A Tale Of Two Courier Services

 

The History Of Courier Services In Pakistan

For 35 years after Pakistan was formed, it had no courier services. The country was introduced to the concept for the first time when 2 entrepreneurial brothers Brigadier Sadiq Nawaz Awan & Mr. Khalid Nawaz Awan established the DHL franchise in the country in 1982. Details on the nature of the agreement between DHL & the Awan brothers are not publicly available, but since it was a franchise, DHL must have made them shareholders in its Pakistan operations.

However, something must have happened because, barely a year later, Mr. Khalid Nawaz Awan had broken away from his association with DHL to form Tranzum Companies & Services (TCS) in 1983. TCS went on to become DHL's biggest competitor in the Pakistani market & eventually left DHL behind to achieve the position of Pakistan's biggest courier service firm. According to the latest statistics, TCS has a market share of 45%, followed by DHL with 39% & the remaining 16% divided between several smaller firms.

For all intents & purposes, this state-of-affairs would have continued for the foreseeable future, if it weren't for the dark cloud that has suddenly appeared on the horizon for TCS. According to the Pakistani news media, Prime Minister Nawaz Sharif has ordered the Directorate of Inter-Services Intelligence (ISI) to investigate an as-yet unspecified smuggling charge against TCS & a Dubai-based electronic appliance chain called Smart Zone. Smart Zone, not being very well-known in Pakistan & having a diversified portfolio of investments, may be able to weather the storm by concentrating on revenue generation in other countries. But speculations are rife that if this investigation results in a question mark on the business credibility of TCS, it could cost the company a large chunk of its market share.

FedEx Acquires TNT For US$4.8 billion

TNT is a 4-year-old multi-national courier service based in the Netherlands, that was formed from a 65-year-old Australian courier service named Thomas Nationwide Transport. Its prospective revenues were expected to be so high that a year after its formation, in 2012, United Parcel Service (UPS) offered it an M&A deal. However, EU authorities didn't allow it to go through because they feared the merger may result in a monopoly in the European courier service market.

Apparently, FedEx (UPS' biggest competitor in the United States) had been watching the negotiations carefully & has learnt from UPS' mistakes. It has successfully closed the deal to take over TNT, without upsetting the EU authorities, for a tidy US$4.8 billion. This deal is expected to shift market share away from UPS & DHL (the current market leaders in Europe) & towards FedEx (due to the customer good will that TNT is expected to bring to the partnership).

Effect on UPS & DHL Stock Prices

As was to be expected, the announcement of the successful FedEx-TNT agreement has resulted in a small but noticeable drop in UPS shares at the New York Stock Exchange (NYSE). While it is obvious that a company as globally well-established as UPS is not circling the drain, but the blow of this development has definitely left a mark.

The odd part is that DHL (listed as Deutsche Post on the Xetra in Frankfurt), which had started to fall, suddenly spiked! Every stock analyst was highly intrigued (& confused) because DHL has a smaller market portfolio than UPS. So how did it manage to stay stable? The question was answered when the news on the TCS investigation in Pakistan hit the headlines.

Changes Afoot In The Pakistani Courier Services Market?

According to independent investment analysts, it is clear that unless TCS manages to clear its name (& doesn't take too long about it), its revenues & market share are going to start sliding. DHL's international shareholders apparently believe that either TCS will not be able to quash the investigation, or that it will take very long to do so. The next step is that DHL will step into the gap left by TCS, replacing it as Pakistan's top courier service. Therefore, they continue to invest with great confidence in DHL.

As to the rest of us, both TCS & DHL are currently very reliable names in the courier service industry. Whoever may win the top position in the market, it will be very educational to watch the developments.