It will be FedEx driving its tanks onto DHL’s lawn rather than UPS now that the Memphis based company’s purchase of TNT Express has been approved by the relevant competition authorities. The question is, what will FedEx do with its new barely profitable business express company?
Certainly the purchase represents a big stride forward in deepening the globalisation of the FedEx business. FedEx has strong presence in inter-continental traffic but its profile in markets such as China or continental Europe bares little relationship to the depth of business it has in the US, characterised as it is by a strong ‘last mile’ operation and a leading road freight network to complement its core air-Express franchise.
Now in possession of TNT, FedEx might conceivably have a bridgehead from which to aspire to some of this in Europe in what might be seen as a sort of ‘FedEx Ground Europe’ or ‘FedEx Freight Europe’. But realising it will be difficult. Europe is not one coherent market. Even neighbouring markets such as Britain and France are very different, with different types of customers and providers. Traffic flows are often fragmented and follow different patterns than in the US.
Certainly the UK and German e-retailing markets are very advanced and growing quickly but with that comes a ferocious level of competition. Another a big problem is that TNT Express is orientated towards the ‘business-to-business’ market not the consumer ‘last mile’ segment.
TNT Express does have a strong presence in networked road freight, being one of the largest hauliers of cross-border consignments and especially strong in less than pallet load business. However, this is both fiercely competitive market and not very profitable. International ‘less-than-trailer load’ services may be the most dynamic part of the road freight market across Europe but that is not saying much. In the US FedEx – and UPS – have been able to create a road network that in part replicates the sorts of efficiencies seen in the air-express ‘hub and spoke’ system. Doing that across Europe would be ambitious but hard. Rivals, including DeutscheBahn Schenker, Gefco and indeed DHL will insist that they have already built such systems.
So it will be interesting to see what Fred Smith and his people will do with TNT Express. Having spent US$4.8bn they are going to have to do something fairly dramatic to TNT in order to get a return on their money.