While UPS made a splash with its move to buy TNT Express earlier this year, FedEx appears to be forging a more cautious approach in countering the European and Brazilian expansion of its main rival.
The planned FedEx acquisition of two European transportation companies and, most recently, a Brazilian logistics and parcel delivery company takes a “more measured international growth strategy that looks to smaller, bolt-on operations,” wrote transportation analyst David Ross of Stifel Nicolaus.
This approach appears to be in sharp contrast to the planned UPS acquisition of TNT Express, Europe’s second-largest package delivery company, for $6.8 billion in cash.
Because Rapidao Cometa Logistica e Transportes has been an authorized representative for FedEx in Brazil for 11 years, its integration into the Memphis, Tenn.-based parcel giant will likely be a smooth one.
Rapidao Cometa is a major Brazilian transportation operator with roughly 9,000 employees, and its logistics unit will likely further FedEx’s goal to provide more supply chain services to multinationals. The acquisition could boost FedEx’s competitiveness with logistics providers such as CEVA and Penske Logistics that have found success in the Brazilian automotive and high-tech manufacturing markets, said Cathy Roberson, senior analyst for Transport Intelligence.
TNT “has consistently lost money” in its Brazilian operations, Ross wrote. And ongoing integration issues resulting from the 2007 acquisition of Mercurio “mean that TNT does not plan on breaking even in Brazil until the second half of 2012,” he wrote.
However, UPS has had some success in Brazil, as first quarter revenue from its operations drove a 7.8 percent rise in its average revenue per package in the Americas. That pricing increasingly helped offset a slip in daily package volume of 2 percent in the entire region.
Roberson said UPS’s logistics offering might not be as strong as rivals FedEx, CEVA and Penske Logistics, but its road transportation network linking Brazil, Chile and Argentina, gained through the TNT purchase, “is a definite transportation advantage.”
Despite the differences, the acquisition plans highlight growing merger and acquisition activity in the industry, particularly in emerging markets, said Benjamin Gordon, managing partner of BG Strategic Advisors. Expansion into Brazil makes sense for both companies because the country is the largest economic engine in South America, and it is difficult for foreign-based carriers and logistics providers to gain a footprint there unless they buy, merge or partner with a native company.
“There is a land grab in the strategic high-growth markets. Regardless of the short-term fluctuations, there is longer-term growth potential,” said Gordon, who specializes in investment in the transportation, logistics and supply chain sector.
Part of the attraction to emerging markets is changing trade patterns in which the U.S. and Europe can’t be relied on to drive import growth, Roberson said. One of the brightest spots is intra-Asia trade, where UPS will be better positioned after the finalization of its TNT acquisition in the third quarter.
The deceleration of demand in Brazil and Asia looks downright mild compared to the economic slowdown in Europe. So why are UPS and FedEx scooping up assets there?
Gordon said the FedEx acquisition of Polish carrier Opek will give the company a stronger “ground network in a faster-growing European area.” The planned acquisition of French express shipping company Tatex will also help fill out FedEx’s European ground network.
Investment in European assets won’t likely pay off like those in emerging markets, but there is still potential in any provider tapping e-commerce growth, Roberson said.
EBay CEO John Donahoe said the online retailing giant’s growth in Europe has been “stunning” in the last year, according to reports. A European Commission effort to create a single e-commerce market with the eurozone could boost that momentum, and the shrinkage of national postal operators also provides an opportunity for carriers to grab even more market share.
The flurry of acquisition activity suggests UPS and FedEx expect future growth in not just emerging markets but also those that are tottering.