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FedEx takeover creates tougher competitor for Toll, Australia Post

Jenny Wiggins

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FedEx's $6.3 billion takeover of rival courier group TNT Express will create fresh challenges for Australia Post and Toll Holdings as the Australian logistics group finalises its own sale to Japan Post.

The US's FedEx plans to complete its acquisition of the Netherlands' TNT Express in the first half of the year if the proposed deal, which was announced in the US and Europe on Tuesday, is approved by regulators.

Toll, which agreed in February to be acquired by Japan Post for $6.5 billion, has been planning on taking advantage of the Japanese group's transportation management skills and technology to boost its domestic delivery business, and compete more aggressively with Australia Post in delivering parcels ordered online.

David Bronczek, CEO of FedEx Express, will create more challenges for industry players. 

But FedEx – which is already the world's fourth largest logistics company behind Deutsche Post, the US Postal Service and UPS – will become an even stronger competitor in Australia if its purchase of TNT Express goes ahead.

"Market shares will shift significantly in the next 12 to 18 months," said Ross MacMillan, Asia Pacific head of industrial equities research at Morningstar. "Australia Post has the most to lose but Toll has a real battle on its hands as well."

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Toll currently dominates the local market for courier pick up and delivery services with an 8.8 per cent market share, ahead of DHL Express, which has a 6.7 per cent market share, according to IBISWorld.

The local market, which has $5.3 billion in annual revenues, is highly fragmented, with TNT Australia, FedEx, Star Track Express (owned by Australia Post) and UPS all having shares less than 5 per cent.

Market share changes

TNT declined to comment on how its proposed merger sale would change its market share. TNT's Australian business made a pre-tax loss of $17.7 million in 2013 while FedEx's Australian business made a pre-tax profit of $48.7 million in the same year, according to IBISWorld. FedEx increased its local pre-tax profit to $72.5 million in 2014.

FedEx's US executives have already signalled that they plan to use the TNT acquisition to create a more efficient global network, reducing pickup and delivery costs, particularly with international parcel deliveries acquired through online shopping.

"We think there is a tremendous opportunity in cross-border e-commerce," FedEx's global executive vice president of market development and corporate communications, Michael Glenn, told analysts this week.

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FedEx does not currently provide domestic express services in Australia and is focused solely on the international market. It uses its own aircraft to fly between Sydney and a regional hub in Guangzhou, where packages are sorted for delivery elsewhere to the world, and also uses commercial aircraft.

But it operates 250 trucks and vans in Australia, and has couriers in most capital cities as well as Newcastle and Wollongong.

FedEx is keen to take advantage of TNT's vehicle network as consumers opt for cheaper forms of delivery via trucks and ships instead of more expensive air services.

Toll shareholders are due to vote on the proposed sale of the company at $9.04 per share to Japan Post on May 13. Independent experts Grant Samuel have estimated the full underlying value of Toll at between $8.22 and $9.10 per share.

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