United Parcel Service (UPS) is negotiating the acquisition of the Mexican company Estafeta to expand its package and logistics network in North America. According to data from SiiLA, the merger will make UPS one of the top 10 companies with the country's largest packaging and transportation infrastructure, increasing its presence in the industrial real estate market by 10.5 times.

Currently, UPS's package and logistics network in Mexico is considerably smaller than its main competitors, limiting its brand exposure and ability to offer fast and efficient delivery services throughout Mexico.

UPS's main facilities in Mexico cover just over 19,000 square meters of gross leasable area (GLA) for storage and distribution. In comparison, DHL and FedEx have approximately 570,000 and 177,000 square meters, respectively. This difference reduces UPS's competitiveness in the national logistics market and its exports to the United States. However, by adding Estafeta's infrastructure, which exceeds 200,000 square meters of GLA, UPS will have a greater physical presence than FedEx and many other companies, positioning itself as the sixth-largest company in Mexico's package and logistics sector.

The merger will allow UPS to leverage the demand for nearshoring and advance its goal of becoming the leading transportation service provider for companies seeking reliable access to the United States. It is worth noting that UPS' current presence in Mexico, mainly concentrated in Mexico City and Guadalajara, will expand in the Bajío region through Querétaro, and in the north, through Monterrey, Reynosa, and Saltillo, the leading industrial markets in the northeast of the country, due to their national and international logistical connections with access to border crossings to the United States.

With the acquisition of Estafeta, UPS will increase its operational capacity in Mexico and optimize its logistics routes and delivery times. This expansion is strategic to improve supply chain efficiency, reduce operational costs, and handle higher package volumes in a context where the company faces commercial and financial challenges.

This year, UPS reported that its average daily package volume handled in the United States decreased by 8.5% between 2023 and 2022, while internationally, the average daily package volume also fell by 7.0%, with a 9.6% decrease in domestic volume and a 4.4% reduction in export volume. Consequently, although UPS's economic situation faces significant challenges, it remains robust.

Last year, the company had a net income (after operating expenses, taxes, and interest) of $6.7 billion. This income was 41.9% lower than in 2022, with a cumulative reduction of 52.3% since 2021. Despite UPS's revenue decline for two consecutive years, primarily due to adverse macroeconomic conditions, changes in logistics and production chains, and labor uncertainty within the company, UPS maintains a significant investment capacity, with $3.2 billion in cash and equivalents at the end of 2023, and plans to allocate $4.5 billion in capital expenditures in 2024, of which 50% will be used to improve its logistics network and implement sustainable technologies.

Why Is This Transaction Strategically Important?

The UPS-Estafeta merger, whose value has not been disclosed, follows a commercial collaboration agreement between the two companies that dates back to 2020. According to UPS, although the acquisition is subject to negotiations and regulatory approvals, it could close by the end of 2024.

This growth strategy is part of a series of acquisitions made by UPS in recent years to strengthen its position in the global market. In 2023, it acquired Happy Returns, which offers return technology solutions, and MNX Global Logistics, a critical logistics and cold chain service provider. In 2022, it bought Delivery Solutions, a platform to optimize deliveries, and Bomi Group to expand its healthcare logistics capabilities in Europe and Latin America. And in 2021, it acquired Roadie, a same-day local delivery platform in the United States, thus expanding its delivery services.

In particular, the acquisition of Estafeta is a move that goes beyond expanding infrastructure and operational capacity. This move indicates renewed confidence in the sustained growth of the Mexican logistics market and shows an expectation of growth in the demand for transportation services in North America. Not surprisingly, in the last three years, the industrial real estate sector for packaging, transportation, and logistics grew by 28%, characterized by intense competition and increasing pressure on competitors to remain relevant and efficient, in a context where the top 10 firms with the most significant infrastructure hold 22% of the market share, according to SiiLA Market Analytics data.

Therefore, the merger is expected to consolidate a company's position in a competitive market and drive synergies that optimize operational efficiency and reduce long-term costs. This will force other players to innovate and improve their own capabilities to remain competitive.

Moreover, UPS' willingness to invest in Mexico reflects an upbeat assessment of the country's stability and growth potential. This move could attract more foreign investment to the Mexican logistics sector, further strengthening the country's infrastructure and capacity to handle increasing volumes of cross-border trade with the United States.

To learn more about the development and performance of the Mexican industrial market, explore SiiLA REsource or email us at contacto@siila.com.mx.