By Laura Stevens
For U.S. delivery companies, the European financial crisis is
opening up new business opportunities. Let the jockeying begin.
FedEx Corp. on Friday submitted required regulatory filings to
the European Commission necessary to move ahead with its previously
announced deal to acquire parcel firm TNT Express NV for nearly $5
billion. Meanwhile, United Parcel Service Inc. last month said it
is building in the Netherlands a new temperature-controlled
distribution center specifically designed for pharmaceuticals and
medical products, the latest in a string of expansion projects
expected to total nearly $2 billion over five years.
Last month, UPS also opened a $40 million expansion in
Nuremberg, Germany, a package-sorting location for goods to and
from Southeastern Europe. FedEx is building a new airport operation
in Copenhagen slated to open this year. Not to be outdone, DHL
Express--the dominant European player by market share--is doubling
the size of its Leipzig, Germany, hub, spending EUR150 million
($167 million).
While the European economy flounders, the delivery companies are
reaping certain benefits. In particular, a weak euro means their
dollar investments go further. Additionally, businesses in the
depressed southern European nations have been forced to look
further afield for business, which often leads to more cross-border
shipments.
"There's a pizza on the table, and everyone is trying to have a
piece of it," said DHL Express Europe CEO John Pearson, adding his
company also is investing in its home region.
UPS is keeping a close eye on FedEx's acquisition of TNT after i
ts own attempt to acquire the Dutch company failed in 2013. So are
investors. While FedEx has said it is sure the deal will win the
necessary approvals, recent comments by the European Union's top
antitrust official signal it could face closer scrutiny than had
been expected.
The EU's antitrust chief, Margrethe Vestager, who took office in
November, has warned repeatedly that she would look closely at
large mergers that could lead to higher prices for consumers.
Tough economic times are forcing even small and midsize
companies to revamp domestic supply chains that, in some cases,
were designed before 1995, when an EU agreement allowed internal
border controls to come down, facilitating the free movement of
trade. That is good news for UPS, FedEx and DHL.
"The recession created a catalyst for streamlined supply
chains," said UPS's Kurt Kuehn in an interview with The Wall Street
Journal shortly before stepping down as CFO on July 1. "Europe is
getting a wake-up call: It has to change to remain
competitive."
Some big companies, for instance, are consolidating warehouses
and truck fleets they maintained country by country.
The changes have increased the logistical complexity of European
supply chains, which has benefited the delivery companies, since
FedEx, UPS and DHL all offer logistical expertise. It is a
"transformation away from freight movements to smaller shipments,"
Mr. Kuehn added.
Before the crisis, there wasn't as much incentive to change, Mr.
Kuehn said, in part because European labor law makes it expensive
to restructure a workforce.
In addition, e-commerce has picked up. Entrepreneurs and small
businesses in Southern Europe--where unemployment remains high and
consumer spending has stalled--are increasingly looking outside
their countries' borders to sell their wares, according to delivery
company executives. Demand has increased overall for European
e-commerce as consumers elsewhere in the world take advantage of
the cheaper euro to get more bang for their buck.
E-commerce retail sales in the U.K., Germany, France, Sweden,
the Netherlands, Italy, Poland and Spain are expected to grow more
than 40% over two years to GBP185.44 billion ($289.60 billion) in
2016, according to a study by U.K.-based Centre for Retail Research
and funded by RetailMeNot Inc. U.S. e-commerce sales are forecast
to grow a slower 30% over the same period to nearly $400
billion.
"Europe, despite the fact that there has been low growth, is
still an enormous market, both for import-export and within the
European Union overall," said FedEx Chief Executive Fred Smith on a
conference call with analysts after the TNT announcement in
April.
UPS is currently second in European international express market
share following Germany-based DHL, a part of Deutsche Post AG.
FedEx would become the third largest player if it acquires TNT,
which currently holds that position. But FedEx's competitors are
already taking some jabs at the TNT deal. DHL's Mr. Pearson said
regulators likely would have some questions.
UPS's Mr. Kuehn, noting the size of the proposed FedEx-TNT deal,
said: "We just want to make sure that the European regulators give
it as deep of scrutiny as they did with us, certainly....It is a
complex deal with a lot of moving parts." Adding TNT's annual
revenue to FedEx's would mean about a 16% increase to nearly $55
billion combined.
FedEx said Friday it expects the deal to close in the first half
of 2016. Executives, on an analyst call in June, said they don't
believe that the deal faces any EU competition issues.
But regulators are cautious when approving transactions that
bring the major number of competitors in the market to three from
four due to the potential for higher prices. In addition, about 18
other countries need to approve the deal, including China and
Brazil.
Because it has a smaller European network than UPS and less
overlap with a since-weakened TNT, FedEx has said the scenario is
far different from UPS's failed acquisition attempt. The UPS deal
collapsed in part after it failed to find what regulators deemed
appropriate buyers for some assets it needed to shed due to
competitive reasons.
Tom Fairless contributed to this article.
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