FedEx to Acquire Consolidator Parcel Direct

In a deal that will give Federal Express 80 more catalog parcel shipping customers and the opportunity to one-up rival United Parcel Service in the residential ground delivery market, FedEx on Aug. 9 agreed to acquire small package consolidator Parcel Direct from its parent firm, printer Quad/Graphics. The $120 million cash acquisition is expected to close by the end of November subject to customary conditions, including Hart-Scott-Rodino clearance.

With the acquisition, Parcel Direct will become a subsidiary of FedEx Ground and will offer catalog shippers another FedEx option—zone-skipping for less time-sensitive packages. With FedEx Ground service, FedEx trucks packages from origin to destination. But consolidators or zone-skippers such as Parcel Direct pick up packages with their own trucks and deliver them as far along in the postal stream as they can—ideally to destination delivery units (DDUs), or the post offices located nearest the recipients’ homes. From there, U.S. mail carriers deliver the packages the next day, giving the catalog shipper the best possible service at the lowest cost.

“We purchased Parcel Direct to take advantage of the fast growing consolidator marketplace,” says FedEx Ground president/CEO Daniel Sullivan. Zone-skipping “has been growing for some time to serve catalog and e-tailers. And our customers looking for more cost-effective ways to ship their less time-sensitive goods to residential customers have asked us to get involved and serve this segment of the business. So this was a key part of our strategy.” Shipping rates depend on the delivery zone and the package weight, but Sullivan estimates that on average rates for packages shipped through consolidators such as Parcel Direct or rival Donnelley Logistics cost about 35% less than FedEx Ground’s average rate.

Quad launched Parcel Direct in 1998 after the U.S. Postal Service expanded its previous Parcel Post service. The low-cost/low-priority parcel shipping service—since renamed Parcel Select—enabled zone skippers to ship packages from catalogers’ warehouses as far along as possible in the postal delivery stream to optimize cost savings.

“When we started Parcel Direct,” says Quad/Graphics president/CEO Tom Quadracci, “we believed there would be synergy in shipping parcels with our printed products [such as catalogs and magazines] through the postal system. We had a lot of postal expertise. But that synergy has never developed and today we don’t ship our Parcel Direct parcels with any of our printed products; Parcel Direct has become a standalone business.”

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