Not so long ago, it seemed that the imminent takeover of TNT Express by UPS would render whatever trouble TNT was in irrelevant. But with the European Commission’s refusal to allow that takeover to go ahead, TNT’s troubles suddenly became very relevant indeed. Three months later, TNT has published details of its strategy – which it calls “Deliver!” – for a future as a standalone entity.
TNT, which has reported a net loss for the past two years, pointed to seven problems, and offered a variety of solutions. Our summary of the problems is as follows:
- The economy in its core business region (Europe) has not recovered, and while European operations are still profitable, that profit is shrinking.
- Demand for TNT’s services is increasing slightly year-over-year, but customers are shifting from high-yield Express products to lower-yield Economy products. (Since 2008 the number of annual consignments has risen 11%, but yield per consignment is down 16%. Economy volume is up, but Express volume has actually fallen since 2008)
- Competition is strong, so TNT cannot simply raise rates to combat the yield erosion
- Costs are rising as revenue is falling.
- The acquisition several years ago of expensive longhaul aircraft is not paying off. The 747 and 777 freighters provide too much capacity for TNT’s core volumes
- The acquisition of domestic express businesses in China and Brazil has proved to be a disaster.
- TNT has not been able to capture its share of the package delivery business generated by online shopping.
Having identified the problems, TNT followed with an extensive discussion of solutions – the steps it would take under the Deliver! plan to return to profitability. Some of these solutions are tangible, and their impact can be quantified. Cutting jobs is an obvious example, as is reducing the air fleet. Others fall more into the category of “hopeful thinking.” The list of proposed moves is quite a long one, and we will analyze it in detail in the April issue of Cargo Facts, but we summarize some of them here, starting with the most tangible:
- Cut 4,000 jobs (two-thirds of which in Europe)
- Reduce exposure to fixed longhaul airfreight capacity. (TNT currently has two 747-400ERFs and three 777Fs)
- Divest the domestic express businesses in China and Brazil
Regarding the last of the above, TNT made the point with some emphasis that the sale of its domestic China operations was well advanced and that a formal announcement was “imminent.” Those readers who are interested in a more in-depth look at China’s domestic express market should join us at Cargo Facts Asia 2013, To register, or for more information, click here.
The next proposed moves are less tangible than the first three, but still in the realm of things that can be observed and measured
- Optimize the network by consolidating into fewer, larger depots
- Upgrade the sortation process
- Implement a new air and road network strategy by optimizing the use of existing hub and network/linehaul capacity, improving network routings, and reducing rates by global tendering
- Move as much labor intensive data entry as possible from the depot and local office level and consolidate it in regional centers
- Rationalize and consolidate telecom providers worldwide
From here, the proposed steps begin to drift away from tangible, concrete actions and we will not list them, as we feel they are either too vague to be meaningful, or fall into the category of “increase sales” with no specification of how this increase is to be achieved.
The heart of the Deliver! plan is to abandon grand ambition and focus on Europe, where TNT’s road network makes it the industry leader. TNT says the plan will deliver annual savings of €220 million, with total one-off costs of €350 million. If this math is correct, then by 2015, the company should be healthily profitable.
But of course, the big question is “Will Deliver! actually deliver?”