FedEx’s TNT Express integration
FedEx Corporation (FDX) is quite bullish on the TNT Express acquisition completed on May 25, 2016. In fiscal 1Q17, FedEx derived one-third of its revenue outside the US, up from 24% in fiscal 2016.
The company plans to integrate TNT into the FedEx Express segment in a phased manner within four years. However, until the completion of this integration, FDX will show TNT Express as a separate segment beginning in fiscal 1Q17.
TNT Express’s network
TNT Express is a global logistics player with a presence in more than 200 countries. The company has 56,000 employees worldwide along with 900-plus hubs, depots, and office facilities. TNT delivers 1 million packages on a daily basis. The company’s prized asset is its European road network. This network connects more than 40 countries through 19 road hubs and more than 540 depots.
Two-thirds of TNT’s revenues are generated in Europe. According to TNT, the domestic European market is worth 6.0 billion euros, and the international European market is worth 15.0 billion euros.
The TNT deal rationale
FedEx (FDX) expects to create a strong global player to challenge the robust international presence of its fierce competitor, United Parcel Service (UPS). TNT’s Liege hub in Belgium is also at the geographic center of a prominent business triangle between London, Frankfurt, and Milan. Plus, TNT has a sizable domestic market share in the UK, Spain, Benelux, and Italy.
FedEx plans to foray deeply into TNT’s customers through TNT’s solid European road network for the parcel and freight business. The enhanced customer access may open more cross-selling opportunities for FedEx in Europe. TNT not only has a good presence in Europe but also in Asia, which should further strengthen FDX’s share in emerging markets.
The FedEx–TNT combined entity should be poised to offer a variety of transportation solutions. These include express, global freight forwarding, contract logistics, and surface transportation capabilities.
Investors who prefer the transportation and logistics sector can consider investment in the iShares US Industrials ETF (IYJ). Major railroads such as CSX Corp. (CSX) and Union Pacific (UNP) comprise ~4.1% of IYJ. Major airlines (DAL) make up 6.6% of the portfolio holdings of IYJ.
In the next part, we’ll see how FedEx has rewarded its shareholders in fiscal 1Q17.