FedEx’s TNT Unit Suffering from June Cyberattack

Bloomberg reports that FedEx shares fell the most in two months after the courier said customers are still experiencing widespread service and invoicing delays.

While TNT facilities are functioning, they have been forced to rely on manual processes for a significant portion of operations, FedEx said in a statement.

Our information technology teams have been focused on the recovery of critical systems and continue to make progress in resuming full services and restoring critical systems.

We are currently focused on restoring remaining operational systems, along with finance, back-office and secondary business systems.

We cannot yet estimate how long it will take to restore the systems that were impacted, and it is reasonably possible that TNT will be unable to fully restore all of the affected systems and recover all of the critical business data that was encrypted by the virus.

Given the recent timing and magnitude of the attack, in addition to our initial focus on restoring TNT operations and customer service functions, we are still evaluating the financial impact of the attack, but it is likely that it will be material. We do not have cyber or other insurance in place that covers this attack.

Although we cannot currently quantify the amounts, we have experienced loss of revenue due to decreased volumes at TNT and incremental costs associated with the implementation of contingency plans and the remediation of affected systems.

Additional consequences and risks associated with the cyber-attack that could negatively impact our results of operations and financial condition are described in the corresponding risk factor included in the Management’s Discussion and Analysis section of our annual report on Form 10-K for fiscal year 2017, filed earlier today. In addition to financial consequences, the cyber-attack may materially impact our disclosure controls and procedures and internal control over financial reporting in future periods.

“The biggest risk to FedEx is potential loss of market share,” said Kevin Sterling, a senior analyst at Seaport Global Holdings.

“You’ve got to believe DHL and UPS are calling up customers” in Europe to lure them away from FedEx. “Customers like to track things, and they may not be able to.”

The FedEx statement underscored the fallout from the June attack, in which the perpetrators demanded $300 in cryptocurrency to unlock infected computer networks. Unlike traditional forms of ransomware, the hack appeared to focus on crippling systems rather than obtaining payments. The email address posted on users’ locked screens to receive decryption keys was swiftly shut down by the email provider.

FedEx acquired Dutch shipping company TNT Express for $4.8 billion last year to gain an extensive parcel delivery system in Europe and compete with United Parcel Service Inc. and Deutsche Post AG’s DHL.

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