FedEx's €4.4bn bid for TNT Express has sent shockwaves around the industry, and the ramifications of the deal are still to be felt. The Hub spoke to Justin Zatouroff, global head of logistics at KPMG, to put the deal into perspective.
JZ: "My impression is that we are already seeing more M&A activity, across the whole logistics space. I think what we’ve seen more of this year than in the last eight years is more of the cross border stuff. We’re definitely seeing more interest from some of the larger groups looking at acquiring business in Europe. And across Europe, so not just in the UK. Which I think is a big change on what we’d see two years ago.
"So I do think there’s more M&A going on, I think that particularly in the parcel space international consolidation is actually quite hard because there’s a limited number of independent networks. There’s DPD, GLS, TNT and then you start to struggle. So if somebody wants to buy a pan-European network their options are pretty limited. I mean it’s difficult to see La Poste selling DPD, and Royal Mail Group are going to fight tooth and nail to keep GLS. So the opportunities for someone to come and create a pan-European network, they’d have to do it piecemeal now, which is really, really hard. Which was kind of the lesson the last time FedEx came into the European market.
"So I don’t think it’s going to create a big wave of parcel M&A in Europe. The City Link lesson is that merging two networks in the same geographic region is really really hard and you know, there aren’t too many successful examples where that’s done. So maybe that’s why the TNT/ FedEx deal makes so much sense, in that there isn’t actually a huge amount of crossover, so therefore the merger becomes much more likely to be successful."
The Hub: So do you think the regulators are likely to step in?
JZ: "I don’t know the answer to that I’m afraid. I assume that they have done all their homework and have had all the right conversations. But then I would have made that same assumption about UPS.
"It’s clear from the comments [FedEx] have made that the timing was right. There’s a good exchange rate, it all came together at the right time. But they’ve been looking to be in the European network for some time, I mean they’ve bought in 10 years ago [acquiring ANC in 2006], so if that was their first step into the European market they’ve been building it for some time."
The Hub: Is this a sign of the world getting back on its feet post-recession?
"I think that’s right, I know that the logistics industry is starting to feel more confident again, and starting to look forward. I always think that the pallet networks' volumes are a good indicator of the economy and how it’s doing, and it has been strong for the last year or so – the growth rate’s been strong. And it usually is a good indication of what’s happening with the economy.
"There is an issue I think of growing the top line, particularly the big corporates being challenging, in a, because even if we’re talking about the European market growing at 2% or 3%, that’s not a huge amount of growth to be reporting.
"I think domestically you have to look at it per country. And their coverage is very different from country to country. Internationally, what this gives FedEx is more in the European market, the obvious advantage of this being in terms of creating a global network, which from a FedEx perspective clearly must be good news. You know the UK is probably the part of the market with the most crossover, because FedEx has a decent-sized operation here, as indeed does TNT, so TNT does have a road freight operation… a European road freight operation, FedEx doesn’t. So you know, they will be looking to exploit that and accept the resources from TNT. I think the opportunity’s much more about creating a global network of parcel flow, than exploiting TNT’s footprint in the European market."
The Hub: It seems it will be very beneficial for both parties?
JZ: "I think that’s right. I think for the shareholders at TNT this is fantastic news, and FedEx has been looking for a way into Europe for a long time, and unless you’re going to build it up piecemeal, which has its problems and difficulties, there aren’t very many pan-European networks they can buy.
TNT has a very strong B2B presence. There’s the ongoing debate about where’s the growth in parcels going forward, and is it all about B2C? And what kind of a network do you need to be successful as an e–commerce tailored solution. And no one really knows the answer to that yet."