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What Will the TNT Express Acquisition Do to FedEx’s Growth?

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Jun. 17 2016, Updated 8:05 a.m. ET

FedEx acquired TNT Express NV

On May 25, 2016, FedEX completed the 4.4-billion-euro (~$4.9 billion) acquisition of the Netherlands-based TNT Express. FDX was looking to expand its international footprint and challenge its long-time contender, United Parcel Service (UPS) outside the US. Previously, FedEx trailed TNT, UPS, and DHL in Europe, where FDX is expanding organically as well as through small builds on acquisitions.

Until the beginning of 2015, the global transportation and logistics industry (including the US) witnessed many small-ticket acquisitions in the express and logistics space. However, at the start of 2015, the competitive landscape changed.

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United Parcel Service (UPS) acquired Coyote Logistics in 2015. That same year, another major logistic company, XPO Logistics (XPO) acquired Norbert Dentressangle in Europe for just over $3.5 billion. This deal significantly improved XPO’s European capacity, and now the major logistics companies are locking horns to expand capacity and enhance their networks.

Will TNT boost FedEx’s international presence?

TNT’s vast European road express network should increase the FedEx’s market share in Europe. TNT’s largest segment, International Europe, accounted for 41% of its 2015 revenues, followed by its domestic (37%) and Asia, Africa, and Middle East (14%) operations.

The benefit of the FedEx’s TNT acquisition is the latter’s’ significant European customer base as compared to FDX’s existing network. But the company still depends on two-thirds of its European Union traffic to originate from or be paid for by US worldwide customers. And TNT’s market share in Brazil and China is not significant in FedEx’s operations.

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Western Europe

FedEx may also gain on a cost front by utilizing TNT’s lower cost of operations at its Liege hub in Belgium. Although FDX has its own hub at Charles de Gaulle, Paris, industrial disputes in France might cause hurdles for the company’s smooth European operations. The Liege hub is also at the territorial center of a prominent business triangle between London, Frankfurt, and Milan, and TNT has a sizeable domestic market share in the UK, Spain, Benelux, and Italy.

That said, the biggest challenges for FDX are the integration risks related to TNT, but the four-year time horizon by FedEx should pave the way for the smooth sailing.

Related ETFs

Investors interested in the transportation space might consider the iShares US Industrials ETF (IYJ), which has ~4.3% of its total holdings in major US courier companies. Prominent US railroads (CSX) and airlines (DAL) make up 5.2% and 4.7%, respectively, of the portfolio holdings of IYJ.

Continue to the next part for a look at the expectations of at FDX’s management.

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