The last few months have been witness to significant consolidation amongst the major heavyweights in Europe's logistics sector. In June, Exel, Europe's leading contract logistics company, acquired rival and British number two player Tibbett & Britten (T&B) in a 328 million deal which according to independent market analyst Datamonitor (DTM.L), has created a 6.7 billion giant. In August, Dutch postal, express and logistics giant TPG, acquired Sweden's Wilson Logistics for 178.5 million. And in the last few weeks, there have been preliminary merger talks between UK logistics companies TDG and Christian Salvesen, while Deutsche Post, Kuehne & Nagel and Fiege are all keen to snap up German retailer KarstadtQuelle's logistics division, which is soon to be sold. As the biggest companies get bigger, the medium sized companies could stand to lose, says Datamonitor.
Merger and acquisition strategy driven by intense competition and the need for size, service range and geographic coverage
Exel's acquisition of T&B has given it a significant boost not just in terms of size. It has gained valuable specialised know-how, and also T&B's operations around the world, including markets such as North America and Asia. Exel has also increased its exposure to different markets, new clients and industry sectors.
TPG - whose logistics division, TNT Logistics, is a key player in the European contract logistics sector - has added more capability with the acquisition of Wilson. The Swedish company's forwarding services complement TNT Logistics' contract logistics services, and expand the company's service offering. It has also enhanced its geographic footprint, plugging a gap in TPG's global network.
More recently, UPS has acquired Menlo Worldwide Forwarding, a global freight forwarder, allowing UPS to broaden its services.
"Intense competition and low profit margins continue to beset the industry and so logistics companies are looking to acquisitions to provide not only growth, but strategic advantage," say Tom Mills, Datamonitor logistics analyst. "By acquiring T&B, the UK's second biggest logistics company, Exel has swallowed an extremely sizeable company, and created a 6.7 billion giant. It is no surprise therefore that Christian Salvesen and TDG, third and fourth players in the UK market, have held talks and may merge to try and keep up."
What does consolidation mean for medium and small players?
Exel's acquisition of T&B was itself driven by the need to keep growing, particularly in a market where mail, express and logistics giants TPG and Deutsche Post World Net have been setting the M&A pace in recent years. Deutsche Post has an avowed strategy to be the global number one logistics company, and has already bought DHL and Danzas in recent years.
"In order to compete for the biggest contracts, logistics companies need to be able to support multinational companies, which can often mean operations outside of their home markets, or even multi-country contracts. To fulfil the role of a client's main service provider, logistics companies need to offer a broad range of services. And to strengthen their bargaining power with customers, size is a key issue. These attributes can be more rapidly acquired through acquisition," says Mills.
Consolidation among the leading logistics companies is creating bigger heavyweights at the top end of the market. As the biggest companies get bigger, the medium sized companies could stand to lose.
Mills concludes: "The European logistics sector remains fairly fragmented. Whilst they cannot compete on size, medium-sized players can form strategic alliances - with a company in another country, for example, to increase geographic coverage; or with a forwarder to expand service."