The Shipping and Logistics (S&L)
industry is witnessing oceans of
change marked by robust Mergers
and Acquisitions (M&As). In 2017,
the industry recorded 71 M&As
worth over USD 43.3 Billion — the
second highest level of quarterly
deal volume and value in the last
three years.1
Maritime analyst firm Alphaline
predicts robust M&A activity to
continue in 2018, leaving just
14 main global shipping carriers,
50 percent of whom will ship
65 percent of the world's cargo.2 M&As are largely aimed at
improving cost efficiency and geographical reach of carriers
through consolidation. They also
try to address larger concerns
around overcapacity and
shrinking demand.
There are three areas in the
industry in which M&A activities
will have the maximum impact.
Wider Scale & Choice
Contrary to popular belief that
consolidation will help three or four
major operators monopolize the
trade, shippers stand to benefit
from larger scale and choice. This
is because scale is not just defined
by the size of the vessel, but the
carrier's network as well. Carrier
consolidation means more ports
can be covered between the merging parties, offering
shippers more choices for direct
port coverage.
The combined network will also
accelerate transit time and enable
significant operational and cost
savings. This will create new
innovative opportunities for both
carriers and shippers. Maersk Line's recent acquisition of
Hamburg Sud, a German-based
shipping line is a step in this
direction.3 The deal will benefit
Maersk's customers in the form
of faster transit time and port
coverage in Latin America, while
Hamburg Sud's customers will
gain access to Maersk's vast
global network.
Automation & Analytics
As carriers and shippers
consolidate forces, the focus will be
on real-time monitoring of
shipments, and automation of
operational procedures. Shippers
need real-time data on container
variables such as location,
temperature, air supply and the
condition of cargos to track
shipments, ensure safety, and
take precautions / remedial actions
when required.
The pressing need to adopt new
technology amid widespread digital
disruption in other areas of transportation (such as self-driving
vehicles and drones) is a critical
factor driving M&A activity in the
S&L sector. The combined power
of Internet of Things (IoT), Radio
Frequency Identification (RFID)
and Automatic Identification and
Data Capture (AIDC) technology
will enable shippers to monitor
critical metrics throughout the
shipping process.
Automatic, real-time updates on
shipment status, estimated time of
delivery and so on will enable the
analysis of delivery routes, reasons for delayed delivery, real-time
route recommendations and much
more. This information may be
delivered through RFID tags,
Bluetooth sensors or hand-held
IoT-enabled scanners deployed
throughout the network.
Most merged entities in the S&L
sector are also turning to business
process management companies to
automate and streamline
documentation and reports, ensure
compliance, increase efficiencies
and reduce costs.4
Programmatic M&A as a Key Differentiator
There is little doubt that S&L
companies view M&As as a
predominant source of growth.
However, in view of heightened
M&A activities, it is important that
these companies develop
programmatic capabilities to
approach these deals. This means
S&L companies should be
prepared to identify, evaluate and
integrate attractive M&A targets
who share similar business
perspectives in order to drive the
desired goals of both entities.
They should adopt a marketbeating
strategy which will enable
all merged entities to go beyond
their traditional markets, evolve
new and innovative business
models, and devise ways to
manage uncertainty with a robust
back-up plan.
The liquidation of South Korea's
th Hanjin Shipping, the 7 largest
container carrier company in the
world, has spurred industry players
to collaborate and manage
uncertainties in the best way possible.5 For instance, xChange,
an online marketplace launched by
the Boston Consulting Group (BCG)
helps in the exchange of idle
shipping equipment between ocean
carriers, container leasing
companies, intermodal operators and other logistics providers.6 This
enables up to 30 percent reduction
in the movement of empty
containers and significantly
reduced their carbon footprint.
Industry experts concur that M&A
activity in the S&L sector is long
overdue as surplus capacity,
mounting losses and shrinking margins have been piling up for
years. While uncertainties exist
over intense consolidation
signaling the end of competitive
pricing and customized services
that smaller carriers provided,
overall, the M&A drive is expected
to bring positive changes.
Reduced costs due to greater
operational efficiencies, improved
cargo monitoring and reliability,
coupled with digitization, will be
the new enablers of success. As
companies experience the ebb and
flow of unprecedented changes, the
options open before them seems to
be either to sink alone or swim
with the big sharks.
References:
1. https://www.pwc.com/us/en/industries/industrial-products/library/quarterly-deals-insights.html
2. https://fairplay.ihs.com/commerce/article/4278906/container-shipping-shakes-off-the-shocks
3. https://www.maerskline.com/news/2017/11/30/welcome-hamburg-sud
4. http://www.wns.com/insights/articles/articledetail/53/shipping-and-logistics-companies-steer-toward-bpo-to-skillfully-navigate-the-upturn
5. http://www.supplychain247.com/article/the_hanjin_effect_the_end_of_shipping_as_we_know_it
6. https://www.container-xchange.com/public/index.html