Covid-19 pushes logistics sector consolidation

The logistics sector could witness more consolidation between industry players amid efforts to achieve scale and expand offerings to support demand.

Just this year, several industry players announced mergers and acquisitions to beef up operations, prevent a fallout in the increasingly competitive market or to expand product and service offerings in line with evolving industry trends.

Shenzhen-based SF Holding Co. announced in February that it is set to acquire a 51.5% stake in Hong Kong’s Kerry Logistics in a deal that is expected to create the biggest logistics group in Asia.

Kuehne+Nagel also acquired one of the largest Asia-based freight forwarders, Apex International, that would grow the company’s operation in the Asia Pacific and will position it as the world’s largest air freight forwarder.

South Korea’s two biggest airlines – Korean Air and Asiana Airlines – also entered into a merger agreement that would see a single, but stronger, South Korean full-service airline that will become one of the world’s biggest airlines.

Amazon announced that it has taken a minority stake in Ohio-based air cargo lessor and contractor Air Transport Services Group (ATSG) as part of its efforts to further build its own in-house air cargo operations.

In shipping, Hapag-Lloyd bought Dutch container shipping company Nile Dutch Investments to push its Africa expansion.

Alan Ng, the Hong Kong-based Mainland China and Hong Kong Transportation and Logistics Leader at PwC, said the coronavirus pandemic reinforced the importance of a stable logistics supply chain as the sectors have “become a crucial industry” in supporting global trade and stable socio-economic activities. He said as industry players look to their operations beyond the pandemic, M&As could be the way to go to quickly respond to changing market needs.

“Economies of scale play an important role in the growth and development of transportation and logistics companies. M&A transactions can assist companies to rapidly expand their operations,” Ng told Asia Cargo News.

He noted that investors are focused in areas that “meet the needs” of social and economic development, such as cross-border logistics, e-commerce logistics and intelligent logistics.

“If the integration is successful, companies benefit from improved operational efficiency and cost savings, and provide customers with stable, reliable and comprehensive logistics services – benefiting both companies and customers.”

Emerging markets: The focus of M&As

Ng said some of the market trends in the global transportation and logistics sector since the Covid-19 pandemic include “scale and integration” becoming “more important as a trend of industry development.”

“Industry leaders are expanding their services and capabilities through M&A transactions, and to build comprehensive end-to-end logistics service capabilities covering land, sea and air,” he added, noting that the expansion of online transactions is “driving the increase of logistics demand.”

“E-commercerelated logistics is the focus of M&A transactions in 2020 with a growing focus on cross-border e-commerce logistics, cross-border freight forwarding and air cargo services,” Ng told Asia Cargo News.

Related to this, he noted that emerging markets are becoming increasingly important, and that the “development potential of emerging markets such as Asia is the main focus, especially in East and Southeast Asia,” which he said have become the key locations of M&A activities in the global transportation and logistics industry in recent years.

“The M&A activities of the global transportation and logistics industry in 2020 are affected to some extent due to pandemic lockdown measures,” he went on.

PwC noted, however that despite the increase in M&A deals, the value for these transactions have fallen.

It said in January 2021, the number of M&A deals with value above US$50 million in the freight transport and logistics industry increased by 11 to 177, but the total value of M&A deals decreased by US$37.5 billion in 2020.

“This indicates a more cautious outlook amongst investors on M&A activities in the transportation and logistics industry. However, it continues to be active in some regions, such as the Chinese market,” Ng added.

According to its outlook on M&A transactions in China’s logistics industry, released in March, PwC nonetheless said that “China is still a hot spot in Asia Pacific for M&A activity” in the global transportation and logistics industry.

Consolidation seen to persist

Roger Zhang, a Guangzhou-based deals partner of transaction services in South China at PwC said separately that while the continuing pandemic has added uncertainty to the recovery of the global economy, businesses could take advantage of recent conditions to expand.

“Looking forward, we expect that investors, especially strategic investors, will make full use of existing favorable conditions to increase their M&A investment in key areas or regions of the transportation and logistics industry. M&A activities in the global transportation and logistics industry will be stable, while some popular markets such as China will continue to grow,” Zhang told Asia Cargo News.

“To add, leading players in the shipping sector will expand their services through cross-border M&A to improve and provide comprehensive door to door service capabilities. In the logistics sector, sub sectors with strong risk resistance characteristics such as transportation infrastructure, logistics warehousing (e.g. cold storage), and the smart logistics, cross-border logistics, and cold chain logistics services sub-sectors are benefiting from social and economic development, and will receive special attention,” he added.

Global management consulting firm McKinsey & Company has also made similar observations citing the previous financial crisis. It noted that many players, particularly in the freight-forwarding subsector, made acquisitions during the financial crisis “to lay the groundwork for growth in the recovery.”

“Logistics players looking to come out strong into the recovery should prioritize the core business, seek geographic expansion opportunities, and use M&A as a platform for growth,” the firm said in a report earlier this year.

It added that doubling down on the core business and boosting main competencies can help companies bolster their existing competitive advantages, improve economies of scale, or expand their operational networks.

“The economic downturn may present potential targets for M&A, provided the acquirer’s own balance sheet is strong enough for such investments,” McKinsey

Charlee C. Delavin