- By Region
No wonder UPS’s latest advertising campaign slogan is “We love logistics”. Its pending $6.8bn tie-up with TNT Express will transform the company at a time when global economic growth appears to be faltering – bad news for the cyclical logistics sector. UPS’s move also asks some awkward questions of rival FedEx, which faces being boxed out of parts of the European market.
FedEx looks to be in a weak position. The company reporting its fiscal fourth-quarter 2012 results on Tuesday lacks the scale of its rivals in Europe. FedEx has about a 5 per cent share of the intra-European express market, compared with 18 per cent for TNTE, 14 per cent for UPS, and 16 per cent for DHL.
But FedEx has built profitable niches focused on express air networks and inter-continental routes connecting Europe with Asia and the US. And FedEx is growing, opening dozens of pick-up and delivery stations in the region in recent months, and topping up organic growth with two small purchases in Poland and France.
Moreover, the focus on Europe distracts investors from opportunities closer to home. The biggest medium-term boost for FedEx may come from restructuring the US portion of its $25bn express package operations, where volumes have declined slowly but steadily as customers have switched to cheaper FedEx services.
FedEx has made some progress already. This month, it decided to accelerate the retirement of certain aircraft and analysts expect more detailed announcements, possibly involving headcount reductions and facility closures, in the autumn.
The rewards could be substantial. In 2003, restructuring helped FedEx to double express margins as the economy picked up. Today, a revamp could produce about $400m of annual cost savings, or a 10 per cent boost in forecast 2013 earnings per share, according to JPMorgan. It’s not quite love, but what’s not to like?
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