Consolidation - It Ain't Over!

Activity in 2005 suggests that consolidation and "add-on" acquisition trends are set to continue (A. P. Moller / Maersk's bid for Royal P&O Nedlloyd and continued rumors surrounding Exel), although industry growth strategies continue to vacillate.

Mergers and acquisitions continue in road transport in Europe and the US (such as UPS's acquisition of Overnite Corporation) while, for its part, company's like Exel expect only to make fill-in acquisitions and concentrate on organic growth over the next few years. In mid-tier sectors, corporate activity may see strategic alliances and joint ventures take shape as well.

Last year saw mixed financial results from leading European logistics providers. Signs so far point to an equally challenging 2005. TNT reported a healthy increase in logistics revenues, although margins remain below 2002 levels. Exel's contract logistics organic revenue increased by 8.9% and freight management saw organic growth of 16.1%. Logistics revenues at DPWN (comprising DHL Solutions and Danzas Air & Ocean) increased by 15.0% as margins reached 4.2%.

Kuehne & Nagel's contract logistics operations increased turnover by just 0.3%, as gross profits fell by 1.6%. Rail and road logistics and freight operations recorded strong growth in turnover.
Wincanton's preliminary results (for the year to 31 March 2005) showed a marginal increase in turnover (2.7%), while Schenker reported a 17.3% increase in 2004 revenues.
Increasing the scale and scope of services enables logistics providers to enhance existing customer relationships and makes their service offering more attractive to new customers. The ability of providers offer operational scale and solution spread presents a compelling proposition as modern supply chains become truly global.

Whats next?

A. P. Moller Maersk Will Acquire Another Carrier
Leasons learned from the Sealand, and their tactical acquisition of SafMarine at the same time will be used again. Once the P&ONL shares have been purchased, look for the boys in blue to make another purchase. What are the targets? OOCL, Hamburg Sud, or maybe a regional 3PL organization to compliment their Maersk Logistics division.

CMA - CGM and Med Shipping will have to follow suit
To keep pace with APM, and to further bolster their Top Five positions, these two liner operations will have to make acquisitions as well...Hamburg Sud, Hapag-Lloyd, OOCL, or maybe a regional carrier like Crowley.

Finally, The Grand Alliance must cover the loss of P&O Nedlloyd
Grand Alliance members Hapag-Lloyd, Malaysia International Shipping Corp. (MISC), NYK Line, and OOCL have vowed to continue with the alliance, despite the impending takeover and possible alliance withdrawal of P&O Nedlloyd by A.P. Moller-Maersk.

Should there be any amendments to the composition of the Grand Alliance in 2006, the new vessels ordered by Hapag-Lloyd, MISC, NYK and OOCL will be deployed to meet the expected growth in demand, and services will be further enhanced to offer more options for customers, the carriers said in a joint statement.

It is very likely (bet the house on it) that Maersk Sealand will pull P&O Nedlloyd out of the Grand Alliance when it has secured control of the company, and after completion of a six-month withdrawal notice period.

The Grand Alliance does have a large enough fleet and sufficient partners to continue with one less carrier. But the result of a P&O Nedlloyd exit must surely mean less frequent services than now. The Grand Alliance currently operates 11 Asia/North America container services, eight Asia/Europe services and five U.S./North Europe services.

By comparison, Maersk Sealand presently operates nine Asia/North America services (not including slot charter services), eight Asia/Europe loops and four U.S./North Europe services.
Expect Maersk Sealand to move from having a less frequent service coverage to a more frequent one, relative to the Grand Alliance

What other moves will be made? Stay tuned...