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Ben_Gordon
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Ben_Gordon

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  • 1. Where is the Logistics Service Provider Industry Going? Logistics Today: The World Turned Upside Down Benjamin Gordon Managing Director BG Strategic Advisors, Inc. April 20, 2006
  • 2. BG Strategic Advisors: Leading Mergers & Acquisitions Advisor to the Logistics Industry Representative Clients / Relationships
  • 3. The World Turned Upside Down <ul><li>1783: surrender of Lord Cornwallis at Yorktown, to the tune of “The World Turned Upside Down” </li></ul><ul><li>2006: same tune? </li></ul>
  • 4. State of the Logistics Industry: The Year in Review Conventional Wisdom Surprising Reality <ul><li>An era of asset-light giants like Menlo, K&amp;N, and UPS… </li></ul><ul><li>And the first Class 1 Railroad startup in over 100 years! </li></ul><ul><li>In a market dominated by the West, a little-known logistics company from Kuwait… </li></ul><ul><li>Buys Trans-link, TransOceanic, and GeoLogistics to become an $8 billion powerhouse! </li></ul><ul><li>The ports of California get more crowded… </li></ul><ul><li>And Wal-Mart decides to build Houston into a port competitive with Long Beach! </li></ul>
  • 5. Assets: an Albatross… <ul><li>For the past decade, asset-light logistics firms have outpaced the market </li></ul><ul><li>Firms like Expeditors, UTi Worldwide, and CH Robinson have led the way, becoming multi-billion-dollar giants due to their ability to manage freight networks and take advantage of an abundance of capacity </li></ul>
  • 6. … or an Advantage? <ul><li>Assets are back in vogue </li></ul><ul><li>Class I Railroads saw share appreciation of 29%, outpacing non-asset logistics companies for the first time in three years! </li></ul>Annual Stock Performance Non-Asset Logistics Asset-Light Forwarders Truckload Carriers Class I Railroads CHRW, EXPD, UTIW EAGL, FWRD, HUBG, LSTR, PACR CVTI, HTLD, JBHT, KNX, SWFT, WERN, XPRSA BNI, CNI, CP, CSX, NSC, UNP
  • 7. Growing Importance of Assets: Key Drivers <ul><li>Truck driver capacity crunch </li></ul><ul><ul><li>Current shortage of 20,000 truck drivers </li></ul></ul><ul><ul><li>10% driver pay spike expected </li></ul></ul><ul><li>Steamship capacity crunch </li></ul><ul><ul><li>NOL: 16% profit jump </li></ul></ul><ul><li>Railroads shedding assets </li></ul><ul><ul><li>BNSF, Norfolk Southern, Union Pacific, and Kansas City Southern declared plans to exit trailer/container market </li></ul></ul><ul><li>Result: new asset investments </li></ul><ul><ul><li>Dakota, Minnesota &amp; Eastern Railroad: seeking $2.5 billion in federal funding, to create the first Class I railroad startup in over 100 years </li></ul></ul>
  • 8. Infrastructure: Can North America Keep Up? SAFETEA-LU Asian Infrastructure Capacity Solution: PierPass Effort Port of Houston? <ul><li>Marine terminal operators of Los Angeles and Long Beach launched PierPass </li></ul><ul><li>Goal: boost efficiency through technology, use fees, and extended hours </li></ul><ul><li>Fed up, Wal-Mart took matters into their own hands </li></ul><ul><li>Plans to build a 4 million square foot facility in Houston </li></ul><ul><li>Ripple effects for other retailers and importers </li></ul><ul><li>Threat to West Coast forwarders? </li></ul><ul><li>India, with a market of $15 billion, is investing $17 billion over the next 5 years </li></ul><ul><li>So the US is investing 5% of its annual logistics spend on infrastructure, but India is investing over 23%! </li></ul><ul><li>$286.4 billion, 6-year plan for transportation infrastructure </li></ul><ul><li>“ Alaskan bridge to nowhere” </li></ul>
  • 9. Acquisitions: The Consolidation Continues Non-Asset-Based Surface Transportation Air/Ocean Freight Forwarding Asset-Based Transportation C. H. Robinson Transplace Ryder Logistics Hub Group Schneider Logistics UPS Cat Logistics RR Donnelley Logistics Pacer Penske Menlo NYK Logistics Exel (Mark VII) FedEx Pittsburgh Logistics Landstar Transport Industries $18.9 B Exel Americas (T&amp;B) Ingram Micro Logistics UPS APL (GATX) KN (USCO) Americold TPG (TNT/CTI) CAT Logistics Logistics Insights Genco Ozburn-Hessey Logistics Standard Value-Added Warehouse $12.7 B UPS (Menlo, Fritz) DHL (Danzas, AEI) EGL (Circle) BAX Global Expeditors GeoLogistics UTI Maersk Logistics Phoenix International Panalpina KN Kintetsu World Express USA Hellmann Worldwide Logistics - USA $9.4 B Ryder Dedicated Penske Logistics Schneider Dedicated JB Hunt Dedicated Averitt Express Ruan Logistics SIRVA Logistics Swift Transportation $7.9 B 0% 20% 40% 60% 80% 100% 20% 40% 60% 80% 100% Total = $48.8 Billion 2004e Revenues Note: Only includes the top-50 companies, or $49 billion. Total U.S. logistics market is actually over $75 billion. U.S. Logistics Market Map: Top 50 Companies
