Cooperation and Cooperatition Seen More Prominent in Logistics Market

Datamonitor analyst sees Panalpina, NYK's YAS alliance signaling a shift in strategic policy in the logistics Industry

London — February 5, 2007 — Logistics companies Panalpina and NYK Group have announced they are to cooperate both in Japan and internationally. While this should lead to an improvement in operations, research from independent market analyst Datamonitor believes that challenges still exist for both parties, as identified in Datamonitor's "Logistics Profile" series.

According to Chris Morgan, lead analyst with Datamonitor's logistics and express research unit, both Panalpina and NYK Group still operate in a highly fragmented market with weak margins and are still reliant on specific markets. However, this deal may also signify a shift in strategic policy in the logistics industry. Morgan writes:

"According to the agreement announced by NYK Group and Panalpina, NYK's subsidiary Yusen Air & Sea Service (YAS) will become Panalpina's agent in Japan whilst Panalpina will represent YAS' interests in various countries in addition to its existing network. The agreement is expected to come into force in the second quarter of the year.

"The agency agreement with YAS will allow Panalpina to consolidate all of its service offerings, purchasing and domestic activities in Japan. At the same time, YAS will gain access to Panalpina's large network and market expertise, as it will represent YAS across Latin America, Africa and the Middle East.

"The announced alliance is a good strategic move for both parties, with implications beyond mere cost reduction. For NYK, the deal will broaden its geographic scope and should lessen its over-reliance on the Japanese market, which accounts for around 75 percent of total company revenue. Meanwhile, for Panalpina the move will enhance its offering in the Asia-Pacific region, which currently only accounts for around 12 percent of overall turnover, even though its network has been improving in recent years, particularly in China.

"Nevertheless, there are still other problems that both companies will have to address, as highlighted in Datamonitor's Logistics Profile research. Panalpina still faces a highly fragmented sea freight forwarding market and only holds around 5 percent of the global market, some distance behind rivals Kuehne + Nagel and DPWN. Indeed, while large mergers have been taking place in both freight and contract logistics (Schenker - BAX Global, DPWN - Exel), both NYK and Panalpina have yet to partake in the industry consolidation to the same degree. Furthermore, NYK will still be heavily reliant on sea freight for its revenue, with its logistics division amongst the smaller players in the market.

"Of wider interest is that this deal may mark a shift of strategy within the logistics industry. After the recent mergers and acquisitions (M&A) wave, the larger players in the logistics segment may take some time to fully digest their purchases, which in the short term could see companies turn their attention from large scale acquisitions to alliances in order to plug strategic gaps. With current industry margins unsustainable in the long-run, greater cooperation and cooperatition — where direct competitors pool resources in certain areas of business — are set to become prominent trends in the market, and as a result announcements of alliances such as the one between Panalpina and NYK should become more frequent in the coming years."