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UPS Strengthens Its EU Presence

Where are all those big brown United Parcel Service trucks I used to see all the time all over American streets? I remember asking myself this exact question several years ago when I first moved to Barcelona. UPS had become such a fixture in my mind's eye that it was a bit of a culture shock to not see the square vehicles as often as I previously had.

Eventually, I grew used to seeing DHL envelopes, MRW delivery vans parked on the side streets, and other companies' logos moving products around the region. I stopped dwelling on the who's who of the local market's logistics. Until last week.

Last week, a few business headlines flashed across my screen, and the old question about the company's European presence popped back into my head. This time, I thought, “Ah, fun. Logistics just got more interesting here.”

UPS announced that it was buying Dutch-based TNT Express in an all-cash deal valued at about $6.9 billion. It's a sweet deal for TNT Express — UPS is paying $12.61 per ordinary share for TNT, a 53.7 percent premium over the company's unaffected share price of $8.24.

But it's an even sweeter deal for UPS for a couple reasons. One is that it will have bigger slice of the European express delivery market. And, two, because of TNT Express' business inroads, UPS will strengthen its existing operations in fast-growing Latin American and Asia Pacific countries, namely Brazil and China.

Here's a snapshot of what the numbers could look like, once regulators approve the bid, according to a statement from TNT Express:

  • The transaction will create a combined entity with more than €45 billion ($60 billion) in annual revenue;
  • UPS estimates that the transaction will deliver an annual run rate of approximately €400 to €550 million ($525 to $725 million) of pre-tax cost synergies achieved by the end of year four after closing; and
  • Following the transaction, around 36 percent of the combined group’s revenue will be generated outside the United States, up from 26 percent today at UPS.

The Motley Fool [log-in required] and the BBC — citing research from various research organizations and company data — sketched out these likely scenarios for express and normal package delivery:

    The acquisition will increase UPS's share of European express deliveries to around 17.3 percent from the current 7.7 percent…This will also bring it closer to Deutsche Post's DHL unit, which holds 17.6 percent market share, and leave FedEx with a measly 3.3% share in the European region. In terms of package delivery from Asia-Pacific to Europe, DHL is the dominant player, with more than 30 percent market share, followed by FedEx which has 25 percent…Both UPS and TNT have individually lagged behind the competition. However, as the two firms join hands, their combined market share of 28 percent will make them the second-biggest in the region and pose a serious challenge to DHL for the top slot.

In the bigger scheme, what does it mean? For electronics companies, increased competition will most certainly lead to more competitive pricing. For Europeans, the landscape is going to be shuffled as a major US player claims a bigger stake in local operations. And for me, it's like a little piece of home literally arrived on my doorstep.

19 comments on “UPS Strengthens Its EU Presence

  1. FLYINGSCOT
    March 28, 2012

    I sure hope the UPS acquisition of TNT improves the service provided by TNT.  Having used TNT a few times over the years I have always found their service somewhat lacking.

  2. Barbara Jorgensen
    March 28, 2012

    This seems like a sweet deal for UPS. If, as some readers suggest, TNT's service could use an upgrade, I think UPS is up to the task. My last dealings with UPS were exceptionally good–they beat their delivery dates by several days. Whatever they are doing here in the US, they are doing right, and if they can duplicate it in Europe I thinks you'll see an improvement.

  3. Jennifer Baljko
    March 28, 2012

    @FlyingScot – Just wondering… “Found their service lacking” – how? in what way? Were they late, unreliable, etc? Can you clarify. Thanks.

  4. Jennifer Baljko
    March 28, 2012

    @Barbara – From what I read, that sounds like the intention. Take some of the best practices in the US and export them here. Hopefully it will be as effective.

  5. Susan Fourtané
    March 28, 2012

    Hi, Jennifer 

    So this was the reason. Some days ago I saw a UPS van close to where I live, and for half a second I was surprised. Then I just forgot about it. Surprised because I hadn't seen one in ages. Now thanks to your blog I know what was that UPS van doing in Finland. 🙂 

    -Susan 

  6. Ashu001
    March 28, 2012

    Jennifer,

    I am sure you must have seen the recent Fedex Announcement that they have radically cut Growth and earnings Estimates for the rest of 2012.

    http://www.businessweek.com/news/2012-03-23/u-dot-s-dot-stocks-fall-in-s-and-p-500s-biggest-weekly-drop-in-2012

    This is something which is going to afflict the Industry as a whole going ahead as the World Economy slows down.

