FedEx acquires Parcel Direct to boost residential delivery services
FedEx Corp. said it has agreed to acquire parcel consolidator Parcel Direct, a division of Quad/Graphic, for $120 million in cash.
The move marks FedEx’s entry into the parcel consolidation market and an attempt to keep pace with rival package delivery provider UPS which launched a product called UPS Basic last year.
More than a dozen parcel consolidators have sprung up since the U.S. Postal Service created its Parcel Select program in 1999. Parcel Direct and others primarily serve Internet and catalog retailers shipping low-weight, less-time sensitive merchandise to residential customers. The business model is based on offering a low-cost delivery option by handling mail preparation and sorting and then dropping packages or publications as deep as possible into the postal system so mail carriers can make the last-mile delivery to homes and businesses. Consolidators receive discounts for avoiding the USPS’s more costly sorting activity.
“We are confident that we can aggressively grow this new business by combining Parcel Direct’s cost-effective and scalable network with FedEx sales, marketing and financial resources,” said Daniel Sullivan, president of FedEx Ground, in a statement.
Based in New Berlin, Wis., Parcel Direct had gross revenue of $250 million in 2003 and net revenue of $130 million. The company has 12 sorting locations in the United States and employs about 450.
FedEx said it expects to finalize the transaction by the end of the year following normal review by regulators.
FedEx provides residential service through its Express division and FedEx Home Delivery, a day-definite service of FedEx Ground. FedEx Express has a seven-year, $7 billion contract to provide transportation services to USPS.