TNT Withdraws From China
Dutch parcel delivery giant TNT Express (Amsterdam: TNTE) is calling the planned sale of its China business part of a newly announced global restructuring, but this move looks to me like a bid to dump a money-losing asset in a market plagued by cutthroat competition. Of course the purpose of this kind of restructuring is to improve a company’s performance, so in this case TNT may simply want to sell its China business to rid its books of a unit that is most likely losing big money. The move doesn’t come as a huge surprise, though is still somewhat disappointing since China is likely to become a very lucrative parcel delivery market in the next 5 years thanks to the booming popularity of e-commerce.Let’s take a look at this latest news on the parcel delivery front, which has TNT announcing it will sell its units in both China and Brazil as part of a broader restructuring that includes the elimination of 4,000 jobs company-wide, equal to 6 percent of its workforce. (English article) Industry watchers will know that the move comes after US parcel delivery giant UPS (NYSE: UPS) failed in its takeover attempt of TNT after European regulators vetoed the deal on anti-competitive grounds.
TNT said the sales process for its China unit is already underway, but declined to give further details. Perhaps UPS will bid for the TNT assets, though it may refrain due to concerns the deal might be blocked by China’s anti-monopoly regulator. Other potential bidders could include another major global player like FedEx (NYSE: FDX), or perhaps even a major Chinese player like Shentong.
Regardless of who wins, the sale will represent one of the highest-profile signs to date of a looming and much-needed consolidation that is likely to sweep China’s congested and unruly parcel delivery sector over the next 2 years. While some of the bigger and better-run companies will get sold to rivals in that process, many smaller players with management and service problems are likely to simply close.
The sector’s boom is being fueled by the rapid explosion of e-commerce in China, which is fast becoming the choice of many younger Chinese consumers who prefer to compare prices and buy goods from the comfort of their homes. The lobby in the building where I live always contains numerous e-commerce packages delivered by dozens of different couriers each day, and the university where I teach also has numerous outdoor drop-off points for such packages.
B2C sales, which make up the bulk of consumer e-commerce transactions, rose a hefty 80 percent alone in the first half of last year, putting them on track to reach about 430 billion yuan ($68 billion) for 2012. But the rapid rise in e-commerce has also led to an equally rapid expansion of the parcel delivery business, with major players like UPS and Shentong joined by a huge number of much smaller firms who are chasing the business. Seeking to tap the sector’s rapid growth, China Postal Express, the package delivery arm of China Post, announced last year it would make an IPO to raise up to $1.6 billion for its expansion. (previous post)
But the rapid expansion has also led to numerous complaints of service problems, leading some of the top players to launch their own delivery services, adding further competition to the market. Whoever buys TNT could be well positioned to become a future consolidator and leader in the market, though I do suspect that China’s overly cautious regulators could be wary of allowing the company to be purchased by another foreign player. But regardless of who gets TNT China, the sale will represent an important step in the consolidation of this promising but overheated sector.
Bottom line: TNT could sell its China arm to a foreign rival as part of its broader reorganization, though overly cautious Chinese regulators could veto such a deal on anti-competitive grounds.
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