Featured Story

Logistics Leaders in Acquisition Mode

By William DiBenedetto, CBN Feature Editor

XPO Logistics’ $3 billion acquisition of Con-way, completed last month, created — in what seemed like a heartbeat — the world’s second-largest contract logistics provider behind DHL Supply Chain and ahead of other global logistics players, including as Kuehne + Nagel, Ceva, UPS and DB Schenker Logistics.

Instead of XPO who? — it became XPO wow! The planned acquisition was announced in early September and the deal closed by October 30. Bradley Jacobs, chairman and chief executive officer of XPO Logistics, said, "We're moving quickly to eliminate redundancies and leverage our scale to better serve our more than 50,000 customers."

As of October 30, Con-way Freight, Menlo Logistics, Con-way Truckload, and Con-way Multimodal are operating under the single global brand of XPO Logistics. Analysts expect XPO’s annual revenues will increase to around $15 billion, and operating profits will nearly double to $1.1 billion.

Last year was the best year for freight transportation since the Great Recession, according to the Council of Supply Chain Management Professional’s "26th Annual State of Logistics Report," released in mid-2015. Can that momentum continue when the numbers are tallied for 2015?

That’s an open question, but the XPO story is a strong indicator of more good things to come for the logistics industry through more consolidation, economies of scale and the efficiencies that result. In fact, consolidation has been a major part of the logistics story since 2014.

In a recent article for Supply Chain Quarterly, Robert C. Lieb professor of Supply Chain Management at the D'Amore-McKim School of Business at Northeastern University, noted that the wave of mergers and acquisitions (M/As) in 2014-2015 are reshaping the structure of the logistics industry, particularly third-party logistics providers.

Over the past 30 years, Lieb wrote, "3PLs have used [M/As] for such purposes as achieving scale, broadening service offerings, expanding geographic coverage, obtaining assets and/or technology, securing management talent, acquiring new customers, increasing market share, supporting earnings growth, gaining knowledge in a targeted industry (health care, for example) and in some instances, reducing competition."

M/As have not only been used strategically by individual 3PLs to strengthen their market positions, he continued, "but also were used by private equity companies to build large-scale service providers."

Lieb’s survey of industry CEOs revealed that there were relatively few large-scale mergers and acquisitions between 2008 and 2014, but they nevertheless identified M/As as a major industry dynamic in that "they continued to expect a related industry restructuring to begin the next year."

The dam broke in early 2014, Lieb said, when a wave of large-scale mergers and acquisitions occurred in the 3PL industry.

It started in January 2014 when XPO Logistics acquired Pacer International. This was the first of several recent acquisitions by XPO. At the time Pacer was an asset-light intermodal service company that was the leading provider of cross-border U.S-Mexico intermodal services. In April 2015, XPO acquired Norbert Dentressangle, the French transportation and logistics company. In July 2014, Norbert Dentressangle had acquired Jacobson Companies, a U.S.-based value-added warehousing company, for $750 million from the private equity company Oak Hill Capital Partners. Then came XPO’s big Con-way acquisition.

In April 2014 FedEx reported its intention to acquire the reverse logistics provider Genco, The acquisition was completed in January 2015.

In February 2015 Kintetsu World Express, a large Japanese freight forwarding company, announced it was buying APL Logistics, a subsidiary of Neptune Orient Lines for $1.2 billion.

In March Penske Logistics acquired Transfreight, a company with extensive experience in providing logistics services to clients in the automotive industry.

In April, FedEx announced its intention to acquire the Dutch company TNT Express for $4.8 billion. The acquisition of TNT Express, if it receives approval from the European Union, will provide FedEx with an extensive road delivery network in Europe. Lieb noted that decision could come later this month, but approval "is by no means a certainty."

UPS joined the acquisition frenzy in July 2015 with an announcement that it was acquiring Coyote Logistics, a non-asset-based truckload carrier that was also active in the freight brokerage business.

Then in August 2015, Geodis SA, a 3PL owned by the French national railroad SNCF, acquired U.S.-based OHL from a private equity company.

And in October 2015, the Danish logistics giant DSV, said it would buy U.S.-based UTi for $1.35 billion.

So between early 2014 and September 2015 these companies spent nearly $20 billion on acquisitions.

Lieb’s conclusion? The urge to merge isn’t over yet.