Higher Toll
Australian logistics giant seeks U.S. growth, building on Summit, BALtrans acquisitions.
By Chris Dupin
Australia's Toll Holdings, a leading transport and logistics provider in Asia and Australia, has greatly expanded its U.S. presence in the past several years.
Two purchases, Hong Kong's BALtrans Holdings in 2008, and last year's buy of Summit Logistics, have been key planks in expanding its Toll Global Forwarding (TGF) division, which recently reported revenue had more than doubled for the six months ending Dec. 31.
Before those purchases, Toll was 'a strong regional player in Asia and they had all aspects of logistics except freight forwarding,' said Myles O'Brien, president and chief executive officer of TGF in the Americas. The BALtrans purchase was the 'perfect vehicle ' to tie in all the different divisions and the different companies we had around Asia.' O'Brien was running BALtrans' U.S. and Europe operations at the time of the 2008 purchase.
With the acquisition of Summit, 'the goals have changed a little bit and we want to expand rapidly in the states and Europe and drive business through the mothership back in Asia,' he said.
O'Brien, joined by Robert J. O'Neill, president of supply chain service, and Thomas Wyville, director of marketing, discussed TGF's strategy at its U.S. headquarters in the Springfield Gardens neighborhood of Queens, N.Y., a few blocks from John F. Kennedy International Airport.
Both BALtrans and Summit, O'Brien said, had similar vertical niches, concentrating on imports of apparel, other retail goods, and high-tech products, and exports over a broad range of industries.
Toll traces its history back to 1888 when founder Albert F. Toll started hauling coal in Newcastle, Australia, with a horse and cart.
Peko Wallsend Group acquired the company in the 1960s, but O'Brien said the Toll of today really began with a management buyout in 1986 by current managing director Paul Little. The company was relisted on the stock exchange in 1993, and has grown to revenue of 6.9 billion Australian dollars ($7 billion) in the fiscal year ending June 30, 2010 and AUD 4.2 billion ($4.3 billion) in the six months ending Dec 31.
Acquisitions have been a key strategy for Toll Holding's expansion, as the company has completed about 90 deals during Little's tenure. In an interview with the Australian newspaper in February, he said Toll was unlikely to be interested in owning infrastructure assets such as ports because it wants to keep capital free for pursuing its strategy of growth through acquisition.
Toll Holdings has five other divisions involved in everything from defense and government-related logistics, contract logistics, trucking, domestic forwarding and express deliveries in Australia.
The company operates 10,000 trucks in Australia and considers itself the UPS of that country. It even has a fleet of two ships used to serve the island of Tasmania off of Australia.
But Little has said growing outside of Australia is another part of the company's overall strategy, and TGF is moving in that direction, acquiring several other companies in 2010 in addition to Summit. These include U.K.-based Genesis Forwarding and WT Sea Air, which had offices in the United Kingdom and Asia.
In February, TGF acquired SAT Albatros, a Dubai-based provider of sea-air freight services to the apparel, electronics, and consumer goods industries.
SAT Albatros 'serves Europe, but there have been a lot of sea-air services from Dubai coming into the states,' O'Brien said. 'They have know-how and technology to back it up, so we think there's a market to be able to extend that to the East Coast.'
In its first half results, Toll said TGF had sales of AUD 901 million ($913 million), 105 percent more than in the same 2010 period and operating earnings (EBITA) was up 232 percent.
Ocean freight volumes climbed 150 percent to 260,000 TEUs in the six-month period, mainly driven by Summit's transpacific volumes, but also 10 percent growth of underlying volumes. O'Brien figures the company is about the third- or fourth-largest non-vessel-operating common carrier in the transpacific.
TGF's air freight volumes climbed 40 percent to more than 75,000 tons, and the company said it secured or retained contracts with companies such as New Balance, Levi, Bendon, Caterpillar, Rebel Sports and Bradken.
Summit Boosts Business. In addition to its headquarters in New York, TGF has North American offices in Boston; Carteret, N.J.; Atlanta; Chicago; Miami; San Francisco; Los Angeles; and Toronto. The Americas operations have about 700 employees and generate annual revenue of about $400 million to $450 million.
The company has 1.5 million square feet of warehouse space at JFK, Carteret,
Miami, and San Pedro and Mira Loma, Calif., that came as a result of Toll's acquisitions. It can perform services such as transloading, cross docking, high-speed sorting, warehousing, and distribution fulfillment.
The Mira Loma and San Pedro facilities are highly automated with more than 500,000 square feet of space each. The Mira Loma warehouse has a high-tech tilt-tray system for handling shoes that is used for accounts that include Sears, Kmart and Foot Locker. The company is making additional upgrades to the San Pedro facility to install a 'bomb bay' sorting system for
apparel.
'All these systems are designed to eliminate redundant picking of product,' O'Neill explained. An automated system custom builds cartons of products an individual store needs.
