Consultant Insight: FedEx nears closure of 5-year TNT integration

Almost five years after FedEx acquired TNT, the integration is finally nearing an end. Plagued by issues like a cyberattack and a global pandemic, many industry analysts have viewed the integration process as unnecessarily drawn out. But, once complete, FedEx hopes to prove naysayers wrong as it combines its air network with TNT’s European road network. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] FedEx acquired TNT in 2016 for $5.35 billion. At the time, FedEx CEO Fred Smith noted that the timing of the acquisition was important, “particularly in the current market environment where global e-commerce is growing at double-digit rates. “Adding TNT’s capabilities to our existing world-class suite of services, including GENCO and the recently relaunched FedEx CrossBorder, will further expand the ability of FedEx to support business connections around the world,” Smith said. Since 2016, FedEx has never lost sight of its goal to acquire TNT. “We continue to pursue actions to further transform and optimize the FedEx Express international business particularly in Europe including expansion of our e-commerce capabilities,” said FedEx President and COO Raj Subramaniam last year in FedEx’s quarterly earnings for the period ending Aug. 30. “The rationale for the TNT acquisition remains sound, and the benefits will accelerate as we complete full network integration over the next 18 months.” Subramaniam also emphasized the strength the acquisition provides FedEx to compete more effectively in Europe. “Having said that, we clearly understand that there is a significant opportunity ahead of us to improve our performance in the region,” he said. Indeed, this week, FedEx announced plans to lay off between 5,500 and 6,300 employees across operational teams and back-office functions in Europe as it draws closer to completing the TNT integration process. FedEx also announced that FedEx Express will establish a dual-hub model in Europe, with the FedEx Roissy-Charles de Gaulle (CDG) hub serving as a primary hub and the Liege (LGG) air hub serving as a secondary hub. This hub reorganization positions FedEx to take a similar approach in Europe to its dual express hub network in the U.S., with Memphis (MEM) as the central hub and Indianapolis (IND) as the secondary hub. The shift to a dual-hub model is “a strategic advantage” for FedEx Express Europe, according to FedEx Express Europe COO Dave Canavan, who said the move is “improving the competitiveness of our Express business, providing us flexibility, and enhancing our growth opportunities.” However, a ch-aviation article cited Belgian media reports that FedEx partners, including Liege airport’s management, were surprised by the scale of the restructuring plan. “We were amazed that, without any prior consultation, FedEx decided to restructure its activities and position Liege Airport as a secondary hub,” commented airport managing director Luc Partoune. The downgrade to secondary hub status will result in a significant negative impact on the airport. Currently, FedEx Express business makes up almost half of all freight handled at Liege, according to the article; the airport’s freight traffic could decline by 70%. However, Charles Kauffman, editor of Air Cargo World ’s sister publication, Cargo Facts , noted that over the years, the airport has attracted new business from Alibaba, Challenge Airlines, Volga-Dnepr Group and Qatar Airways. Returning to FedEx, the company’s integration costs were expected to be more than $1.5 billion in addition to the reported $400 million in recovery and lost business from the 2017 cyberattack on TNT’s network, according to a 2019 Commercial Appeal article . With new entrants and solutions, the European market has changed since 2016, and FedEx’s European infrastructure, including a dual hub network, is costly to maintain. Once integration is finally completed, the next big question is: How long will it take FedEx to become profitable in the European market?

Consultant Insight: FedEx nears closure of 5-year TNT integration

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