Multiple factors continue to reshape the logistics market in dramatic ways, but savvy buyers can still find opportunity despite a myriad of cost pressures. Would it surprise you to know that stock prices for companies in the logistics sector strongly outperformed the overall market this year? The Dow Jones Transportation Index was up 27 percent in the last 12 months, while the S&P 500 was up 15 percent. Logistics stocks appear to be attracting both public investor capital and private equity to support merger and acquisition activity and growth. What’s behind this trend?
In the truckload market, macro factors are providing a powerful tailwind. Overall freight demand continues to accelerate. Capacity is constrained because of driver retention challenges and regulatory hurdles. Tight supply leads to pricing power for carriers — and improving profitability is attracting investors seeking returns. The case for M&A is to leverage fixed costs such as drivers, tractors and maintenance across a larger asset base. The fall in oil and fuel prices combined with intermodal rail service challenges creates a healthy truckload sector for investors.
In other modes, the ability for the largest ocean carriers to invest in mega-ships is creating a potentially permanent structural change between the “haves” (those with capital to invest in the most efficient ships) and the “have-nots” (those carriers struggling with debt and the lack of free cash flow to keep up). In the 3PL sector, previously unknown players are emerging, fueled by low-cost debt, to gobble up complementary providers and the services they offer to customers.
What does it all mean for 2015? Never before has it been more valuable for shippers to have access to deep, local market knowledge to navigate an environment of increasing cost pressures and M&A-driven consolidation to, a) secure capacity to support corporate growth objectives while, b) minimizing cost pressures and potential customer service-delivery risk.
Ed Sands, Global Practice Leader for Logistics, Accenture