FedEx to buy delivery businesses of AFL

FedEx to buy delivery businesses of AFL

Mumbai: FedEx Corp., the second largest parcel-transportation firm in the US, will buy the Indian delivery businesses of AFL Pvt. Ltd for an undisclosed sum, as cargo shipments rise on robust economic growth in the country.

FedEx Express will acquire the logistics, distribution and small parcel business of one of India’s oldest logistics company, FedEx said in a statement. The US business unit will also acquire Unifreight India Pvt. Ltd, which AFL bought two years ago.

Also See Flight Ahead (PDF)

AFL’s original promoter and chairman, Cyrus Guzder, will retain a minority stake and become an executive adviser to FedEx post the deal.

The deal, which will lead to consolidation in the booming Indian logistics industry, will close by February, and will give FedEx a wider coverage in warehouses and distribution points.

“The acquisition of AFL will improve the FedEx service proposition and increase the market coverage for our existing portfolio, as well as bring a new ground service offering as FedEx gains direct control over 200 daily scheduled routes on a domestic ground network," said Kenneth Koval, vice-president (operations) at FedEx Express India. “Additionally, we will extend our presence in new market segments with logistics capabilities in the growing Indian domestic market."

Guzder was not available for comment.

FedEx, the world’s largest express transportation firm, had acquired Prakash Air Freight Pvt. Ltd (Pafex) for $30 million (Rs 133 crore today) in November 2006. Pafex was a franchisee for FedEx for the past 22 years. This acquisition enabled FedEx direct entry into the domestic small parcel market.

India has always been an attractive destination for logistics firms. Bonn, Gemany-based courier and logistics company DHL Express started consolidation in the country by acquiring 81.03% of Mumbai-based Blue Dart Express Ltd in 2005.

The Netherlands-based TNT NV acquired Secunderabad-based road express company Speedage Express Cargo Services, a unit of Associated Road Carriers India Ltd, in 2006.

Industry analysts are expecting further consolidation in the logistics space with this acquisition, as local companies are looking for capital to scale up operations, while global firms are keen on strengthening their India footprint.

“Contract logistics is a fast growing business with only a handful of national-level players. As multinational corporations contribute positively to the propensity to outsource logistics, large third-party logistics players with existing and well managed distribution networks become attractive targets for companies in entry or expansion modes, enabling them to develop a deep and broad service capability overnight," said Gagan Seksaria, associate director (transportation and logistics) at audit and consulting firm KPMG.

“Large and scalable targets are few and far between, which might reflect in the bids made by strategic as well as financial investors," he added.

Post the deal, AFL may put an end to its distribution alliance with Georgia, US-based United Parcel Service Inc. (UPS), which started in 2008.

The freight forwarding business of AFL will not be part of this acquisition, according to Koval of FedEx Express. In 2007, AFL and Dachser GmbH formed a 50:50 partnership to float a global freight forwarding firm, AFL Dachser.

Mint could not independently ascertain the fate of the UPS deal and the freight forwarding unit.

“This may not have an impact on the price of parcel transportation, but it is certainly going to intense the competition. You would see FedEx taking AFL to next level by scale and technology," said an executive with a rival firm, who declined to be named.

AFL was in 1945 appointed by Tata Airlines (now Air India) as its first cargo agent. The firm was also a pioneer of courier services in India in 1979. JPMorgan Chase and Co. advised FedEx, while Evercore Partners and Ardashir Dubash were advisers to AFL.