    Good thing is that this move will enable consolidation especially in the rapidly Shrinking Market of Europe.

    Thanks to Austerity Europe will struggle to see much growth going ahead and this UPS/TNT merger will ensure one less competitor for UPS in a shrinking market.

    Consolidation is inevitable ,especially for the Smaller players.

    Regards

    Ashish.

  7. Barbara Jorgensen
    March 28, 2012

    That's an interesting development becuase FedEx is usually considered a premium service, and UPS has a variety of 2nd and 3rd day deliveries that are less expensive. You may see more people and businesses willing to wait a day or two in order to save freight costs.

  8. bolaji ojo
    March 28, 2012

    One other issue to consider is that the various segments of the economy are being consolidated by the biggest companies. There are certain economic ends that can benefit from scale and one of this is logistics, which may explain UPS' action.

  9. Houngbo_Hospice
    March 29, 2012

    @SF

    This means that UE market is still attractive to foreign businesses. However according to this article, EU antitrust regulators don't like the way UPS and other logistics companies are breaking EU antitrust rules. UPS would have to abide by EU laws if the company really want to do business there.

  10. Taimoor Zubar
    March 29, 2012

    and UPS has a variety of 2nd and 3rd day deliveries that are less expensive”

    @Barbara: I think that's the niche market UPS has captured where they compromise on the delivery time but win with the cost. This may be true in markets where the consumers are more sensitive towards the price. I wonder if they can continue with the same strategy in the new regions they are entering into.

  11. Barbara Jorgensen
    March 29, 2012

    I think UPS has a pretty good chnace of duplicating its service model, particulalrly since TNT is supposed to have a strong infrastructure in the EU. I hadn't thought about anti-trust issues, though. In the US, certain services can be cut out of markets where one company dominates. But I would think as long as FedEx exists, there will always be viable competition for UPS.

  12. Jennifer Baljko
    March 30, 2012

    Thanks, Ashish. Hadn't seen the FedEx report, but will check out the link. Like you said consolidation is likely, especially in mature markets.

  13. Jennifer Baljko
    March 30, 2012

    Not too clear about EU's antitrust issues, but UPS won't be the only company in the market. Besides FedEx, there are a number of smaller and mid-size regional players, and let's not forget that Deutsche Post DHL is still a dominant competitor.

  14. Jennifer Baljko
    March 30, 2012

    Hi Susan,

    Funny how that works, huh? Eyes and brain register something suprisingly out of place, we make a note of it, and then move on. Guess you'll be getting re-used to seeing the brown trucks rolling through your neighborhood.

     

  15. Ashu001
    March 30, 2012

    Barbara,

    Don't count out DHL,the US Postal Service and Smaller Services.

    Its not just about Fedex .

    These guys have it in them to challenge and slug it out for market share with UPS.

    After all,US Postal Service in fact even has Taxpayer support(so they can maintain infrastructure in places where others can't because its uneconomical).This gives them a massive edge over the Competition.Same goes for Postal Services in Continental Europe like France Post.

    Ashish.

  16. Barbara Jorgensen
    March 30, 2012

    I tend to foget that DHL, which has reduced its visbility in the US, has a strong presence overseas. I certainly won't count them out!

  17. Susan Fourtané
    March 31, 2012

    Hi, Jennifer 

    Yes, that is exactly how it happened, little note and move on. 🙂 I am thinking if this good or not. I mean, with how many things we do this, some of them which could be important to pay a little more attention to, or even give them some thought? We could be missing somethig. 

    -Susan  

  18. JADEN
    March 31, 2012

    With TNT infrastructures and network in EU, I believe UPS will have an improved service in Europe, even globally.

  19. Cryptoman
    March 31, 2012

     

    UPS is providing carbon neutral shipping services for the London 2012 Olympics. If you want to watch a video on this, please follow this link.

    I think UPS has taken a fantastic advantage of supporting its presence in the EU by supporting this event that will take place in the EU. I cannot think of a better way to advertise!

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