The warehouse builds thousands of containers each day, and inventory can be replenished one SKU item at a time instead of a store having to order, for example, an entire case of shoes. In addition the facility moves lots of full cartons of shoes, so O'Neill said it probably handles about 30 million pairs of shoes annually.
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| Myles O'Brien president and chief executive officer, Toll Global Forwarding |
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| 'We're pretty particular about whom we acquire, and there is always a strategy and a reason behind it.' | |
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TGF has a fleet of 150 tractors and 500 trailers, which are being outfitted with new green-and-white livery that's part of the company's rebranding campaign. The company is not seeking to get into the domestic U.S. trucking business, O'Brien said, but uses it to supplement its international business.
O'Brien said the company has been very Asia-centric in the past, but there is now a push to grow in other markets between the United States and Europe, South Africa, Australia-New Zealand and Latin America.
'Latin America is a huge growth area for us. We do a lot of business down to Brazil right now, but once we start taking control over it from the destination point of view, we'll start running cargo through Miami from all over Asia and parts of Europe for South America,' he said.
At the same time the acquisition has opened up new opportunities to offer Summit's customers services in Asia. Toll operates 30 million square feet of warehousing on the Pacific Rim, and so O'Neill said there are increased opportunities to do buyers' consolidation, warehousing, and domestic distribution in Asia.
Another growth opportunity for TGF is serving the expanding business of retailers in Asia that Toll already serves in North America or Europe, O'Brien said.
They 'want us to offer them the same programs in a place like China, which is a very difficult place to get licenses to do business, to get a warehouse, to get delivery trucks, to get licenses within provinces,' he said.
'So overnight somebody can come up to us and say, 'Those 250 vendors you manage to help us get freight into the U.S., we'd like you to manage that in China, receive the goods in China, sort the goods in China and do all the value-added that you do in the U.S. and make the last mile delivery for us in China.' '
Toll's capabilities in China were dramatically increased in 2010 when it bought out a joint venture partner ST-Anda, with which it had been working since 1996, he said. That deal gave it a network of 23 logistics facilities with more than 20 distribution centers, delivering to more than 1,600 cities across China.
TGF also seeks to expand in vertical niches. The company said it has a good base of U.S. high-tech business, but that it is dwarfed by its retail and apparel, Summit's traditional strength.
Automotive, technology, pharmaceuticals and other products that require speed-to-market are all areas of interest of U.S. growth, TGF said, and the company is strong in these areas in Australia.
The company also is interested in e-commerce and fulfillment 'because it is the future of retail,' O'Neill said.
Exports are another potential growth area. TGF has added 70 to 80 sales people in Asia, because many times small to medium-size companies there make the decision about transport from the United States, and also because intra-Asia trade is booming.
IT Systems. Because Toll has acquired so many companies, it has also acquired a great many different information technology and financial systems.
While some logistics companies migrate the firms they buy to a single system, 'what is good in Asia is not necessarily suitable here in the states or Europe,' O'Brien said. So Toll took a slightly different approach, developing a system with a common database that interfaces with the disparate systems in companies it has acquired so they could easily exchange data without having to re-enter information.
Atop that, Toll has another system, ICON, that it likens to an aircraft control tower and can be used to plan, supervise and coordinate transactions and interact with customers and suppliers such as airlines and ocean carriers.
Meanwhile, many of Toll's business units in Australia and Asia, and soon the United States, are migrating to supply chain management software made by Sydney-based CargoWise.
Capacity. O'Neill said he doesn't anticipate TGF will have difficulty obtaining space for containers this year to the U.S. West Coast or to inland destinations.
'The East Coast may have some limitations on space and you may see some rates go slightly up, but I don't think we will have a capacity issue,' he said.
Carriers will do a better job of managing capacity than they did in 2009-2010, he said. 'I don't think that the shareholders of the steamship lines will allow the free fall in rates to happen again.'
TGF said it actually benefited from the capacity crunch because it was able to attract new customers who needed assistance in obtaining capacity.
'A lot of the big importers got burned badly by carriers and I think they see the value of an NVO,' O'Neill said. 'It doesn't mean that these customers are going to use us exclusively, but customers who didn't use any NVOs in the past are more than happy to open up maybe 10-20 percent of their volumes now.
'Our customer service tends to be higher. We give them multiple alternatives of carrier rotations, cut-offs and transit times because we're not tied to a single vessel,' he said.
O'Brien said TGF has about 13 to 14 core carriers, plus some niche steamship lines it works with. That breadth is useful for shippers seeking to gather market intelligence.
Is there any danger that as TGF grows, service might deteriorate?
O'Brien said Toll has already answered that question by being 'an extraordinarily successful company through all those acquisitions' it has done to date.
'We're pretty particular about whom we acquire, and there is always a strategy and a reason behind it. We also make sure we get the culture right, and the culture of Summit's owners and the history of the company in terms of the management style was very similar in terms of how we think about staff and longevity of staff,' he said.