FedEx’s bid for TNT will create a more competitive market
Founder | ParcelHero
FedEx's €4.4 billion ($4.8 billion, £3.2 billion) bid for Dutch parcel delivery firm TNT Express has sparked a boost in courier company shares. It’s not only the courier industry that will benefit, however: it is customers that should ultimately be the real winner. The resulting company will introduce stronger competition within Europe and globally.
Some industry pundits are warning that the takeover could fall foul of the EU competition authorities, in the same way that UPS’ €5.2 billion bid did two years ago. However, the FedEx-TNT merger is significantly less likely to spark fears of a monopoly in Europe.
This merger will most likely succeed because FedEx and TNT are a shrewder fit than UPS and TNT were. They complement each other without overlapping significantly. UPS’ 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.
The networks complement each other perfectly, TNT was sub-scale in the Americas and parts of the Far East, where FedEx’s network is very strong, and TNT’s strong European network will help FedEx become a robust competitor to the dominant players, UPS & DHL. The deal gives FedEx a lower cost base in Europe, enabling it to compete more effectively, and acquiring TNT’s domestic operations will also help the combined companies’ FedEx UK domestic operation, formerly ANC.
However, the huge merger might not be without repercussions. The success of the deal relies on successful integration. This is one of the largest ever acquisitions in the parcels market. FedEx say they will be “aggressive” in their integration efforts, and state it will take three to four years. What can’t be supported for any greater length of time is too many hubs and services overlapping in the same markets.
In the UK FedEx is based at Stansted, with its FedEx UK (formerly ANC) domestic parcels hub in Newcastle under Lyme, and TNT operates a separate hub operation in Atherstone, near Birmingham. These operations will need to be carefully integrated to ensure FedEx gains the benefit of scale without redundancies.
Providing that the two different businesses can be combined swiftly and successfully the acquisition is good news for businesses and individuals sending parcels in Europe and wider afield. The scale of the new combined operation should provide DHL and UPS with some healthy competition and keep prices down, without lowering standards.
Posted on: April 13th 2015