Big Getting Bigger in European Logistics Market

Competitive realities drive logistics consolidation as global clients call for global capabilities; midsize players could face squeeze

Competitive realities drive logistics consolidation as global clients call for global capabilities; midsize players could face squeeze

London — October 29, 2004 — Competitive realities are driving consolidation in the European logistics space as global clients call for global capabilities, and the creation of bigger heavyweights at the top end of the market could put the squeeze on midsize players, according to a report out from industry analysis firm Datamonitor.

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 $602 million deal that Datamonitor said has created a $12.3 billion giant.

In addition, in August Dutch postal, express and logistics giant TPG acquired Sweden's Wilson Logistics for $327.8 million. And in the last few weeks, there have been preliminary merger talks between U.K. 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.

The merger and acquisition strategy is being driven by intense competition and the need for size, service range and geographic coverage, but as the biggest companies get bigger, the medium sized companies could stand to lose, according to Datamonitor.

Exel's acquisition of T&B has given it a significant boost not just in terms of size. It has gained valuable specialized 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," said Tom Mills, a logistics analyst with Datamonitor. "By acquiring T&B, the U.K.'s second biggest logistics company, Exel has swallowed an extremely sizeable company, and created a $12.3 billion giant. It is no surprise therefore that Christian Salvesen and TDG, third and fourth players in the U.K. 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 mergers and acquisition (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," said Mills. "To fulfill 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."

Datamonitor believes that with all this consolidation among the leading logistics companies creating bigger heavyweights at the top end of the market, medium sized companies could feel the squeeze, although they also can pursue strategies to improve their position.

Concluded Mills: "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."

For more information on the challenges and opportunities presented by increasingly global supply chains, see the special in-depth report in the August/September 2004 issue of Supply & Demand Chain Executive, which includes the following articles:

For more information on the global supply chain, with a focus on security issues, see "Building the Secure Supply Chain," the Net Best Thing article in the June/July 2003 issue of iSource Business (now Supply & Demand Chain Executive) magazine.