FedEx To Enhance Services, Expand Presence In North American E-Commerce Market Through GENCO
A few days before its second quarter earnings release, FedEx (NYSE:FDX) announced that it will be acquiring GENCO, a leading third-party logistics provider in North America. [1] The deal, the terms of which have not been disclosed, is expected to be completed by the first quarter of 2015. With this acquisition, FedEx will be able to provide end-to-end reverse logistics services to the retail and e-commerce industry, which is one of GENCO’s areas of expertise. FedEx’s GENCO acquisition should also enable it to increase its e-commerce presence in North America, where UPS (NYSE: UPS) is the leading logistics provider for the e-commerce industry.
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GENCO And Reverse Logistics
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In its press release, FedEx highlighted GENCO’s leadership position in reverse logistics. GENCO’s reverse logistics customer base includes some of the top companies in the technology, retail, and healthcare industries in North America. So what exactly is reverse logistics and how does it relate to e-commerce? Normally, logistics deals with the movement of materials and products from source to the customer. Reverse logistics does exactly the opposite. It brings products from the customer back into the supply chain with the aim of realizing revenues, which would otherwise be lost once the customer returns a product. Customers generally tend to return a product if it is defective or not up to the customer’s satisfaction.
With growing e-commerce sales, return rates have also begun to increase. Since customers are unable to physically examine products offered on websites, they tend to order larger quantities of products with varying sizes, colors and brands, and then choose the ones that they are satisfied with while returning unsatisfactory and defective products. Returned products may either be restocked at the e-retailers or sent further back into the supply chain to the vendors. This reverse movement of returned packages is a logistical difficulty for e-commerce players. This is where reverse logistics specialists such as GENCO and Newgistics enter the e-commerce market.
GENCO Broadens FedEx’s E-Commerce Service Offerings
Though FedEx also provides package return services, GENCO’s reverse logistics services extend to remarketing and liquidation of returned packages as well, which involves refurbishing, auctioning or recycling the returned products. Therefore, by acquiring GENCO, FedEx will be able to provide an enhanced supply chain service to its e-commerce customers. With the likelihood of generating revenues from otherwise ‘bad assets’, GENCO’s reverse logistics service could prove beneficial and lucrative for e-commerce companies in North America. This should help increase FedEx’s exposure to the rapidly growing market.
FedEx will also be able to gain a competitive edge over UPS through the GENCO acquisition. UPS, which sees twice the number of U.S. ground packages on a daily basis, offers return services similar to FedEx’s current return services, which are limited to creating return labels and shipping back packages to the seller.
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- FedEx to Expand Global Portfolio of Solutions with Acquisition of GENCO, December 15, 2014, www.fedex.com [↩]