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Logistics Are Hot in Europe

Given how fast the economy is growing in places like Brazil, India, the Middle East, and some locations in Africa, you'd think that logistics companies would be concentrating their resources in these developing regions. And they may well be. But for the moment, it appears they are not neglecting mature markets either. In the case of Europe, the continent's economic woes seem to be creating new opportunities for US logistics companies.

Earlier this month, {complink 12959|FedEx Corp.} announced it signed an agreement to acquire the Polish courier company Opek Sp.z o.o., as part of its strategy for growth in Europe. This comes only a few weeks after United Parcel Service said it was buying Dutch-based TNT Express in an all-cash deal valued at about $6.9 billion. (See: UPS Strengthens Its EU Presence.)

Unfortunately, the FedEx announcement was followed up with less-than-happy news last week from the World Trade Organization. The WTO said that while global trade in goods will increase by 3.7 percent this year after expanding a less-than-forecast 5 percent in 2011, the debt crisis in Europe continues to weigh on the commerce sector, BusinessWeek reported.

FedEx doesn't seem worried. The Opek acquisition is expected to give the FedEx Express business unit access to a nationwide domestic ground network with an estimated $70 million in annual revenue and 12.5 million shipments annually, the company said in the statement referenced above, adding that it is continuing “its European expansion through smart, strategic investments.”

Frederick W. Smith, FedEx's chairman, president, and CEO, had this to say about the company's European expansion:

    In recent years, we have made significant investments throughout Europe, greatly expanding our network coverage and improving service to customers. Our presence in Europe is backed by strong leadership and management and dedicated team members. We have an excellent strategy that has steadily advanced our position in the region, and we are well positioned for profitable growth as we increase the number of direct-served locations in Europe.

FedEx is definitely on a multiyear European growth streak that started in 2006 with acquisitions in the UK, and then in Hungary the following year. In 2010, FedEx Express relocated its Central and Eastern European hub from Frankfurt to Cologne, Germany, and in 2009 it expanded its European hub at Roissy-Charles de Gaulle Airport in Paris, making it the largest FedEx hub outside the US, according to the company.

It doesn't end there. So far in fiscal 2012, FedEx Express has opened 26 new stations across France, Germany, Italy, the Netherlands, Northern Ireland, and Sweden. Additionally, FedEx Trade Networks has added 22 European locations in recent years to complement its express services.

The Wall Street Journal made some interesting points on this broader logistics trend. The newspaper's Ishaq Siddiqi reported:

    Analysts said the recent deal activity suggests that cash-rich companies in the logistics sector are looking to put their money to work. Investment bank Morgan Stanley noted that prospects for an increased level of merger and acquisition activity across all sectors are reasonably good in Europe. They cite healthy balance sheets and cash flows for European companies, return on equity that is above historical averages as well as higher share prices.

So who's next on the acquisition list?

14 comments on “Logistics Are Hot in Europe

  1. Anna Young
    April 23, 2012

    “In recent years, we have made significant investments throughout Europe, greatly expanding our network coverage and improving service to customers”.

     FedEx business expansion in Europe is certainly a thumb up. Despite Europe's ongoing economic crisis. Investment of this nature is highly required to kick start the economy. Brilliant!

  2. ITempire
    April 23, 2012

    @ Anna

    Considering the recent acquisitions esp in the logistics sector by the US companies, the news might also give a kick to the share prices of the European logistics companies. With a speculation, esp when backed by a reputable investment bank like Morgan Stanley, that US companies are performing feasibility analysis on European logistics providers, investors would love to invest in those shares esp the ones who are looking for short term gains. Whatever may be the benefits accruing to the individual shareholders, these speculations and acquisitions are likely to give a helping hand to the European economy which is good for the Euro society as a whole.

  3. ITempire
    April 23, 2012

    With money getting in the European capital markets through acquisitions, the European corporations may well get their liquidity problems solved. This in turn might stabilize the debt crisis in Europe as debt repayment schedules will be met and therefore financial institutions will be able to offer funds to the corporations looking to expand.

    Also investment in the logistics sector is an indication of confidence by investors in the European manufacturing and service corporations who are definitely the prime customers of logistics providers. If these corporations expand, so will the logistics corporations. All these developments will also mean that the investors are seeing a potential of growth in the already mature markets of Europe. 

  4. Barbara Jorgensen
    April 23, 2012

    Unfortunately Europe's loss is other nations' gain. It doesn't look like these acquisitions were heavily discounted, but you have to think that companies are worried about their shareholders and will sell now rather than later.

  5. FLYINGSCOT
    April 24, 2012

    These trends could indicate rosy prospects for the logistics business in Europe or simply be the normal consolidation that goes on during tough times where bigger fish eat smaller fish.  I believe Europe is in for tough times for several years to come so I reckon it is consolidation in a tough market.

  6. Anna Young
    April 24, 2012

    You're absolutely correct WaqasAltaf. The shareholders will benefit so will the European stagnated economy. At least it'll help to reduce the high unemployment rate in Europe.

  7. jbond
    April 24, 2012

    This is definitely a case of some countries or regions woes benefiting others. With FedEx and UPS continuing to build on their shipping empires, we should hope that it strengthens overall global logisitcs.

  8. syedzunair
    April 24, 2012

    @jbond: 

    Not only will it strengthen global logistics but will probably encourage more fierce competition amongst the two logistics giants. Strong competition may also lead to price cuts for the customers. 

  9. Jennifer Baljko
    April 24, 2012

    Hi Anna – Totally agree:  “  Investment of this nature is highly required to kick start the economy.  ” 

  10. Jennifer Baljko
    April 24, 2012

    WaqasAltaf – Agree acquisitions like this could stimulate some economic recovery for the region, but many other issues need to be addressed before the debt crisis is under control. Guess we'll see what comes out of the European Central Bank summit next week in Barcelona.

  11. Jennifer Baljko
    April 24, 2012

    Barbara – good question.. this is just a guess, but I think many companies here are still worried about effect a prolonged recession could have on balance sheets for the next four to eight quarters. Many parts of Europe are still struggling considerably, and that weighs down the whole continent.

  12. Jennifer Baljko
    April 24, 2012

    jbond – good point. Will be interesting to see how this shifts competitive stratgies globally and how strong local companies respond.

  13. Jennifer Baljko
    April 24, 2012

    syedzunair – Let's hope so: “Strong competition may also lead to price cuts for the customers. “

  14. syedzunair
    April 25, 2012

    Jennifer: 

    I hope so too. It happens in the other sectors often. I am not too sure about logistics though. 

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