Home / UPS/TNT decision "a blow to free markets"
UPS/TNT decision "a blow to free markets"by ASC Staff on Jan 14, 2013
The lack of clarity over the future of TNT Express, UPS in Europe or indeed the European express market appears to owe much to the European Commission (EC) following its decision to prohibit the proposed acquisition of TNT Express by UPS.
What appeared to be a straight-forward – if rather large – deal to acquire TNT Express was made much more complicated by the behaviour of the European competition authorities, not least in the nature of their communications. That UPS has abandoned the bid, despite the hurdle of a €200m (Dh979m) termination fee, illustrates the magnitude of the obstacles that UPS perceived it was faced with to make the takeover work.
The pivot of the negotiations revolved around the competition authorities of the European Commission. The logic of its objections appeared to focus on the number of competitors in the marketplace. The Commission hinted that the removal of TNT Express would reduce the level of competition in the express parcel market. In suggesting remedies for this problem, they were drawn into dismembering the TNT and UPS network, a task which was doomed to fail as such assets are only worth anything as part of a network. It was unclear if the EC truly grasped this point. It was also unclear if they fully understood the complexities of express market, composed of several different markets with only limited interdependence. All of this was compounded by poor communication and a severe lack of transparency.
Joel Ray, Head of Consultancy at Transport Intelligence, commented: "It is hard to see what the EC sought to achieve through the negative stance they took to this deal. Their decision making process looks flawed, caused by a fundamental lack of understanding of the industry. It seems to have been driven by a desire to engineer a market structure through political motivations. European shippers would have gained from the acquisition through a strong new road and air based player. This decision has set the market back many years, and risks reducing competition, not increasing it."
Of the main market players, TNT Express is now in the most uncomfortable position. The company stated today that it will concentrate on the "execution of strategy". However, it has tacitly admitted that its businesses outside Europe have poor prospects and its core European business will have to work hard just to sustain its already squeezed margins. Normally it might be suggested that TNT Express would be vulnerable to takeover, however for TNT Express the problem is the reverse. What investor or trade buyer would want the company now?
One possible candidate would be FedEx. It may be quietly happy that its rival's strategy has been frustrated, yet the prospects of a bid for TNT Express, possibly at a lower price than that of UPS, might also seem obstructed by the same logic that terminated the UPS offer.
UPS, in contrast, has received a set-back to its corporate strategy, although it is hardly a serious one. The company has huge financial fire power and will be able to consider alternative acquisitions in Europe should it wish to do so. Assuming this is regarded as a worthwhile prospect, the potential targets include GLS, which has a smaller, yet not dissimilar, road network to TNT Express. Yet, some people at UPS may be regarding the failure of the bid a relief, with middle management in Atlanta and elsewhere nervous about the prospect of integrating TNT Express.
The European express market is now left with a series of smaller, comparatively weak players, two strong yet frustrated players in FedEx and UPS and a very powerful pan-European and intercontinental competitor in the form of DHL. Indeed it is DHL which is probably the big winner out of this. The prospect of UPS creating a strong capability in DHL's home market can never have been welcome and now it appears to have gone for good.
Article provided by www.transportintelligence.com
- GAC makes logistics appointments in Middle East
- British Telecom to transform Panalpina communications
- Qatar's Tokyo Freight named Best Partner at WCA awards
- FOCUS: China and UAE logistics
- MiX Telematics makes new Middle East appointment
- ANALYSIS: LSPs will benefit most from changes in 2016
- UAE should sever all ties with Iran says security chief
- HPS provides real-time logistics data to smartphones
- BDP International opens Cairo office
- Aramex reports profit plunge for Q4 of 2015