Contract logistics landscape shaken up by recent M&A

Since 2014, there has been at least 10 major acquisitions in the global contract logistics sector. Prior to 2014, you seemingly have to go back about 10 years to dig up the 10 previous major acquisitions. That alone should be enough to convince that industry consolidation is reshaping the sector.

In fact, this is one of the central findings of Global Contract Logistics 2016, Ti’s latest report on the contract logistics market released earlier this month, which also features the latest revenue rankings* of the top 10 contract logistics players globally and regionally (Europe, North America, Asia Pacific) in addition to market sizing figures and forecasts for the world, six regions and over 80 countries.

The big story of course is XPO Logistics, whose purchases of Con-way and Norbert Dentressangle have positioned it firmly as the second largest player in the industry. Will they continue down the road of swallowing up their competitors? Yes, though for now, the company is not pursuing any major deals as management focuses on integrating its takeovers to this point. A full strategic background, outlook and SWOT analysis of the company can be found in the report, likewise for the 16 other major contract logistics players profiled.

Other smaller deals such as Geodis’ buy of North America’s OHL should not go unnoticed. In 2014, the France-based provider was estimated as the world’s 10th largest provider, it is now up to 6th on a pro forma basis. Similarly, Penske Logistics’ buy of Transfreight has propelled it into North America’s top 10.

A general background of a low-growth global economy and cheap debt is helping to fuel M&A. In addition, there is a persistent rationale that contract logistics has good prospects thanks to secular volume increases and the fact that outsourcing rates have plenty of room to increase, especially in emerging markets. Some companies are also attracted by the asset light nature of certain contract logistics providers. If a decent proportion of revenues are related to value adding services within the warehouse, or related to the management or re-design of processes, without the need to invest substantially in transport, then returns on capital could be high.

However, this rosy picture is not always the reality. For instance, certain retail contract logistics providers have had little opportunity to develop value-added solutions for their customers. When the client wants to keep a relatively tight grip on logistics operations, using 3PLs merely as tools to execute their plans, then contract logistics profitability tends to be less impressive. Another sometimes misplaced notion is that an acquisition which offers the possibility of large multi-country operations will automatically yield success. Retail and automotive contract logistics operations tend to be locally based, and large providers have often found that much smaller players can compete very effectively with economies of scale counting for little.

Looking ahead, further consolidation is anticipated in the coming years. Contract logistics should indeed be viewed as a relatively attractive sector, though it is important not to over-state the sector’s underlying secular growth and the notion that outsourcing rates simply must rise as reasons to justify acquisitions. 

For more information on Global Contract Logistics 2016, contact Michael Clover (E: [email protected])

*All company revenue figures are provided on a pro forma basis for 2015 such that the full year impact of all recent acquisitions has been taken into account to provide the most up-to-date picture of the market.

Source: Transport Intelligence, 18th May 2016

Author: David Buckby