FedEx acquires TNT – now the hard work begins

Today FedEx reached the end of its long road to the acquisition of TNT. It also started down the longer, and likely more rocky, road of making that acquisition work.

To begin, nothing much will change. “In the near term, customers can expect to interact with each company as they always have,” is the official line from the joint press release published by FedEx and TNT. This was echoed at a press conference this morning in Hoofddorp, Netherlands, the former home of TNT and now FedEx’s European HQ. David Binks, FedEx’s Europe boss, and now CEO of TNT, was at pains to reassure all involved, and particularly TNT employees, that the integration would be carried out “with absolute precision” – i.e. slowly and carefully, and with the TNT brand maintained “for the foreseeable future.”

Likewise, FedEx Express CEO David Bronczek said there was no plan to eliminate any hubs. TNT’s Liège hub (LGG) would join FedEx’s hubs at Paris Charles de Gaulle Airport (CDG) and Cologne/Bonn Airport (CGN) in a three-hub system. Mr. Bronczek said Paris would be the biggest of the three, serving as the point through which FedEx and TNT’s European operation would connect with the rest of the world, adding that Liège would remain as a regional hub.

Obviously, the Liège hub must remain in the near term. Even if FedEx’s intent was to eliminate it (or Cologne) as quickly as possible, it would still take considerable time. But in the longer term, it is hard to see the need for two regional hubs just 100 kilometers apart.

Clearly, there is a need for a major hub connecting Europe to the world, just as Memphis connects FedEx’s North American operations to the world and the Guangzhou hub connects the Asia-Pacific region to the world. Equally clearly, in geographic regions as large as Europe, North America and Asia-Pacific, there is a need for regional hubs. How many regional hubs does FedEx need in Europe? Three? Five? Six? We don’t know, but however many, it is hard to see the value in having two of them so close together.

One thing that may help keep both the Liège and Cologne hubs healthy in the long term is the rapid growth of e-commerce. FedEx founder and CEO Fred Smith said as much in his official statement on the acquisition: “The timing of this historic event is important, particularly in the current market environment where global e-commerce is growing at double-digit rates.” In this morning’s press conference, David Bronczek reiterated the theme, saying FedEx expected e-commerce to grow at an annual rate of 15% in Europe.

Regarding airlines, as we reported yesterday, Ireland-based ASL Aviation Group acquired TNT Express’ two owned airlines. And, as is the case with employees and hubs, there will be no initial change to air operations. TNT Airways and Pan Air will fly the same packages on the same routes next week as they did last week, as will FedEx Express, as will the various carriers that fly in support of TNT and FedEx in Europe. But, just as with hubs, there will almost certainly be change in the future.

Of course, there is more to the acquisition (and the upcoming integration) than just what is happening in Europe. TNT has a strong presence in Brazil, the Middle East, and Asia. Of particular interest to FedEx is TNTs well-established road networks in these regions – a big gain for FedEx, and one that should be relatively easy to integrate.