The mergers and acquisitions market in the freight forwarding sector has become increasingly active in the past two years, despite the uncertain and turbulent conditions, thanks in part to strong revenues and profits achieved by 3PLs

By Will Waters

Despite the uncertain and turbulent conditions in the past two years putting immense pressure on supply chains and logistics providers, the mergers and acquisitions (M&A) market in the freight forwarding industry has become increasingly active, thanks in part to strong revenues and profits achieved among freight forwarding companies.

According to freight and logistics industry analyst Transport Intelligence (Ti)’s M&A database, the top 20 largest freight forwarders closed 15 transactions in 2021 and 2022, up from just 6 in 2020. And analysis by Armstrong & Associates indicates that there were an “astounding” 25 large M&A transactions among 3PLs in 2021 with purchase prices over $100 million. Armstrong & Associates said this was “over eight times the number of large acquisitions made in 1999, when we first started tracking them”, and over three times the number of transactions seen in 2020.

And sources close to FORWARDER magazine have confirmed that the M&A market has also been very strong in the last 12 months among smaller and medium-sized freight forwarding companies, for example in the UK and the US.

This robust M&A activity is “likely attributable to various factors relating to record earnings among logistics players and supply chain dynamics”, according to Ti’s recently published ‘Competitive Landscape in the Global Freight Forwarding Market’ report. It highlighted that freight forwarding, “by definition, requires the management and coordination of other asset providers. As a result, with a few exceptions, companies in this horizontal sector typically make acquisitions to broaden their geographic scope or strengthen their ‘know-how’ and scale on a specific trade lane or in a vertical industry sector.”

Operational scale and global reach

One of the fundamental reasons behind consolidation in the shipping industry and freight forwarding markets is the benefits of scale, Ti stressed, noting that scale “provides forwarders with buying power in their dealings with the shipping lines. It not only allows them to get better rates than smaller competitors, but it is also more likely to guarantee that containers are shipped as booked. In times of high volumes and constrained capacity, as we have seen in the last year, shipping lines will provide the best service to their largest customers which include the leading freight forwarders.”

Profitability factors

The desire to achieve greater profitability is clearly one of the main incentives, or the main incentive, driving freight forwarders towards M&As. But the profits made by freight forwarders, particularly in the last two years, have also “acted as a catalyst for further acquisitions, building out the geographic scope and providing for strength and capabilities in vertical sectors”, Ti noted. Ti said this had “left many with the nice problem of what to do with the unexpected boost to incomes”.

Freight M&A sources close to FORWARDER magazine have also confirmed that a key factor in the strong recent M&A market has been that “lots of companies have made lots of money in the last couple of years, with freight rates being so high. Therefore, they are in a position to make acquisitions. Or it could also be that some business owners are looking to ‘cash in’ in the current (M&A) market.” They stressed that this was because the M&A market was currently strong, not because of any rise in distressed companies looking for buyers.

Effects of high freight rates

Armstrong & Associates’ July 2022 report on the logistics and freight forwarding landscape (A Roaring 2021: Demand Drives 3PLs to the Best Growth and M&A Year on Record – Latest Third-Party Logistics Market Results and Predictions for 2022) highlighted that “strong consumer demand, continued supply chain bottlenecks, and tight carrier capacity sent air, ground, and ocean transportation rates soaring to historic levels in 2021 as shippers leaned on Third-Party Logistics Providers (3PLs) to bolster inventories and avoid product stock outs”.

It pinpointed International Transportation Management (ITM), which consists of air and ocean freight forwarding, customs brokerage, and complementary value-added services, as the lead driver of revenue growth among the various 3PL segments, noting: “Overall, ITM realized an unheard-of 74.9% gross revenue gain in 2021, increasing to $122.4 billion, while underlying global ocean carrier container rates more than doubled from 2020 and air freight rates trended up, peaking in December of 2021. While having a lower growth rate than overall gross revenue due to a tight carrier capacity market and high spot market rates, net revenue increased a healthy 44.6% to $35.6 billion.”

Access to capital

Access to “cheap money and the ability of financially strong companies to borrow very cheaply in capital market” has been another dynamic behind the acquisition boom, Ti also noted in its ‘Competitive Landscape in the Global Freight Forwarding Market’ report. It is too early to say to what extent recent rises in interest rates and the cost of borrowing will impact this part of the M&A equation.

