Did FedEx Just Lose a Piece of the Pie?

United Parcel Service (NYSE: UPS  ) recently acquired TNT Express in a $6.8 billion deal to expand its European operations. In the process, UPS scored over industry peer FedEx (NYSE: FDX  ) , which may have had somewhat similar aspirations. But FedEx was never in a position to compete with UPS for a deal like this, when you consider the price tag, the breakup fee, and FedEx's available cash, which is less than than half of what UPS possesses.

The deal will almost certainly have negative implications for FedEx. We'll have to see how FedEx will deal with it in the long run.

Roadblocks
UPS's big acquisition will take away a sizeable chunk of FedEx's market share in Europe. UPS, which entered Europe nearly four decades ago, already controls a sizable 7.7% of the market, compared with FedEx's 3%. This deal will push UPS's share to around 17% and could result in annual sales exceeding $60 billion. Specifically, the TNT acquisition is likely to boost UPS's intra-Europe ground delivery services and cut into FedEx's growth opportunities on that front.

FedEx can at least continue to focus on imports and exports through airways. And there's always Asia, which is attractive for two reasons: emerging, fast-growing economies such as China and India; and lower penetration, which translates to lower competition. FedEx can benefit from the growing amount of trade in China, where it's been concentrating its efforts lately. In particular, it's been paying up to build a fleet of jets to service the area.

On the downside for FedEx, UPS also has exposure to Asia. Moreover, with the slower growth rate we've seen recently in some Asian economies, including China, too much dependence on these "high-growth" countries might prove detrimental for FedEx.

Of course, a small slide in the growth rate of emerging countries is still better than a stagnant European economy.

The Foolish takeaway
FedEx is sure to take a hit from UPS's latest acquisition, but it doesn't have to spell doom. FedEx simply needs to strategically expand its footprint by tapping markets where UPS lacks much of a presence.

While the U.S. market is attractive relative to Europe currently, many companies, such as UPS and FedEx, are looking to diversify all over the world. For three more global plays, check out our free report: "3 American Companies Set to Dominate the World." The report won't be available forever, so we invite you to get your copy today!

Fool contributor Navjot Kaur owns no shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of FedEx. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1839180, ~/Articles/ArticleHandler.aspx, 9/23/2014 2:23:37 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement