Subscribe to our free, weekly email newsletter!


FedEx stays the course in Europe, despite pending UPS-TNT deal

By Jeff Berman, Group News Editor
March 22, 2012

When UPS announced earlier this week, it had reached an agreement in which UPS will acquire TNT Express for roughly $6.77 billion ($5.16 billion euro), the general consensus was that it is a boon for the company and will significantly strengthen its European presence.

And many analysts added that it will also hinder the European prospects of its biggest competitor, FedEx, too, with European market share post the UPS acquisition of TNT—the deal expected to be completed in the third quarter—pegged between 3-to-10 percent.

When the deal becomes official, it drops the number of global express players down to three—UPS/TNT, DHL, and FedEx—and it also puts DHL and FedEx at a tremendous disadvantage in the U.S. and Europe, respectively, said Jerry Hempstead, principal of Hempstead Consulting, in a recent interview.

“The deal makes UPS the largest carrier by far in Europe and makes FedEx the weak sister in that turf,” he said. “FedEx had less than 10 percent of the European market and the size and critical mass of TNT/UPS and that of DHL will make it almost impossible for FedEx to have a critical mass to allow it to have low enough operating cost to be a significant player.”

But there are also headwinds to consider, too, such as the weak state of the European economy and the potential difficulties that could occur when the actual UPS-TNT integration begins in earnest.

In a research note, David Ross, Stifel Nicolaus analyst, pointed out that while his firm believes the UPS-TNT deal to be a long-term strategic win for UPS, the integration challenges should not be overlooked, as network integrations rarely, if ever, go as planned (e.g., DHL’s U.S. parcel hubs and Yellow/Roadway in LTL).

Ross pegged the combined UPS/TNT entity having an estimated 25 percent-30 percent market share of the European small package market, which will make it the #1 player but unlikely large enough, in Stifel’s view, to have the deal blocked for anti-trust reasons.

On its fiscal third quarter earnings call today, FedEx Chairman, President, and CEO Fred Smith said that over the years there have been lots of rumors regarding possible acquisition candidates for TNT that have surfaced periodically, and FedEx has consistently declined to comment on them. The company’s policy in this regard to corporate development activities remains unchanged, he said.

“FedEx Express has a profitable multi-billion dollar business in Europe, and it is growing strongly,” said Smith. “I am extremely pleased with our operations there and very confident in our plans to continue expansion, primarily through organic growth. We believe these plans will continue to improve our competitiveness in Europe and further continue to contribute to profitable international growth.”

What’s more, Smith noted that even though FedEx is doing well there, growth rates in Europe are extremely low and are likely to continue to remain low as long as the policies being pursued in Europe remain the same as they have for the last 20-to-25 years, as well as in the U.S. These policies, he said, are not stimulative for GDP growth, aside from relatively low levels.

And unlike the U.S., Smith said Europe is a fractionated market, with domestic markets that are historical there that have a number of competitors, as well as the Pan-European surface market, the Pan-European air express market, and the intra-continental business in Europe, in which FedEx is very strong, coupled with selective participation in the domestic European marketplace, which is part of the company’s organic expansion plan within Europe.

“For several years now we have actually been working on more intercontinental flights from Asia to Europe and flights from the U.S. to Dubai and the Middle East,” said Dave Bronczek, president and CEO of FedEx Express on the earnings call. “Just in the last five months we have opened 23 stations in Germany, France, Spain, Italy, and Sweden, among others, and have added more jets and city points inside the European network. We are growing and are profitable and adding later pickup times to access the European market into the global market with much earlier deliveries. We are very optimistic and forward-thinking about our future in Europe.”

But should growth flatten for FedEx in Europe down the road, Hempstead said that what could ail the deficiency of FedEx in Europe and the DHL lack of a domestic solution in the USA is some sort of marriage of FedEx and DHL.

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

The International Air Transport Association (IATA) announced August 2014 data for global air freight markets showing continued “robust”growth in air cargo volumes.

Even though some of its key metrics dropped sequentially from August to September, the outlook for manufacturing over all remains strong, according to the most recent edition of the Manufacturing Report on Business issued today by the Institute for Supply Management (ISM).

Company officials said that these planned changes, which will take effect on January 4, 2015, will provide for increases in current pay rates and reduce the time it takes for its nearly 15,000 drivers to reach top pay scale.

While the economy has seen more than its fair share of ups and downs in recent years, 2014 is different in that it could be the best year from an economic output perspective in the last several years. That outlook was offered up by Rosalyn Wilson, senior business analyst at Parsons, and author of the Council of Supply Chain Management Professionals (CSCMP) Annual State of Logistics Report at last week’s CSCMP Annual Conference in San Antonio.

Matching last week, the average price per gallon of diesel gasoline dropped 2.3 cents, bringing the average price per gallon to $3.755 per gallon, according to the Department of Energy’s Energy Information Administration (EIA).

Article Topics

News · Global Logistics · UPS · FedEx · DHL · Express · TNT · TNT Express · All topics

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA