gap, adding that on early assessment, there appears to be local Chinese operations which would fit.
Meanwhile, he's happy with what Toll has gained in China via the SembLog acquisition.
'We've only been in China six weeks. We've been up there, we've visited our facilities and are very impressed with what we've seen. There's a very high standard of warehousing and what they do, I think, is very efficient. There's a great geographic spread throughout China. We've got 32 distribution centers and just about 3 mln sq ft of warehouse space. The bare bones of the structure are there but we need to do more work before we can say we're ready to crank up a pan Asian service.'
(1 usd = 1.33 aud)
