Freight forwarder consolidation continues

Are rumors of yet more consolidation in the Freight Forwarding sector finally dying down? Not by a longshot, says Nick Bailey, head of research for the London-based consultancy Transport Intelligence (Ti). He’s also the primary author of “The Global Freight Forwarding Report 2019,” which posits that there will be more M&A activity in the future. 

In this exclusive interview, he shares further insights. 

Logistics Management: What surprises were discovered in your research?

Nick Bailey: The adoption of digital forwarding platforms is already significant, with 49.0% of the respondents to our survey saying they had or do use a mix of online marketplaces, booking platforms and digital forwarders. That number was higher than expected, as was the 30.5% of respondents that said such platforms represent an important part of their overall shipping strategy. Prior to undertaking the research, the impression we got from speaking to major forwarders was that they felt adoption was low, and that the platforms weren’t mature or sophisticated enough to have really gained traction. This is only half right –the notion that digital forwarding platforms aren’t mature enough or offering sophisticated services to be a competitive ‘threat’ appears to be holding (for now, at least), but that hasn’t translated to a lack of traction in the platforms’ core quotation and booking offer.

Despite this, we don’t see a future where the top global forwarders are replaced by digital-only forwarding start-ups and disruptors. The digital forwarding platforms are, though, a catalyst for change, and established ‘traditional’ forwarders have to take notice of the lessons they provide – forwarders that can’t offer the levels of visibility, easy quotation and booking, and levels of customer services shippers want and demand will rapidly lose customers to those that can.

LM: How did some of the conclusions meet your expectations?

Bailey: The 2018 global freight forwarding market showed a lower level of growth than the previous year, with the total market expanding at 3.9% compared with 8.0% in 2017. Forwarders saw an exceptional set of circumstances in 2017 lead to a bumper year as demand from consumers saw shippers increase volumes and opt for speedier air services to meet that demand. The cycle of restocking ended over the first half of 2018, lowering overall market growth, and as shippers moved back to slower and cheaper sea freight services, we saw the sea freight forwarding market grow at a faster that than air freight forwarding as a consequence – 4.1% for sea compared to 3.8% for air in 2018.

Secondly, there’s still a lot of discussion and attention being paid to the of technology in the forwarding market and how that might aid operational efficiency, generate a competitive advantage and increase value for shippers. It’s been an important topic for the last 5 years at least, but progress is uneven, and while a number of the larger forwarders have done good work to understand the problems they’ve got and which technologies are available, we’re still a little way off from capturing the full value of advanced technologies. Part of this is to do with the technology itself (e.g. blockchain isn’t yet mature or understood enough), and part is cultural and about the willingness to adopt new solutions at forwarders, shippers, suppliers and other supply chain partners. The market is creeping forwards, and the trials and pilots are a good thing to see, but the emphasis needs to shift onto implemented customer ready solutions.

LM: When will consolidation in the sector finally slow down?

Bailey: Perhaps a better way to think about this is whether the rationale for acquisitions is changing.

Amongst the big players, Kuehne + Nagel, Agility and DSV all showed interest in Panalpina. Their rationale, though, seemed primarily to be led by scale as each of the suitors saw Panalpina as a way to either enter or consolidate a position amongst the very largest global forwarders. The pool of acquirers and targets that can come together to fulfil that sort of scale-based rationale is getting smaller though – not to mention some of the deal parameters are getting harder to fulfil e.g. potential end to the conducive finance environment for deal making, convincing shareholders of value (K+N pulled out of the Panalpina pursuit early on citing value for money, for example) – so perhaps we’ll see a slowdown of scale-based acquisitions amongst the top players. 

LM: Is this your final conclusion.

Bailey: Yes, but there are indications that the rationale for consolidation is changing, and that acquisitions which enhance end-to-end capability will become the new trend – think of the acquisitions which helped create Panalpina’s perishables network or UPS’ pharmaceuticals offer, for example – smaller targets that added specific capability, assets, technology, expertise etc. A related end-to-end rationale can be seen in CMA CGM’s acquisition of CEVA, and Maersk’s plans to have 50% of its earnings come from inland logistics seems likely to require at least some acquisitions as well. In sum, it’s possible that we’ll see less consolidation of large forwarders by other large forwarders primarily to add scale, but that’s likely to be replaced by activity that will add capability, which would suggest mid-sized and smaller targets, but also potentially mid-sized and smaller acquirers.