Rumors that FedEx is in talks to buy TNT, a Netherlands-based provider of mail and courier services and the fourth-largest global parcel operator, are picking up steam, according to media reports coming out of Europe.
An article in The Financial Times says that if this deal were to go through, it would have a significant impact on FedEx’ European parcel network operations, where its presence and market share is far less than TNT’s in Europe.
The FT added that factors such as a poor economy and escalating fuel prices have hindered demand for package deliveries, resulting in TNT merger talks that have occurred from time to time over the years.
“[FedEx] buying TNT has been a rumor for a long, long time, and it started to heat up again in mid-May,” says Jerry Hempstead, president of Hempstead Consulting.
“It could be viewed as a way for FedEx to respond to DHL’s partnering up with UPS.”
On May 28, DHL Express parent company Deutsche Post World Net unveiled its plan to work with UPS on a 10-year, $10 billion contract for airlift capacity in an effort to reduce its ground infrastructure operations costs.
The plan is expected to go into action later this year once the contract is finalized.
The FT report also noted that DHL, TNT, and FedEx account for roughly 60 per cent of the European express logistics market in terms of value.
A general consensus for a long time, according to Hempstead, has been that either FedEx or UPS would eventually buy TNT.
And using DHL, whom has 50 per cent of all international shipments begin, end, or transit through the U.S as an example, he explained it is forced to maintain a US presence for the pickup and delivery and transshipment of international transactions.
What makes DHL’s situation in the US relevant to news of this potential acquisition, adds Hempstead, is that it delivers TNT packages in North America under a five-year contract they inked in 2003 when DHL acquired Airborne Express.
“If TNT had to buy trucks and set up shop in the U.S., it is likely they would have the same problems DHL has had,” says Hempstead.
“When this contract expires, TNT is going to be in a situation where they have to partner up with somebody like FedEx or UPS.”
“But both may say no unless they are allowed to buy TNT.”
“What this deal would do for shippers is enable them to turn to FedEx whom would have a far better infrastructure that is logically connected through TNT’s brand name recognition in Europe, quality of standards and methods and means of doing business.”
Evan Armstrong, president of supply chain consultancy Armstrong & Associates, agrees that such a deal would significantly help FedEx augment its European presence.
“It would make sense for FedEx to acquire TNT to round out its European operations,” Armstrong says.
“While FedEx has done well in the US, it does need to add key components to compete globally.”
“FedEx may also see a window to capitalize on DHL’s current weakness and its recent move to limit its losses and utilis UPS for air lift support in the US.”
Although this news centers on the possibility that FedEx may acquire TNT, it is highly feasible that UPS could get involved in a bidding war with FedEx for TNT, according to a research note by JP Morgan analyst Thomas R. Wadewitz.
The Wall Street analyst comments that it would not expect UPS to allow FedEx to buy TNT without a fight.
Regardless of who may eventually acquire TNT, Robert W. Baird analyst Jon A. Langenfeld writes that this deal would be a ‘good strategic fit’ for either FedEx—which has minimal intra-European market share—or UPS—who could leverage its existing number four position in Europe, assuming that the acquisition only included TNT’s parcel division.
“The deal would likely be a positive for the industry, representing yet another layer of consolidation going from four to three global [parcel and mail] integrators,” says Langenfeld.
TNT issued an online statement about rumors concerning its potential sale, stating that with reference to various news articles in which TNT was mentioned, the company wishes to reiterate its policy not to comment on such speculation and market rumors.
Source: Logistics Management