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Logistics & Supply Chain

Big surprises

Alexandra LeonardsBy Alexandra Leonards1st January 20064 Mins Read
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The end of 2005 brought with it major changes to the global logistics industry. Following a strategic review of its operations, Dutch mail, express and logistics operator TNT concluded that it was necessary to re-focus its business. It announced that it was to concentrate on its European Mail Networks (EMN) division as well as its Express network by divesting most of the Logistics ‘non-network’ based part of its business. This followed on from the recent sale of the French Logistics business to Norbert Dentressangle.

Preparations for the sale of the Logistics business have commenced immediately and will have the financial impact of optimising TNT’s capital structure with a e1 billion share re-purchase from the proceeds.

Management believes that the re-newed focus on networks will lead to rapid growth and higher yields for shareholders. The plan is to combine the domestic and international networks so that the volume growth and network portfolio created will sustain its competitive advantage.

World leader
Despite this rationale, the decision to exit logistics came as a major surprise to the industry. With a total turnover approaching e3.7bn (although only e2.6bn of this revenue is up for sale), and serving most blue chip companies around the world, the business is one of the world’s leaders in the Automotive, Tyres, Consumer Goods, High Tech sectors. TNT has decided that the logistics business will have greater opportunity for success in a ‘different corporate setting’. It should be noted that it intends to retain the logistics business that can be managed through its network, worth some e300m, as well as the recently acquired Freight Management business (Wilson Logistics) which has around e800m in revenue.

The move by TNT to dispose of its Logistics division will raise some fundamental questions over past strategic decisions. The company acquired Wilson Logistic Group last year with the intention to provide its customers with a complete end to end service portfolio. Any buyer of the Logistics division will presumably require its own freight forwarding operations if this is to remain the case. The acquiring company would also have to be happy to take on a high exposure to the cyclical, and presently weak, automotive sector. The decision to expand into South East Asia and China, new markets for the company, with new products, could also be regarded as relatively high risk.

The last few weeks of 2005 also saw the end of the UK’s largest logistics company, Exel, as an independent operator when it was finally sold to Deutsche Post. 100 per cent of Exel’s equity capital was transferred to the German mail, express and logistics giant and its shares were de-listed from the London stock exchange.

Exel Chief Executive Officer John Allan will manage the combined contract logistics division, which will be headquartered in Bracknell and now called DHL Exel Supply Chain. Re-branding to DHL’s red and yellow will start immediately and is likely to be completed by the end of 2006.

Realising gross cost synergies
DPWN believes it can realise gross cost synergies of e220 million per year from the merger by 2008. These synergies mainly relate to overhead cost (approximately 50 per cent of total cost synergies) and productivity enhancements (around 30 per cent of total cost synergies). Over a period of three years total integration costs of about e400 million are planned, with almost half of the cost expected in 2006.

In a further ‘mega-merger’ European transport groups Frans Maas and DSV confirmed that they were likely to reach agreement on a public offer by DSV for all outstanding shares in Frans Maas. The management of Frans Maas has stated that it will recommend the offer to its shareholders.

According to the management of DSV the deal represents an opportunity for the company to fulfil its strategy of becoming a pan-European Road freight operator while at the same time broadening its European scope and competences within logistics services. At present it is still uncertain what will happen to the Frans Maas brand which DSV acknowledges is very strong in the industry. In the coming months, DSV and Frans Maas together will investigate the implications on the employment level of the combined workforce and the effect of the synergies of the proposed merger.

In other news two leading logistics players announced that they were to develop a new joint venture, Holistica Solutions. Global logistics provider, APL Logistics (APLL), owned by Singapore based NOL, and European logistics specialist Christian Salvesen are to combine in an integrated end-to-end offering for selected customers. Whilst APL Logistics will provide the international forwarding services, Christian Salvesen will focus on land based distribution.

www.transportintelligence.com

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Alexandra Leonards

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