Winners and losers in logistics market make it ripe for acquisitions …
Winners and losers in logistics market make it ripe for acquisitions, says Ti CEO
Speaking at the Davy Capital Markets Transportation and Logistics Conference in the City of London yesterday, John Manners-Bell, CEO of specialist market analysts Transport Intelligence, presented some of the key trends impacting on the shipping, air cargo, contract logistics, freight forwarding and express sectors.
He started by explaining to the audience of senior investment analysts that underlying volume growth in the shipping market was not as bad as many might expect, given the bad news emanating from the industry. Volumes in major ports in Asia, North America and even Europe have all seen sustained increases since the economic crisis of 2008/9. Forecasts for growth in 2012, in terms of volumes, are expected to be in the mid-single digits, and even higher on emerging trade lanes.
However, the industry remains in crisis. Manners-Bell explained that over-capacity in the market had led to a slide in shipping rates right up to the beginning of the year. Shipping lines, saddled with losses estimated at $5bn in 2011, had increased rates, and made them stick through a strategy of slow steaming, alliances, delaying the introduction of new-build ships and increasing scrappage levels. However this has been at the cost, he warned, of customer service and many major clients had expressed anger at the impact that the rate rise and service disruption had had on supply chains.
Turning his attention to the air cargo sector, Manners-Bell commented that in this case the fundamentals were much weaker. The economic situation in Europe and to a lesser extent in North America had not only led to a weaker demand for air cargo compatible products (such as high tech), but there had also been a migration of volumes to sea and road freight. Cargo airlines have started to go bust, especially those with high exposure to China. That being said, the market is patchy, with new product launches such as the Apple iPad having a significant impact on rates.
Citing data developed for Ti’s latest report, Global Transport & Logistics Financial Ratio Analysis 20121, which was launched at the conference, Manners-Bell commented on some of the fundamentals of the various logistics segments. He highlighted the resilience of the freight forwarding sector which has not seen operating margins fall below 4.4% for five years even throughout the recession. He commented that falling shipping and air cargo rates actually support forwarders’ margins.
A different situation exists in the contract logistics sector. Here, margins have been much lower, falling to about 2% in 2009, in line with the drop in revenues recorded at the time. Utilisation of assets is a big issue, as it is in the express sector. However, profit margins in the latter market are much more robust and, although showing volatility over the past five years, have generally been in the high single digits.
In conclusion, Manners-Bell said that the logistics market was likely to undergo further mergers and acquisitions in the coming year. “The transport and logistics industry has been pulled in various directions over the past decade by a range of demand and supply-side forces. This has left some companies cash-rich and others saddled with debt. There can be no doubt that this will result in further consolidation of what is a complex, fragmented and diverse market.”
A FREE copy of the presentation is available to download here: http://www.transportintelligence.com/articles_papers/2
Source: Transport Intelligence, June 29, 2012
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- ^ Global Transport & Logistics Financial Ratio Analysis 2012 (www.transportintelligence.com)
- ^ http://www.transportintelligence.com/articles_papers/ (www.transportintelligence.com)
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