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UPS to Expand in Costa Rica

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Leading freight carrier, United Parcel Service, Inc. (UPS - Free Report) has announced its plans to buy two Costa Rican companies. These are the small package delivery company, Union Pak de Costa Rica, S.A. and brokerage company SEISA Brokerage. Previously, both these companies were Authorized Service Contractors for UPS.

No financial terms of this deal was disclosed. UPS expects to close the transaction by the year end. We expect the acquisition to expand the company’s global presence and thereby enhance its financial position.

According to market reports, UPS established its business in Costa Rica in 1990 and has so far gained significant momentum in the region.  As per press release, the company’s investment in this market is based on favorable growth projection by the International Monetary Fund (IMF).

According to IMF, Costa Rica's annual import and exports are estimated to grow 7% annually over the next five years owing to the country’s trade agreements with Canada, China, Mexico and the U.S. As a result, UPS foresees a potential opportunity in the Costa Rican freight transportation market, which can generate significant profitability going forward.

Over the years, UPS expects to expand in markets including France, Latin America, Vietnam, China, and Korea. In sync with this expansion spree, the company augmented phase 1 of its European hub operations at Cologne/Bonn Airport in Germany to increase capacity by 65%.

The expansion would cost about $200 million, with the entire project slated to be completed in year-end 2013. Overall, UPS projects capital expenditures of over $2.0 billion for the year, which is concurrent with its capital spending estimate of 4% of revenues over the next five years.

UPS, which operates with the likes of FedEx Corp. (FDX - Free Report) , Expeditors International of Washington Inc. (EXPD - Free Report) and Radiant Logistics, Inc. (RLGT - Free Report) , retains a Zacks Rank #3 (Hold).

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