FedEx's integration of TNT Express is ahead of schedule while the impact of last summer's cyber attack continues to diminish, analysts heard at a conference call with the group's senior executives earlier this week.
Providing an update on the merger process, FedEx Corp. president and chief operating officer, David J. Bronczek, said: “As you know, TNT was the most significant acquisition in our company's history and dramatically improves our global capabilities and competitive posture. I'm happy to say that at TNT, we are seeing strong service levels and the integration is accelerating.”
He explained that a key element of an 'acceleration plan' was to enable the flow of packages between the legacy TNT and FedEx systems prior to full integration.
“This allows us to direct volumes to the highest service but the lowest cost networks. This capability is expected to be in place by May 31st of this year. We are accelerating the migration of the FedEx clearance operations and systems as well, retiring dozens of legacy TNT applications.”
Bronczek added: “Our investments in strengthening the IT environment continue at an accelerated pace. We have made significant investments to improve TNT's information security posture and we’ll continue to do so. The integration of our global sales force, originally expected to be complete in fiscal 2020, is now scheduled to be complete one full year early. During the third quarter, we accelerated the launch of customer migration activities in Europe and Asia by more than one full year.”
In a statement on its second quarter results, at the end of last year, FedEx said the total TNT Express integration program expense through fiscal 2020 had been re-estimated at approximately $1.4 billion, up from the previous $800 million estimate, of which $450 million was expected to be incurred in fiscal 2018.
As for any remaining impact on TNT from the cyber attack at the end of June 2017 which had significantly affected the Netherlands-based company's worldwide operations, FedEx Express president and CEO of FedEx Express, David Cunningham, told the call:
“Our TNT network was fully restored and back to business as usual as of the end of 2017. The recovery of the business over the last five months has been remarkable and given the value proposition of the TNT road network, our freight volumes have been strong and we are experiencing solid growth in these products.”
However, Cunningham did note the “lingering effect” of the cyber attack in the third quarter due to TNT's volumes from its existing client base not fully returning to prior levels as customers continued to regain confidence in the company's ability to provide service.
“The recovery of our business and our outstanding performance during peak is evidence of the strength of our network and our sales teams are leveraging this in the fourth quarter and growing and winning business.”
FedEx Express' 2018 fiscal year first quarter operating income, covering the period June-August 2017, was reduced by approximately $300 million due to the cyber attack at TNT and by a further $100 million in Q2 (September-November 2017).
The conference call also focused on FedEx's performance at end of 2017 in the run-up to the Christmas holiday period.
“FedEx experienced record-breaking volumes through our global network during the peak season, much of that driven by growing e-commerce shipments at FedEx Ground,” said FedEx EVP, Chief Marketing and Communications officer, Raj Subramaniam.
For the first time during the 'peak' period, FedEx offered more than 10,000 locations for the pick-up and drop-off of packages, including FedEx office outlets and well-known US retailers such as Walgreens, he revealed.
“We are pleased with how the retail network performed and expect this extensive convenience network to be a key part of e-commerce deliveries in the future.”
Subramaniam added: “The approach we took on our peak pricing strategy, of not applying a broad additional peak residential surcharge to all consumers or customers helped us gain significant business in the small and medium customer segments.
“We’re proud of the strong service levels we provided to our customers during this record peak, and we are excited about the portfolio expansions that we are rolling out. We will continue to innovate to provide our customers with great service and value.”
