When UPS last spring agreed to acquire TNT Express for $6.6 billion, the deal reverberated throughout global express and parcel markets.
In Europe, the deal makes the competitive landscape a lot smaller in a market TNT values at $70 billion. Though actual market share is a matter of debate, UPS will surpass DHL as the overall European express leader with the acquisition; together UPS and TNT will control up to three quarters of the market.
TNT’s Liege, Belgium, hub will offer UPS advantages because it’s located in the heart of western Europe, uncongested, cheaper to operate than FedEx’s Charles de Gaulle in Paris and UPS’s Cologne Bonn airports, and safe from night flight bans.
TNT’s road freight network, also centrally located in Liege, and its access to the European rail network will allow UPS to serve the express market more efficiently. TNT also recently participated in a test of the Euro Carex, which is developing an air-rail network for time-sensitive freight between European cities within 200 to 500 miles. The service, estimated to have the capacity of seven Boeing 737s, will allow express freight to move on the cheaper high-speed rail network.
FedEx, another Carex project participant, plans to use the high-speed rail system to move air containers to the U.K. and Benelux countries overnight from Charles de Gaulle. DHL has been using Deutsche Bahn trains to transport items between Leipzig and Frankfurt. Through acquisition, UPS will gain access to the same services as its competitors.
FedEx controls only 10 percent of the European express market, but, unlike its competitors, doesn’t provide domestic intra-country express services. According to CEO Fred Smith, FedEx will continue its organic growth strategy in Europe to support its intra-European air growth. To support this strategy, FedEx recently expanded operations at Bonn and Charles de Gaulle and opened 23 stations within the EU. FedEx also is in acquisition mode, purchasing Polish express courier Opek and French Express company TATEX.
The balance of the European market is composed of intercontinental along with European business-to-consumer shipments and slower-moving standard parcels. Although FedEx has focused on connecting the rest of the world with Europe for its more profitable intercontinental air shipments, many believe FedEx is considering a major purchase to expand its European footprint and enter the domestic intra-country parcel market and the pan-European ground markets.
With its regional hub in Hong Kong, DHL dominates the $10 billion Asia-Pacific express market and says half of all of its global shipments touch Asia. FedEx runs second and recently moved its second-largest global hub to Guangzhou, China, from the Philippines. FedEx also is creating a new Asian hub in Singapore, increasing the size of its Hong Kong facility and expanding capacity with increased intra-Asia frequencies. Still, the TNT acquisition will allow UPS to leapfrog FedEx in the Asia express market.
Like FedEx, UPS moved its Asian hub from the Philippines to Shenzhen, improving shipment time for shippers in China and throughout Asia. With the TNT purchase, UPS also will gain access to TNT’s newest Asian hub in Hong Kong.
Singapore, one of four Asia regional hubs, is a key component in TNT’s plans to develop its first Asian integrated air-and-road hub as well as a small version of its European road network to connect China with Southeast Asia. TNT has expanded its Asia Road Network to 3,125 miles, enabling deliveries to 127 cities in Vietnam, Cambodia, Laos, Thailand, Malaysia and Singapore within one to four days.
China’s State Post Bureau controls China’s domestic market, including Hong Kong and Taiwan, which makes up 40 percent of the Asia-Pacific market. It has the monopoly for domestic mail and is the biggest transporter of express packages.
DHL, FedEx and UPS are major players in China’s courier service sector but haven’t been able to compete with the hundreds of privately owned Chinese companies willing to cut prices to win new customers. All three are trying to create more established domestic operations to help lower their operating costs and improve densities for their international imports and exports.
TNT-Hoau, China’s largest domestic road distribution service provider, connects 500 Chinese cities with innovative services that reduce logistics costs and improve operating efficiencies. UPS has been eager to enter the domestic Chinese market and expects to receive its domestic parcel license soon to begin its own domestic service to rival FedEx. With the TNT acquisition, UPS will have access to TNT’s domestic China road network as well as TNT’s Asia Road Network to provide lower-cost parcel options throughout Asia.
Although decreased competition is never good, global shippers still can take advantage of recent carrier changes and the UPS acquisition. Global shippers relying on FedEx and UPS in the U.S. and TNT and DHL in Asia-Europe can combine their spending together into improved global contracts. The establishment of a UPS Chinese domestic service also will help drive down carrier costs.
Paul Steiner is vice president of logistics at Atlanta-based consultant Spend Management Experts. Contact him at email@example.com.