What Value Does Freightex Add To UPS?
Earlier this week, logistics giant UPS (NYSE:UPS) announced its plans to acquire Freightex, a U.K. based freight company with operations in the U.K. and Europe. [1] The deal marks the company’s plans to enter the lucrative European freight market and consolidate its overall presence in Europe. Below we discuss the rationale for the deal for UPS.
Significance of Freight For UPS
Traditionally, UPS has derived most of its revenues from shipping of parcels and packages. In the past few years, growth in e-commerce has boosted revenues for UPS and competitor FedEx. At the same time, the revenue share of freight services has also increased, though marginally. In the last three years, Supply Chain and Freight contributed around 16% to UPS’s total revenues, a notable increase from the 4% it contributed in 2000.
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Going forward, UPS plans to diversify its growth prospects, as evidenced by recent transactions. The recent acquisition of Marken was aimed at strengthening its offerings in the healthcare sector, while the acquisitions of Coyote Logistics and Freightex have helped the company strengthen its freight offerings. The acquisition of Coyote helped the company bolster its freight services in North America, which was evident by the growth seen in UPS’s freight revenues in the first nine months of 2016. Freightex could help the company achieve similar growth in the European market, which is expected to be worth $174 billion by the end of 2016. The $174 billion market, currently dominated by DHL, FedEx-TNT and Kuehne & Nagel, provides significant growth opportunities for UPS, who marked its entry through the acquisition of Freightex.
Additionally, following the FedEx-TNT merger, UPS laid out its plans to invest $2 billion in the European markets, aimed at improving its offerings against the strengthened competition. Though the investment plans mostly revolved around automation and expansion of the existing facilities across Europe, the Freightex acquisition should help the company rapidly expand its presence and at the same time counter the challenges posed by FedEx-TNT.
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- UPS acquires Freightex, UPS Pressroom, January 9 2017 [↩]