But looking historically, Ti notes that Kuehne + Nagel and DSV Panalpina have been the most acquisitive forwarders in the past 10 years, adding: “Although the company is strongest within its core European markets, Kuehne + Nagel has grown inorganically in the Asia Pacific rim and North America. As the years have progressed, Kuehne + Nagel has diversified its regional exposure and revenue streams through acquisitions, moving away from an EMEA dominated business to a business with a well-balanced geographical distribution.”

Apex deal takes K+N to top spot

Armstrong & Associates also highlighted that “the most notable” acquisition last year was Kuehne + Nagel’s purchase of Apex Logistics International for approximately $1.5 billion, noting that the combination “not only made Kuehne + Nagel the largest global air freight forwarder, handling over 2.2 million metric air tons in 2021, it is also the largest 3PL globally, replacing DHL Supply Chain and Global Forwarding in both instances, and continues to hold its place as the largest ocean freight forwarder”.

Armstrong puts Kuehne + Nagel’s Gross Logistics Revenue at US$40.8 billion, with DHL Supply Chain and Global Forwarding at $37.7 billion, followed by DSV on $28.9 billion and DB Schenker on $27.6 billion, followed by Sinotrans, Expeditors, and CH Robinson.

Ti’s analysis, examining freight forwarding activities and not companies’ respective contract logistics activities, places Kuehne + Nagel and DSV at the head of the global freight forwarding market, with revenues of €22.7 billion (US$22.9 billion) and €17.6 billion in 2021, respectively. It said that among the top 10, Kuehne + Nagel and DSV Panalpina have also seen the strongest revenue growth in 2021 (97.6% and 79.7% respectively).

Ti also highlighted that the two market leaders, Kuehne + Nagel and DSV, “have successfully integrated acquisitions in recent years, which has helped both to top the list. Kuehne + Nagel fully benefited from integrating Apex International (the 17th largest air freight forwarder in 2020). Meanwhile, DSV’s integration of Panalpina, followed by the acquisition of Agility, allowed the company to rise to second place and ahead of DHL Global Forwarding for the first time.”

DHL Global Forwarding dropped to third place in the ranking, with its revenue increasing by 44.5%, YoY, to €15.8 billion (US$15.9 billion). DB Schenker and Expeditors round out Ti’s top five, with Sinotrans and Nippon Express coming in at six and seven, respectively.

Most attractive regions for M&As

Examining the most attractive regions for M&As, Ti highlights Europe, Asia Pacific and the Middle East and North Africa as the most attractive regions. “Europe has seen considerable M&A activity over the past 10 years, with logistics companies seeking to increase their presence and capabilities in the region,” Ti highlights. “The reasons behind these acquisitions vary by company but have a unifying logic in reflecting the trends in the market for freight forwarding.

“Obtaining a recognised know-how in a specialised segment and new business seems to be the key rationale behind the acquisitions in Europe. For instance, out of its acquisition of J.F. Hillebrand, DP DHL has obtained a recognized know-how in a specialized segment but also a large amount of new business which should enable it to consolidate its own position in the industry. This is also the case with CEVA Logistics which will significantly expand its automotive logistics reach through the acquisition of GEFCO.”

Asia Pacific appeal

Ti highlights Asia Pacific as “the second most attractive M&A destination which is unsurprising considering it is the single-most-important region for global trade and logistics activities”. According to Ti market-sizing data, Asia Pacific remains the largest freight forwarding region, accounting for 35.3% of the global freight forwarding market in 2021. “Hence, to expand and stay competitive, and seize the vast opportunities that this market offers, the largest freight forwarders have realised that they need to add Asia Pacific to their portfolio,” Ti notes.

It says the Middle East and North Africa is “the third most attractive region for M&A deals in the freight forwarding sector”, with some countries in the region offering advantages including: free trade zones; easy customs procedures; open-sky policies; and modern facilities. Ti noted: “It is an exciting time for logistics in the region and the accelerated economic diversification initiatives across the board are offering a new set of logistics opportunities which forwarders such as Kuehne + Nagel, DHL and CEVA are looking to seize.”