Despite dismal headlines coming out of Europe, Atlanta-based United Parcel Service Inc. sees the continent as a strong growth driver for the near future.
When UPS in March announced its acquisition of TNT Express, a Dutch competitor with $9 billion in revenues, some shareholders were “scratching their heads,” Kurt Kuehn, UPS’s CFO said at a Georgia State University economic forecasting conference May 23.
But precisely because of the pall cast over the EU by the euro crisis, it was prime time to make the largest acquisition in the company’s history, Mr. Kuehn said.
Other factors buttressed the case for the deal, which is still pending regulatory approval. Because of the continent’s struggles, intra-European trade has increased dramatically, and express package delivery has grown at three times the rate of Europe’s gross domestic product, he said.
“Certainly the economy isn’t booming, but Europe is trading with itself in a way that it never has before,” Mr. Kuehn said.
He added that UPS export growth in Europe has increased by an annualized rate of 10.1 percent per year since 2001.
Europe is also growing in e-commerce, a sector that will become more vital to retail sales in the coming years as more consumers move online.
In Europe, where working families aren’t at home to receive packages and suburbs with individual houses are scarce, this has led to a new “business-to-retail” delivery trend. Products purchased online can now be delivered to trusted retail outlets like 7-Eleven stores where buyers can pick them up when convenient.
UPS made a major move into this space earlier this year with the purchase of Kiala SA/NV, a Belgian firm that delivered to more than 6,500 retail outlets across Europe.
Europe isn’t the only place where UPS sees positive trends, Mr. Kuehn said.
U.S. competitiveness is improving, driven by the discovery of huge deposits of shale gas that will reduce energy costs, new trade agreements with developing countries and workforce productivity gains. Wages are also leveling off here just as they’re rising in Asia, narrowing the cost gap between U.S. and Asian workers, Mr. Kuehn said.
While trade between the U.S. and Asia is poised to decline, intra-Asia trade is projected to account for more than one-third of the world’s container traffic by 2015, he said.
He warned that Asia “doesn’t need the U.S. as much as it used to” and that the U.S. should be proactive in positioning itself to take part in the region’s growth.
Bill Strauss, a senior economist and adviser to the Federal Reserve Bank of Chicago, echoed Mr. Kuehn’s assessment of intra-Europe trade and wage projections.
“Two-thirds of what is produced in Europe stays in Europe,” he said, though he was making the point that EU exports are somewhat akin to interstate shipments in the U.S.
He added that wage rates are down in the U.S. while productivity has steadily increased, making off-shoring a less enticing proposition.
He said that although most U.S. firms wouldn’t close plants in places like China, they would be more likely to stay at home when adding manufacturing capacity..
Mr. Kuehn and Mr. Strauss were guest speakers at the Georgia State University Economic Forecasting Center‘s quarterly conference. Economist Rajiv Dhawan heads up the center.
Visit www.gsu.edu/efc for more information.
