It’s been more than a year since UPS stopped asking and started telling.
No longer does the Sandy Springs company prompt customers to consider what brown can do for them. Instead, in its ads, UPS professes its love for the business that pulls its myriad pieces together: logistics.
The $6.77 billion purchase of Dutch package delivery company TNT last week — UPS’ largest-ever acquisition, by fivefold — is another piece of the puzzle that helps the company handle the cross-continental movement of goods, from packages to pallets. But it’s also a steppingstone toward UPS’ goal of providing customers a comprehensive range of solutions that go beyond simply delivering items. The newest tag line — “We [heart] logistics” — and catchy jingle just push the logistics piece to the forefront.
“All along the way, we want to give you the most efficient way to manage your supply chain,” said Dan Brutto, president of UPS International. “Supply chain is more than just buying transportation.”
Indeed, UPS does everything from delivering online purchases, to making sure shipments make it through customs, to transporting goods on trucks and planes, to packing home-school kits and repairing broken Toshiba laptops for customers.
So in addition to getting TNT’s road freight network in Europe — which means it can move those pallets around the European Union, where it couldn’t before — and better service in countries such as Australia and Brazil, where UPS’ presence was weak, the company also gains better worldwide connections that let it offer more of those various services to global customers.
It will take four years to integrate the companies, UPS said, but from the outset, TNT will give UPS the chance to make some of its foreign offerings look more like what UPS does in America.
Without TNT, Brutto said, UPS is walking away from business, outsourcing it to other companies, and essentially showing customers that it is unable to provide all the solutions a business might need. One multinational company asked UPS for a combined road package and express road freight option, something UPS could not provide. Others have asked for pickup and delivery from health care facilities where they already warehouse their drugs, or for the ability to ship packages within some countries where UPS did not offer the service, or simply to move goods of a size or weight that UPS could not do without a full network.
UPS doesn’t want those limitations. It wants to be part of a company’s fabric, Brutto said, and continue offering complementary products that increase its portfolio with a business.
“What it allows us to do is make a product offering in geographies we don’t serve,” Brutto said. “It opens up a whole new area.”
The acquisition was a smart one for UPS, said Kevin Sterling, a research analyst for BB&T Capital Markets in Virginia, especially because the European market is likely near its bottom. In addition to showing that UPS still sees strength in Europe, adding TNT lets UPS capture more money from customers globally as it provides additional services and gives the company the opportunity to strengthen relationships.
“It allows them to capture more of that customer’s business,” Sterling said. “Five years from now, UPS Europe is going to look a lot like UPS U.S., where they can handle every area of the supply chain.”
If not for the purchase, Sterling said, UPS may have lost ground in Europe as the competitors to whom UPS outsourced some business tried to poach customers. Now, the company will be on par with DHL, the market leader in Europe.
But the purchase is not without potential hitches. UPS still needs to receive approval from regulators. While UPS Chairman and CEO Scott Davis said he is confident the deal will go through, some analysts expressed reservations that the combination would be as smooth as UPS expects.
There are concerns, too, about how UPS will integrate a company as large as TNT. Brutto called it “one of the most difficult we’ve ever done.” Davis said the combination will be done slowly and “very deliberately.”
“We’re buying into this company not for the next three to four years,” Davis said, “but for the next 10 to 20 years.”
If everything goes according to plan, the savings found between the companies could be significant, Stifel Nicolaus analyst David Ross said. He said the European road network will help UPS on the distribution side, giving the company more control over its business.
But Ross said logistics is still a small part of UPS’ business, and TNT is most useful if it’s thought of as a pure package-delivery business.
“It isn’t a logistics acquisition, it’s a package acquisition,” he said. “You don’t need a package delivery business to grow logistics.”
The addition of TNT, though, puts UPS in a “leading position” for logistics when it comes to the way products flow between continents, said Mark Schoeman, president of the Colography Group, an Atlanta transportation consulting firm. Some of the markets where UPS will be gaining abilities are huge areas for distribution and fulfillment. That can give UPS an additional advantage as it looks to fill out global package movement.
Customers have been pushing UPS toward some of the new countries, Brutto said, as their own businesses grows. As international borders blur, he said, they want to be able to contract with one company that can help them wherever their business may be — and UPS doesn’t want them to have to shop around for international service because it can’t answer customer demands.
“This for us is a growth strategy,” Brutto said. “At the end of the day, we’re going to provide global customers with more options.”
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