Deutsche Post: Domineering to Dominant

The European Commission (EC) has approved Deutsche Post World Net’s (DPWN) acquisition of U.K.-based logistics and freight forwarding provider Exel. Stating that the merger would not significantly impede effective competition in the European Economic Area, the EC Directorate General for Competition removed the final hurdle in the merger process. The merger had been approved by U.S. regulators and Exel shareholders and is expected to be completed by the end of 2005.

The only potential problem area was the stronger market share in airfreight forwarding in Finland, Hungary and Sweden, but the Commission suggested competition was sufficient and noted most shippers in those markets operate a multi-supplier policy.

The path from a singular focus on German postal services to a dominant, global logistics services provider was not smooth. Here are the details on how Deutsche Post evolved into Deutsche Post World Net and merged with the U.K’s rising star, Exel.

Deutsche Post began diversifying in 1995, adding a number of international logistics services. Prior to that, Deutsche Post held a monopoly on domestic postal services, though there were competitors in the business-to-business parcel segment since 1976.

In 1994, following complaints by UPS and other smaller carriers, the European Commission began investigating commercial parcel services.

In 1999, Deutsche Post faced accusations of unlawful state aid for using revenues from its postal monopoly to cross-subsidize other areas where it faced competition. In August 2000, a EU court said the EC had “wrongly failed to act” on Deutsche Post’s abuse of its dominant position. The group had offered non-compensatory rates to large mail order customers prompting the Commission to say, “Discounts of this kind have knock-on effects that damage competition.” It called the Deutsche Post rates predatory pricing and also followed up on complaints that German postal rates were the highest in the European Union.

While all of this was occurring, Deutsche Post had begun diversifying, even as the EU was deciding to liberalize postal services ­ a move that would break up Deutsche Post’s monopoly on German postal services.

Deutsche Post had expanded into international express by subcontracting some services to KPN/TNT. In 1998, it proposed a deal where Deutsche Post would jointly control international express carrier DHL, eliminating the subcontract with TNT. The agreement, approved by the EC, split 72.5% of DHL among Deutsche Post (22.498%), Lufthansa (25.001%) and Japan Airlines (25.001%). In approving the move, the EC noted the various distinct logistics markets represented by the companies had largely integrated into one. It also saw sufficient competition from a variety of smaller players.

As Deutsche Post was moving ahead, acquiring freight forwarder Danzas, Nedlloyd and ASG, the former NFC Plc. was consolidating its position and evolving into the present Exel. As NFC, it had acquired U.S. holdings in transportation and distribution and household goods. It shifted its focus to more logistics services as it acquired other assets, including Trammell Crow Distribution Centers. Mimicking Deutsche Post’s move into air and ocean forwarding, Exel acquired the Ocean Group in 2000. The Ocean Group had only recently completed an acquisition of some P&O operations.

DHL faced U.S. regulators as it sought to acquire Airborne Express. It spun off the airline operations of Airborne to avoid restrictions on foreign ownership of a U.S. airline and gained approvals in the U.S. and European Union. Then, in 2002, Deutsche Post sought and gained approval to take complete control of DHL.

Meanwhile, Exel was busy acquiring U.K.-based third party logistics provider Tibbett & Britten in 2004. At that point, the EC’s greatest concern in the Exel/Tibbett & Britten merger was overlap in the U.K. market, but it concluded though overlaps existed in the E.U. and U.K., barriers to entry or expansion in the 3PL segment were minimal and a number of competitors already existed. “Customers are large and sophisticated buyers who normally have a multi-source approach and maintain a significant part of logistics services in-house,” said the Directorate General on Competition.

Exel’s experience with acquiring the U.K. based Ocean Group paved a smooth path for its latest U.K. acquisition and just under a year after merging with Tibbett & Britten, the company was declaring the transition smooth and complete. Rumors surfaced almost immediately that a major player was looking at Exel as an acquisition. Much speculation centered on U.S.-based UPS, but Deutsche Post World Net was also mentioned (along with FedEx).

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