  • 10. 3PL Consolidation: Convergence of Global Freight Forwarding and U.S. Warehousing Non-Asset-Based Surface Transportation Air/Ocean Freight Forwarding Asset-Based Transportation C. H. Robinson Transplace Ryder Logistics Hub Group Schneider Logistics UPS Cat Logistics RR Donnelley Logistics Pacer Penske Menlo NYK Logistics Exel (Mark VII) FedEx Pittsburgh Logistics Landstar Transport Industries $18.9 B Deutsche Post (Exel, T&amp;B) Ingram Micro Logistics UPS APL (GATX) KN (USCO) Americold TPG (TNT/CTI) CAT Logistics Logistics Insights Genco Ozburn-Hessey Logistics Standard Value-Added Warehouse $12.7 B UPS (Menlo, Fritz) DHL (Danzas, AEI) EGL (Circle) Expeditors UTI Maersk Logistics Phoenix International Panalpina KN Kintetsu World Express USA Hellmann Worldwide Logistics - USA $9.4 B Ryder Dedicated Penske Logistics Schneider Dedicated JB Hunt Dedicated Averitt Express Ruan Logistics SIRVA Logistics Swift Transportation $7.9 B 0% 20% 40% 60% 80% 100% 20% 40% 60% 80% 100% 2004e Revenues Note: Only includes the top-50 companies, or $49 billion. Total U.S. logistics market is actually over $75 billion. International Acquirors Total = $48.8 Billion U.S. Logistics Market Map: Top 50 Companies PWC Logistics Schenker (DB) BAX Global GeoLogistics APL Kuehne &amp; Nagel Deutsche Post Exel TPG
  • 11. Acquisitions: Other Key Deals Emerging Leaders Convergence Mega-Deals <ul><li>Deutsche Post-Exel for $6.7 billion </li></ul><ul><li>Deutsche Bahn-BAX for $1.17 billion </li></ul><ul><li>A.P. Moller-Maersk-Royal P&amp;O Nedlloyd for $2.95 billion </li></ul><ul><li>Far from the US, new leaders emerge </li></ul><ul><li>PWC Logistics acquisitions vault the company from Kuwait onto the global scene </li></ul><ul><ul><li>Trans-Link </li></ul></ul><ul><ul><li>Transoceanic </li></ul></ul><ul><ul><li>GeoLogistics </li></ul></ul><ul><li>JP Morgan Chase-Vastera for $129 million </li></ul><ul><li>Convergence of logistics with financial services? </li></ul><ul><li>Implications for logistics companies’ future competitive requirements </li></ul>
  • 12. State of the Industry: IWLA Member Survey Confirms These Trends
  • 13. State of the Industry: IWLA Member Survey Confirms These Trends <ul><li>80% of respondents saw revenues increase in 2005 </li></ul><ul><li>Nearly 90% expect to see growth in 2006 </li></ul><ul><li>Public warehousing is flat-lining – 8% expect a decrease, while only 10% expect a 10%+ increase </li></ul><ul><li>Value-added logistics providers and niche solutions companies are gaining share </li></ul><ul><ul><li>Pick/pack: Only 4% expect a decrease, while 70% expect an increase. </li></ul></ul><ul><ul><li>Cross/dock: Only 3% expect a decrease, while 73% expect an increase. </li></ul></ul><ul><ul><li>Freight forwarding: 92% expect an increase! </li></ul></ul><ul><li>93 percent of IWLA members expect fuel costs to increase, with 58 percent expecting spikes of 6 percent or more. </li></ul><ul><li>Similar hikes for health insurance, utilities and security </li></ul><ul><li>Due to customer demand to reduce logistics suppliers, record-high valuations, and record-low interest rates, M&amp;A activity is at an all-time high </li></ul><ul><li>A record 74% of IWLA members said consolidation has “some impact” on their company </li></ul><ul><li>55% of IWLA members were approached about an acquisition </li></ul><ul><li>26% are more likely to consider a transaction or other strategic option in 2006 as compared with 2005 </li></ul>Strong Growth Throughout the Industry Growing Gap between Winners and Losers Clouds on the Horizon Consolidation Wave Creates Threats and Opportunities Source: IWLA 2006 Business Outlook
  • 14. Implications for LQ’s Executive Exchange Key Questions to Consider Possible Responses <ul><li>Will assets be an albatross, or an advantage? </li></ul><ul><li>Will infrastructure shortages constrain growth in the US, as customers seek new markets? </li></ul><ul><li>Will consolidation create larger competitors who pressure the mid-market? </li></ul><ul><li>Many small and mid-sized companies are choosing to respond strategically: </li></ul><ul><ul><li>Sale or merger – taking advantage of record valuation levels and strong buyer interest, over 20 companies took this route </li></ul></ul><ul><ul><li>Others are leveraging aggressive financial markets and raising capital </li></ul></ul><ul><ul><li>Still others are seeking growth in new markets, e.g. China and India </li></ul></ul>Control your destiny. Pick a strategy – by choice, not default. Make investments to ensure you will be a winner.
  • 15. Contact Information <ul><li>Benjamin Gordon </li></ul><ul><li>Managing Director </li></ul><ul><li>BG Strategic Advisors </li></ul><ul><li>(561) 655-6677 </li></ul><ul><li>[email_address] </li></ul><ul><li>www.BGstrategicadvisors.com </li></ul>

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