TNT Express makes a stand and delivers

Alone and isolated, TNT Express faced a bleak future just a year ago.

Its misery was wrought by a failed US$6.8 billion (4.8 billion euro) takeover bid by UPS, thwarted by European Union competition concerns. The immediate effect was to force the Dutch-owned company to embark on a “Deliver!” restructuring program. The austerity strategy called for 4,000 jobs to go and the sale of loss-making domestic operations in Brazil and China.

Fast-forward one year and the heavy dose of medication appears to be taking effect.

Although the company reported a full year net loss of US$168 million (121 million euros) for 2013, it placed heavy emphasis on the fact that for the final quarter, it turned a net profit of $42 million (30.2 million euros), compared with a loss of $200 million (144 million euros) for the same quarter in 2012. 

That was helped by some adroit bookkeeping by the TNT bean counters. The company had put two B747-400 freighters up for sale earlier in the year. Having failed to find a buyer for the written down assets, the two aircraft were consequently reinstated on the company manifest, not at their market price, but at their book value.

The difference helped the company to paint a profit in the final quarter.

But even allowing for such sleight of accountancy hand Tex Gunning, TNT’s chief executive, says the company remains on course to achieve the $330 million (237.5 million euro) cost savings outlined in its “Deliver!” strategy by 2015. Yes, 4,000 jobs have been cut, with more probably to follow, he confirms. There has been some respite in the bloodletting. Although the China operation has been sold, no buyer has been found for the company’s Brazil offshoot. That now remains in-house with a concentrated effort to restore its viability. 

But Gunning insists that these outages, along with other restructuring measures, will ultimately strengthen the company in its goal to becoming a standalone global entity.

That intent has been enunciated in no uncertain manner by Gunning, with a beauty pageant parade of newly acquired and enhanced executives to energize the company across the board as part of the “Deliver!” initiative.

Marco van Kalleveen, previously a McKinsey, Bain Capital executive, comes to TNT with the intriguing title of chief transformation officer, identified as a business turnaround guru.

He is joined by Ian Clough, former CEO for DHL in North America, who has been brought in to head up TNT’s newly created international Europe division. Another DHL veteran, Martin Sodergard, becomes managing director of network operations.

Three existing TNT staffers have been promoted as part of the strengthened management lineup. Chris Goossens, a 25-year company veteran, becomes managing director customer experience, while Steven Scheers is newly titled chief people officer, as opposed to his former role as global HR director. Lastly, Michael Drake becomes managing director international Asia, Middle East and Africa, a cutover from his previous similar title of managing director international for the same regions, but which signifies the creation of a separate operating division.   

But it is in Europe where TNT Express is making its greatest effort to refocus and re-evaluate its business model. That’s no easy task. Revenues per consignment were down 4 percent in Europe last year, while revenues per kilo slid 2.5 percent.

Overall tonnage and number of consignments also flat-lined.

That makes it a tough starting point to try and grow the market, and further cost savings will likely be higher on management agendas.

In terms of day-to-day operations, Gunning now identifies TNT’s European road network as its core strength.

“Both customers, and for that matter competitors, tell us we hold a real competitive advantage with our European road network,” Gunning says. “It is the most profitable part of our business in terms of service and pricing. Investing further in the road network will help us stay ahead of the game.”

The intent is to expand the road network and move more traffic by this means by targeting, in particular, the automotive, high tech, health care and industrial sectors.

Is this the end of the road then for the company’s intra-European air network?

Certainly not. The company will continue to operate a mix of some 30 owned aircraft under the banner of TNT Airways, plus leased-in capacity, based at the company‘s European hub at Liege in Belgium. As with other express operators in the European market the company, rather than degrade its fleet, is looking to upgrade to larger gauge aircraft.

TNT Airways became a thorny issue at the time of the UPS merger talks.

Under European Union law, non-European entities are banned from holding a controlling stake in any European airline. To meet that criterion, TNT had indicated that it would dispose of its controlling stake in TNT Airways immediately prior to the finalization of the UPS deal, if EU approval was forthcoming. 

The airline subsidiary has been thrust back into the news of late with speculation of a tie-up with Qatar Airways Cargo. The Gulf carrier is reportedly interested in acquiring a maximum 49 percent stake in the European carrier, to further its ambitions to develop Liege as a major hub for its cargo operation.

TNT Express may have turned the page from the UPS debacle of a year ago and began to make good of Gunning’s vision of a revitalized operation, fully able to stand up for itself.

But that leaves it with one outstanding problem. The more successful the company becomes, the higher its profile as a potential takeover target. UPS, in particular, may not be done yet with its former European acquisition target. It still has an appeal outstanding with the European Commission on its previous failed bid. Others may be watching with close intent.