The week that was: 27 May 2011

TNT demerger confirmed, USPS hit by further slump in mail, and DP DHL expects “significant growth”… Good afternoon to all of our readers. It has been a hectic week in the world of mail and express, so let’s get cracking.

History was made in the Netherlands on Wednesday as shareholders of TNT approved the demerger of the company’s Express and Mail businesses. TNT confirmed the separation had been given to go-ahead during an Extraordinary General Meeting of Shareholders (EGM). The demerger of the Express Business will create a newly listed company, TNT Express, whilst TNT will continue the Mail Business under the new name of PostNL – with both companies having their shares listed on the stock exchange in Amsterdam. TNT said the main reasons for separation were “the increasingly divergent strategic profiles of the two businesses and the limited synergies between them”. The company added that “separation will enable greater focus, transparency and two distinct investment opportunities for shareholders. It will also facilitate participation in possible sector consolidation”. A TNT spokesman said: “The demerger will create two strong, independently listed companies, with solid funding positions, clear strategies and strong management teams. In Europe, TNT Express offers profitable growth through its existing core business and through the development of high-end B2C parcels, freight and in sector-specific value-added solutions. In emerging markets, TNT Express will continue to lead the way in the development of day-certain domestic express services and further grow its intercontinental activities on the China-Europe lane. PostNL is one of the best postal operators in the world, with a proven track record in operational improvement. In the rest of Europe PostNL has leading positions in Germany, the UK and Italy. Growth will be realised through Mail’s highly successful Parcels unit and the International activities. PostNL’s target in 2015 is a stable cash operating income (including cash pension contributions and restructuring cash flows) of EUR 300 – 370m.” The following morning, TNT Express CEO Marie-Christine Lombard opened the NYSE Euronext Amsterdam to commemorate the company’s inaugural listing. The business started trading on the NYSE Euronext Amsterdam under the symbol “TNTE”.

It was revealed this week that the US Postal Service has been rocked by a surprising slump in mail volumes in the last few months, which could lead to a full shut-down in 2012. The three months up to March 2011 saw a 7.6% drop in overall US mail volumes – double the expected drop – with April and May continuing the “disappointing” run. The slump has forced USPS to revise its predictions for its current financial crisis to an $8.3bn loss in 2011, leaving expectations that with a legally-imposed limit on government borrowing, the Postal Service now has prospects of a $4.3bn black hole in its accounts. Speaking to the Mailers’ Technical Advisory Committee meeting on Wednesday at USPS headquarters in Washington DC, USPS chief financial officer Corbett said there was now “no question” that the Postal Service would refuse to pay the federal government a required $5.5bn installment for its retiree health benefits fund this September. Yet even refusing the payment, he said the Postal Service will reach its legally-imposed $15bn borrowing limit on October 15, 2011. While festive season income and a postal rate increase in January would then help the Postal Service limp on into the New Year, he suggested that on present course, without Congress stepping in to help, “we run out of cash July of 2012”. Mailers in the audience took this statement to mean a full shut-down of the Postal Service, an interpretation that was not challenged by Corbett on Wednesday. He said: “The Postal Service can’t achieve a profitable situation without legislative change.” The USPS is funded by its customers, rather than taxpayers, other than its government borrowing, but now faces the prospect of that independence being undermined. Last year, it posted an $8.5bn loss and in the first half of this year losses have increased even further. Corbett said that in the event that cash reserves do dry up, the Postal Service will prioritise payment of its employees, then suppliers, but that other contractors might not be paid. Furthermore, he said the Postal Service has “absolutely no cushion” in the event of another economic slowdown, at a time when economists are now warning of a slowdown this year. Corbett said: “If anything remotely bad happens – the cost of fuel goes up, the cost of living goes up, the mail volume declines further – then we run out sooner.”

Deutsche Post DHL expects to continue its “significant revenue and earnings growth” during the rest of 2011. The admission, made by CEO Frank Appel at the company’s AGM in Frankfurt this week, came in light of a successful financial year 2010, and a “dynamic” Q1 for 2011. “As the world’s largest logistics provider, we profited particularly strongly from the ongoing positive growth of the global economy last year because we positioned ourselves at an early stage to be fit for the upswing,” Appel explained. “Thanks to our excellent position, we can and will continue to take advantage of the continuing recovery of the global economy: our future will be all about profitable growth.” Despite the current economic risks, the further recovery in transport volumes observed during the first months of the year would point to a continuation of the economic upswing, the chairman of the company’s Board of Management said. In light of this, the Group continues to project an EBIT of between EUR 2.2bn and EUR 2.4bn for the current financial year. The MAIL division is expected to contribute between EUR 1bn and EUR 1.1bn to this result. For the DHL divisions, the Group expects operating earnings to improve to between EUR 1.6bn and EUR 1.7bn, the company said. Appel also revealed the Group’s mid-term targets: “We want to significantly improve our earnings in the coming years and reach a leading position in our industry in terms of profitability, too.”

Elsewhere, in Canada union negotiations continued over a new collective bargaining agreement between Canada Post and the Canadian Union of Postal Workers, which saw fresh offers put out by both sides that neither saw as platforms for a compromise. The likelihood grew through the week for Canada to see its first postal strike since 1997.

And finally…

A national holiday in both the UK and the US on Monday means that Post&Parcel will be back with a bang on Tuesday (31 May).