TNT issues warning on business conditions

The news from TNT is becoming increasingly pessimistic. The Netherlands-based express company has just released a "Third Quarter business up-date" which predicts continuing pressure on profits for the rest of this year.

The brief statement contained two principal issues; both somewhat concerning. Although the core Express business in Europe and the Middle-East (EMEA) is experiencing "steady volume development", the "product mix" has changed, as customers switch to cheaper services. This has depressed profits. It is a problem that TNT has been encountering throughout the recession. However it appears to be getting worse.

Another key business, the air-freight traffic between Asia and Europe, saw "weak demand" which resulted in poor utilisation on its aircraft and, again, consequent pressure on profits.

In quite a different market TNT’s China road freight business saw an improvement in the "product mix" suggesting stronger underlying demand, yet its profits were badly affected by inflation, particularly in wages in China.

The biggest area of concern continued to be Brazil. Here the business is being better managed but, "…revenue was not sufficient to cover the loss of past customers". This appears to suggest that the company not only is running under-capacity, but is also struggling to recover its ability to penetrate the market. TNT stated that it would conduct a "value assessment" in the fourth quarter of 2011 which sounds a little ominous.

TNT has been conducting cost reduction initiatives that the company estimated would reduce annual expenses by €50m, although in the first year these are estimated to drive up to €65m in write-offs.

This statement provides a small insight into the challenges which TNT’s management are facing. The EMEA Express and Asia-Europe businesses are fundamentally sound, but finding it difficult to exploit present market conditions. The China road-freight business paints an interesting picture of the problems in the wider Chinese economy, whilst the Brazilian Express operation has an increasingly uncertain future. Admittedly the macro-economic conditions are severe. However the latest statement does raise concerns about how the company can best find a way through.

Quelle: eyefortransport
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