In early April of this year, news broke from FedEx Corp. that raised a few eyebrows among cargo executives worldwide. The U.S.-based integrator had made a US$4.8 billion offer to buy struggling Dutch express firm TNT Express – the same TNT Express that was sought in a thwarted bid by arch-rival UPS, made just two years before.
Why would FedEx think it could succeed where UPS failed?
Eight months later, FedEx is moving forward with its plan to take over TNT’s extensive European road network, in what it is now being called one of the most significant mergers of 2015. The European Commission, which brought down the UPS deal on antitrust grounds, said it would issue “no Statement of Objections,” given that FedEx Express’ share of the European market is much smaller than that of UPS and could actually offer some welcome competition to the continent’s two powerhouses, UPS and DHL. In essence, it was a clear green light for FedEx.
The arc of the TNT deal, which is expected to be finalized in January 2016, is more evidence that the executive team of Fred Smith, founder, chairman, president and CEO of FedEx Corp., and David Bronczek, CEO of the company’s FedEx Express division, should never be underestimated for their business decisions. They have successfully weathered the storms of 2015, ending the calendar year with their company perhaps in the strongest financial health of its 44-year history.
“This has been the culmination of a lot of hard work,” Bronczek said. “It has been a terrific year. This is one of the ones that you put down in the record books.”
Need more convincing? At a time when FedEx was being chided for being late to the burgeoning logistics business and losing ground to the likes of UPS Supply Chain and DHL Global Forwarding, FedEx made two purchases in fiscal 2015 – cross-border e-commerce software firm Bongo International and third-party reverse logistics provider Genco – that could give it a distinct e-commerce advantage. While most airfreight carriers seemed to suffer from a global slump in trade, a drop in fuel surcharges and unfavorable currency exchange rates, FedEx Express reported a 45 percent spike in first-quarter operating income, year over year – the sharpest rise in the company’s history. And while so many other all-freight or combination carriers continue to struggle with labor issues, FedEx recently agreed to a six-year contract with its pilots’ union – just in time to avoid an awkward labor dispute before peak season.
“It’s hard to find anything not to like, it’s been a very gratifying year,” Smith said.
For their impressive performance, Air Cargo World has selected both Smith and Bronczek as the Air Cargo Executives of the Year for 2015.
A dynamite match
FedEx had always had a strong intercontinental presence in the European express market, Smith said, with robust traffic at its Paris hub, as well as at Stansted, Cologne, Frankfurt and Milan. But with the establishment of the European Union in 1993, new opportunities arose as tariffs and customs clearance barriers evaporated for road traffic, and Smith began to contemplate entry into a “pan-European surface express market.” The seeds were planted for the TNT deal.
Bronczek, who began his FedEx career in 1976 as a courier and worked his way up the company ladder to run FedEx Express in Europe in the 1990s, also realized that the company “needed a little bit more size and scale and scope” in Europe to lower delivery costs. “Customers have always told us, gosh, you’re building out your [FedEx Trade Network], which is terrific. But we never had a big-enough ground network to complement it all in Europe. That was kind of the one missing piece to our portfolio.”
“We had made three smaller, country-specific acquisitions in the U.K., Poland and France,” Smith said. But he felt that there was a better opportunity with TNT, which FedEx had been observing for a few years.
TNT had built a large intra-European surface express network, centered on Arnheim and Liège. “That really allowed some unbelievable capability to pick up things in the U.K., and move them through their hub, deliver them overnight or in two days throughout the EU and down to Turkey,” Smith said. “We felt it was very complementary to what we do. Their strengths bolstered our position, and our strengths bolstered theirs.”
After Bronczek and Smith met with TNT’s leadership, things began progressing rapidly towards an agreement. The offer was made public on April 7. In early October, TNT shareholders overwhelmingly voted in favor of the merger. The only hiccup came in July, when the European Commission launched a Phase II investigation to ensure the deal would not adversely affect competition. But whereas the UPS/TNT venture would have held 30 percent of the market, a FedEx/TNT combination would only hold 17 percent, and on Oct. 20 the EC announced it would not object.
One of the reasons for the smooth progress (so far) has been FedEx Express’ familiarity with TNT’s corporate culture, Bronczek said. In the mid-1990s, when he was head of European operations for FedEx, he partnered with TNT on some projects in outlying areas around Europe. “I knew the people, I knew their culture – they’re culturally a good fit for us,” he said. “I knew what their strengths were.”
The similarity of culture also meant that FedEx would not have to struggle to create synergies between the companies or force massive layoffs, Smith said. “The vast majority of folks want to help us and not be a problem for us,” he said. “We’d been watching for a long time and we felt the opportunity was there.”Like This Post