TNT Express rolls out measures geared to improve profitability

TNT Express, a Netherlands-based provider of mail and courier services and the fourth largest global parcel operator, said this week it is making several moves to improve profitability between now and 2015.

Citing challenging trading conditions and price pressure, company officials said that TNT Express is focused on executing on various measures to improve its financial condition in Europe, coupled with operating its business more efficiently, including:
-reshaping the portfolio through the sale of China and Brazil Domestic and reducing exposure to fixed intercontinental air capacity;
-focusing on TNT Express’ distinctive service proposition and increasing growth in its most profitable segments;
-enhancing execution through a leaner organization and cost efficiencies generating improvements of €220m ($286 million USD) by 2015; and
-investing in infrastructure and in business supporting and customer IT.
“Our business faces difficult market conditions and strategic challenges but we have a unique competitive proposition: an unrivalled European network, worldwide connections, an integrated range of services and recognized dedication to customers,” said TNT Express Interim CEO Bernard Bot in a statement. “Our updated strategy builds on these strengths.
Bot replaced former TNT Express CEO Christine Lombard, whom resigned in September to pursue and external career opportunity.

In regards to its China and Brazil divestitures, TNT officials said that its sales process for domestic China is underway with an outcome expected soon and that preparations for its sale of Brazil Domestic have commenced, with the company “actively pursuing” the turnaround plans, with Brazil Domestic’s losses reduced over the first two months of the year.

TNT officials also said that the company is exploring options to reduce its exposure to intercontinental capacity, akin to what FedEx announced last week on its fiscal third quarter earnings call regarding air capacity into and out of Asia. Among these options are capacity-sharing agreements, subleases, and lease terminations, which it said will be carefully weighted against the return on aircraft usage which covers the costs.

And as a market leader in domestic and intra-European deliveries and top three positions in significant European markets, TNT said it will leverage that and focus on higher-margin services and customer segments, including targeting SME and single source customers, higher weight parcels, and palletized freight Express and Economy shipments, and Intercontinental and special services products.

As for how it intends to achieve its stated goal of $286 million by 2015, TNT said it will consolidate services, optimize infrastructure and increase productivity, and reduce indirect costs.

TNT said that these changes will also result in roughly 4,000 employee layoffs over the next three years. The Wall Street Journal reported that two thirds of the job cuts will take place in Europe.

UPS was planning to acquire TNT Express for roughly $6.8 billion. But after several stops and starts the deal was officially called off in January a formal decision from the European Commission, the executive body of the European Union, which prohibited the acquisition. UPS officials said that as a result of the prohibition by the EC, the deal will not be completed, and UPS and TNT have entered a separate agreement to terminate the merger protocol.

Many of the EC’s concerns over the deal were due to the competitive parcel landscape in Europe, according to UPS. And while
UPS said it proposed “significant and tangible remedies” to address these concerns—including a plan to sell some of its assets, together with some TNT assets, to DPD, a parcel-delivery firm controlled by French state-owned postal group La Poste, which could have created a new pan-European overnight-parcel delivery competitor, or integrator, according to a Wall Street Journal report—it did not pass the EC’s litmus test.

“The failure of the UPS deal has really put TNT in a bind,” said Jerry Hempstead, president of Hempstead Consulting. “They lost much of the momentum they were working towards.”