Analysis

The FedEx / TNT deal – the industry’s take

On 7 April news broke that FedEx is to acquire TNT Express in a takeover deal worth €4.4bn.

Although UPS failed in a similar bid only two years ago, FedEx has said it doesn’t anticipate the European Commission blocking the deal. But of course, only time will tell.

But while the dotting of the Is and the crossing of the Ts is yet to be done, eDelivery asked an assortment of people in the industry what they thought. Is this a good move by FedEx? What implications are there for the rest of the sector? Will FedEx succeed where UPS didn’t?

Josh Pitman is director of PrioryDirect.co.uk, which describes itself as Europe’s largest supplier of integrated labels and packaging for ecommerce. He sees the planned acquisition as a glowing report on the health of the European ecommerce market.

“The level of investment by FedEx in an expanded European footprint demonstrates the company’s confidence in the regional ecommerce market and represents a strengthening within the industry. The combined presence of TNT Express and FedEx provides a third competitor for UPS and DHL, without the regional dominance of the proposed UPS takeover; unlike UPS, FedEx has a limited European operation that will be complemented by the acquisition.

“From our perspective, as a key supplier of packaging and labels for the industry, anything that can increase competition, drive down costs and help UK businesses deliver within the European market, has to be a positive step.

“This year the sector is predicted to grow by a further 18.4% to £156.67bn, and this investment from FedEx, coupled with the £600m pledged in the recent (UK government) Budget to fund superfast broadband, will help cement the industry’s growth.”

But what about its likely chances of success? After all, UPS couldn’t pull this one off, so why should FedEx be able to?

Roger Sumner-Rivers, founder of ParcelHero, thinks the answer to that is pragmatism. “This merger will most likely succeed because FedEx and TNT are a shrewder fit than UPS and TNT were,” he says. “They complement each other without overlapping significantly. UPS’s primary goal in seeking to take over TNT was to build on its already substantial European business, which would have resulted in the combined company holding an unassailable 30% of the European market. The FedEx TNT merger is far less likely to fall foul of European Union competition authorities. Since pulling out of domestic UK and European markets, in 1992, then returning and taking over UK express parcels company ANC in 2006, FedEx has struggled to build market share, and this lack of scale has resulted in a higher cost base than its competitors. For a global company of FedEx’s size, this lack of presence in the world’s second largest express delivery market was a major strategic weakness and has remained its Achilles heel. The acquisition of TNT solves this problem in one fell swoop.”

David Grimes, managing director at My Parcel Delivery, agrees: “The primary difference is that FedEx has never had as big a presence in Europe as UPS. As such, the acquisition doesn’t create the same logistics powerhouse that a UPS/TNT union would have. The FedEx deal has also been made possible as a consequence of the original agreement between UPS and TNT collapsing, which forced the Dutch company to restructure the group, selling a significant amount of aircraft in favour of a greater focus on EU road services.

“I think we can expect to see the TNT name gradually becoming integrated into the FedEx brand. We have already seen reports stating that FedEx only anticipates keeping the TNT branding for an ‘appropriate period’. Hopefully the transition will be smooth for all involved and will result in the coming together of two fantastic brands.”

Lewis Marston, CEO of Rocket Consulting, thinks the merger will usher in new improved services: “Assuming this is allowed to proceed, could it mean better service for end consumers, in particular off the back of growing demand for e-commerce delivery services both regionally and internationally? Probably, as there is still enough diversity in the market to drive competition on price.  Also, with FedEx creating a larger ground-based regional operation covering up to 40 countries there will be additional pressure to differentiate by improved delivery and pick-up service.

“International e-commerce delivery services could also benefit if FedEx creates a tight alignment and integration between its international and European logistics services to improve international supplier to European door delivery service.”

Hugh Williams, managing director of international supply chain consultants, Hughenden Consulting, sees this as the start of a potential run of consolidations. “When, after more than 20 years, Amazon finally trumped FedEx’s overnight delivery promise by offering customers same-day click-and-collect delivery and many entertainment services on-line, it was only going to be a matter of time before we started to see courier consolidation.

“We are moving to an increasingly demand-driven world where multi-channel retailing and mass customisation are completely changing the logistics landscape. Believe me, FedEx’s acquisition of TNT is only the tip of the iceberg!”

If the deal does get the green light from Brussels there will still be many hurdles left to clear by way of integrating the two businesses; this is, after all, likely to be the biggest merger the parcels sector has seen. FedEx talks a good fight, that much is certain – it feels confident that the EU Commission won’t block the deal and says it will pursue a vigorous integration strategy, but without sounding like it might just toss a few thousand employees under the proverbial bus.

Something will have to give, though. FedEx is based at Stanstead Airport, and has a hub in Newcastle under Lyme, Staffordshire. Meanwhile, TNT has a hub in Atherstone, Warwickshire.

Integrating these, and other, units into the newly-merged business will have to be handled carefully, otherwise someone may find to their cost that one plus one doesn’t always equal two. From the multichannel retail industry perspective, there are swings and roundabouts here. Increased competition among the new Big Three of DHL, UPS and FedEx/TNT may well lead to better services, more innovation and keener pricing. All of which could have a beneficial trickle-down effect on the rest of the sector.

However, if it gets stuck at keener pricing and doesn’t elicit innovation and better service, it may just serve to increase the pressures on an industry already struggling to come to terms with how it can get some value back into the logistics process.