As major transportation and logistics companies seek to expand through mergers and acquisitions, buyers can expect mixed effects. By: IBISWorld Procurement Research Analyst, Scott Winters LOS ANGELES - 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 they are not alone. Other major players in the transportation and logistics sector, including UPS, C.H. Robinson and Stagecoach, have purchased subsidiaries, boosting their market shares 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 $1.0 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 their ability to process returns and provide other third-party logistics services, and their intended purchase of TNT will significantly help them 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 market share 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.