By IBISWorld, Inc.
By Scott Winters, Procurement Research Analyst
It’s official: the transportation and logistics industry is a hotbed of mergers and acquisitions.
Major transportation company FedEx is currently in the process of finalizing its most recent deal to buy European delivery company TNT. The $4.8 billion TNT acquisition marks the shipping giant’s second major acquisition of the year, and it is not alone.
Other major players in the transportation and logistics sector, including UPS, C.H. Robinson and Stagecoach, have purchased subsidiaries, boosting their marketshares and obtaining access to more operational capacity and capital. According to the Journal of Commerce, 54 M&A deals were struck in the first quarter of 2015 alone, for a total value of $27.2 billion. Not only is the number of acquisitions climbing, but deal values have been massive as well, with 55% valued at more than $1 billion.
A combination of factors is spurring these “megadeals.” First, large companies are looking to expand, but organic growth in the transportation business has been sluggish as of late due to tightening regulations and a severe lack of capacity. For large companies with strong balance sheets, an easy way to gain additional trucking capacity is simply to buy it, and this is exactly what has been occurring.
Second, transportation and logistics companies are constantly looking to broaden their service offerings and geographic reach. For example, FedEx’s acquisition of Genco helped FedEx boost its ability to process returns and provide other third-party logistics services, and its intended purchase of TNT will significantly help it expand into the European market.
Strategic moves such as these are helping companies take on their competition and expand into new markets. Analyst Jason Seidl of Cowen & Co. sums up this practice: “The M&A market is thriving because it’s still hard to get drivers, and acquisitions are the easiest way for a carrier to grow.”
For buyers, this M&A activity can be troubling. Increasing marketshare concentration can lead to reduced competition and higher prices as the largest companies begin to dominate the market. This trend is already taking effect; the transportation and logistics sector is anticipated to become much more concentrated in the coming years as a result of these acquisitions. Chairman and CEO of XPO Logistics Bradley Jacobs (quoted in Transport Topics, a trucking and freight transportation publication) said that he expects that two or three companies will eventually control 50% to 80% of the global market for logistics services.
Fortunately for buyers, however, the trucking market will remain fragmented in the next three years in spite of increasing M&A activity. With smaller trucking suppliers moving into more specialized roles, the overall number of suppliers is not anticipated to fall. As such, buyers need not worry too much because competition is expected to remain high.
For example, prices for national trucking services are forecast to rise an annualized 3.6% in the three years to 2018 due to increasing demand and a lack of capacity, but continued heavy competition will keep buyer power in this market intact. For now, growth-hungry transportation and logistics companies continue to eat up their competitors through M&As while buyers stand ready to grasp at opportunities.
Scott Winters is Procurement Research Analyst at IBISWorld.
Listen to the My Purchasing Center podcast interview with Scott Winters, The Trucking Industry, Megadeals and the Impact on Procurement
Recognized as one of the nation’s most trusted independent source of market research, IBISWorld offers a comprehensive database of unique information and analysis on hundreds of procurement categories. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business and purchasing decisions while saving time and money. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit www.ibisworld.com or call 1-800-330-3772.
George E. Krauter
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