FedEx: Plans to acquire TNT would shake up the industry

US express giant FedEx is reportedly in talks to buy Dutch rival TNT
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US express giant FedEx is reportedly in talks to buy Dutch rival TNT.

FedEx has expressed an interest in acquiring TNT, according to reports, which suggests it does not want to rely on organic growth to strengthen its position in the global express market.

Combining two of the world's leading players would increase consolidation in the industry and put strong pressure on the other two integrators, UPS and DHL.

Overall, the competitiveness of the industry looks set to remain intact.

FedEx, which reported negative results in the last quarter of its financial year and subsequently issued a pessimistic outlook, is still reliant on the slowing US market. As a result it now appears to be looking for radical ways to improve its position in the global express sector.

Despite the weakened dollar, the effects of a tougher economic environment and rising fuel costs, along with a fall in the share price of TNT following setbacks in their mail division, appear to have sparked FedEx's renewed interest in the acquisition of the Dutch mail and express rival, despite their interest being focused on the express side of business.

Over the last few years FedEx has already been trying to reduce its dependence on its home market and the use of air networks by building a stronger presence in the internal European market, as well as investing in its Asian network.

The acquisition of ANC in the UK helped to secure a stronger position in one of Europe's key parcel markets, and TNT's dominant position in the intra-European B2B express market makes it an ideal target that would allow FedEx to develop its position in Europe considerably, becoming number two in a market valued at over US$62.3 billion.

Preliminary results from Datamonitor's forthcoming European Express Market Map suggest that, despite showing decreasing growth rates, the European express market is still in a good state showing healthy growth above that of GDP, with eCommerce B2C demand and Eastern European economic and logistical developments acting as its main growth drivers.

TNT is particularly well positioned to capture any growth in the B2B side of these markets as it has a strong road and air network that is operational in all the key markets.

The company also boasts a strong position in emerging markets such as Eastern Europe as well as in the rest of the world, notably Brazil, India and China. This is especially the case in the Middle East which has become one of the fastest growing and lucrative express markets in the world attracting investments in networks and services from all the main express players vying for a share of the market.

FedEx and TNT have reciprocal geographic strengths and as TNT is facing domestic problems, having lost its monopoly in its home mail market, a combination of the two companies appears to make strategic sense.

The merger would put significant pressure on both European market leader DHL, which is trying to recover its market position in the US, where it continues to lose money by means of a cooperation agreement with UPS and also on UPS in Europe (which has also been reported to have an interest in acquiring TNT).

Should the tie-up be completed, the effects would be far-reaching. Significant demands would be placed upon DHL and UPS to develop their service capabilities, given that they would have to compete with a truly global player capable of exploiting greater economies of scale and serving the needs of globally operating companies more efficiently as further internationalisation of the industry takes shape.

It will also put pressure on regional and domestic express firms in developing regions who will have to compete with the integrators that have been shifting their attention to these regions' express and parcels markets, especially since their mature home markets are characterised by slowing demand, fierce price competition and lower margins.

Erik van Baaren is an express analyst with Datamonitor.

Datamonitor is a provider of online data and forecasting platforms. The company aims to help its clients, 5,000 of the world's leading companies, profit from more timely decisions. See www.datamonitor.com for details.

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