Wednesday, March 21, 2012

UPS-TNT Express Acquisition from an Americas Perspective

Although TNT Express’ Americas region is among its smallest as a percentage of total revenue, the region may prove beneficial to UPS – In particular its South American operations.

 Much has already been written about the possible benefits of the UPS – TNT acquisition concerning the European market but what about the Americas region? True, Europe is the golden ring for UPS; however, to a much lesser extent, UPS may also benefit from TNT’s Americas’ operations.
By revenue, TNT’s Americas’ region is among its smallest representing 6.4% of total revenue for 2011, 451.4m ($597m). 2011 average consignments per day were 54,000, down 11.5% from 2010 but revenue per consignment increased 7.5% to 34.3 ($45.46) for the same period.

TNT’s US operations mainly consist of international express delivery services to and from the US and Canada. For delivery within the US and Canada, the company utilizes a combination of regional partners, own operations and a relationship with Con-Way, established in 2009, that provide LTL services from TNT’s main gateways: New York, Los Angeles, Chicago and Miami. These domestic delivery partnerships will probably be in jeopardy as integration progresses. UPS will gain a slight amount of express parcels in the US and Canadian markets but not enough to gain additional market share against its biggest competitor, FedEx.

Perhaps what could be of the most interest in this region for UPS would be the South American operations - in particular, TNT’s South American domestic express market in Brazil and Chile. In an attempt to duplicate its Asian domestic express network, TNT acquired LIT Cargo in Chile and Express Mercúrio and Expresso Aracatuba in Brazil to connect the countries via one road network service. In Brazil alone, there are over 140 locations.

Still, the TNT Brazilian acquisitions, in particular, proved problematic for the company as attempts to integrate them resulted in customer losses, declines in volume and in revenue. By the end of 2011, however, it appears TNT had righted the situation and it looks as if the Brazilian operation is on the road to recovery with anticipated return to profits by the last half of 2012.

In a region in which intra-trade is increasing and in which most freight is transported by way of road, this may be an added bonus for UPS. Through the years, UPS has made attempts to expand and improve revenue in this region.  Last year, for example, UPS increased its air cargo capacity by 50% in the South American region. In 2009, it expanded its own domestic express delivery service into Argentina and Chile. Through TNT’s South American operations, this could allow UPS to build upon and expand into a possible region-wide domestic express network.