Supply Chain Trends

Is a FedEx/UPS Duopoly Good for Logistics?

In March, global logistics giant UPS announced its intention to purchase Dutch logistics provider TNT for $6.8 billion and it appears that this deal is nearing realization.  TNT is the second largest express logistics company in Europe behind DHL. If the merger is successful, it will be the latest in a string of more than 40 acquisitionssince UPS went public just 13 years ago, compared to rival FedEx’s 14 acquisitionssince 1984. 

 

With more than $90 billion in combined annual revenue, FedEx and UPS are the undisputed global leaders in small package logistics, moving more than 25 million packages a day.  Neither company shows signs of slowing down. Any time aggressive industry consolidation starts to create a monopoly or duopoly like we have here, most of us think, “Prices are about to go up and innovation and value are about to go down.” 

 

At Avnet, we ship about 70% of our annual shipments through these two carriers. From my perspective, the consolidation of the small package logistics industry into two market leaders presents both opportunities and challenges for the companies like mine who depend on them. On one hand, there are clear benefits for the supply chain:

 

1.      Duopolies drive competition. I happen to work in an industry dominated by a duopoly, with Avnet and our nearest competitor making up more than half of the global electronics distribution market. From my perspective, nothing spurs innovation, pricing and competition like having a true rival in the marketplace. Not convinced?  Just ask Coke and Pepsi, or Google and Apple.

 

2.      Global scope delivers significant value in this industry. Time is of the essence for our customers, and inventory visibility is essential.  There’s a great deal of value to me—and our customers—in the ability to track the status of any package anywhere in the world through FedEx or UPS systems.  Having partners who can reliably deliver that service in all of the countries in which Avnet does business makes life a lot easier for me and my colleagues.

 

I’ve followed the small package industry closely for many years, and it seems we’re well past the point where a newcomer will be able to enter this market and gain significant market share.  Ultimately, I think we’ll see the industry consolidate further to two or maybe three major players between UPS, FedEx and possibly DHL.  However, will this ultimately be a good thing for companies that rely on these mega carriers?

 

I caution my fellow transportation practitioners to keep a close eye on the global carrier consolidation that is currently underway. These developments represent profound changes in the dynamics of our industry and the way we as transportation professionals manage our transportation spend.

TAGS: Supply Chain
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