News / 'Shape-shifting' in 2021 sees M&A – and a need for forwarders to invest

© Khwanchai Phanthong

“Shape-shifting” is how Sarah Banks, global freight and logistics lead at Accenture, describes 2021.

There have, of course, been many changes, but perhaps the one with the longest-term effect is the massive growth in M&A, spurred on by vast profits, particularly for shipping lines.

And the M&A news just keeps on coming, as any end-of-year-fatigued freight journalist will tell you.

This week alone: MSC made a €5.7bn bid for Bolloré Africa Logistics; Maersk agreed to buy LF Logistics, Li & Fung’s fulfilment arm; MSC was given approval to take over Brazil’s Log-in Logistica; and CMA CGM firmed up an order for four freighters – and it’s only Wednesday morning as I write this.

Note that all of these are vertical, rather than horizontal integrations.

“Money is driving the acquisitions and there has been an acceleration in the M&A space,” acknowledges Ms Banks. “It’s not so much buying similar capabilities, but a more extended end-to-end operation. Almost every week, the level of acquisitions is pointing to more end-to-end competitiveness.”

It’s not just the lines. Earlier this month, port operator PSA snapped up forwarder BDP and commercial fleet manager Ryder bought 3PL Whiplash – among other acquisitions. So what does this mean for shippers?

“The pace of extension could be a competition trend for shippers. So many companies are going down this path that shippers will have better access to end-to-end services. So many companies are extending their capabilities, it will definitely give shippers more choice. It will allow new extended companies to compete for that business,” explains Ms Banks.

But all this integration comes with some risk.

She says: “There is lots of work to be done to make integration successful. It’s very difficult to buy companies with different businesses – it requires organisational changes, IT changes, customer integration.

“That’s what I most look forward to watching. Not all will be successful – it’s inherently challenging. Sticking together the end-to-end will be the elusive part.”

She points out that some companies simply wanted to get in the game and had cash to burn; others have a more defined strategy.

“Some will be trying to figure out what to do with the acquisitions. Those are opportunistic buyers, who had a fear of missing out, and thought they’d figure out the details later.

“It’ll be easier for those that have come in with a strategy. Changing organisations is very difficult to do, but can be done with the right leadership and commitment.

“Data sharing will take time. Acquisitions will take more than a year to get the end-to-end benefits. Especially big investments across different sectors.”

Integration is likely to be especially hard for those mixing heavily asset-based businesses, with asset-light operations focused mostly on people and trading. The cultures and operations are entirely different.

But horizontal acquisitions have remained as well, with DSV the poster boy for this strategy, while Kuehne + Nagel, for example, loves a bolt-on acquisition.

Ms Banks notes: “Horizontal integration of forwarders will still be a trend. Now is a moment for forwarders to assess the capabilities that they bring. More digital capabilities is something we will see accelerated.

“It’s a people-heavy business, and disruption has taken its toll. As forwarders look at investment, they want better capabilities that will seem more end-to-end, such as localised knowledge, which helps in disruption and is more insightful.

“My fear for forwarders is that if they don’t invest, shippers will. The biggest competitive threat to forwarders is not carriers or other forwarders, it’s shippers themselves.”

The trend, albeit slight so far, of shippers buying forwarders has begun, with two in the past couple of months: American Eagle Outfitters bought last-mile start-up Airterra and e-fulfilment provider Quiet Logistics, while Ashley Furniture acquired parts of Wilson Logistics.

Ms Banks explains that forwarders need to invest to protect themselves, noting the “huge influx of cash”.

While lines are buying ships, forwarders need people.

“Forwarders need to invest in fixing the talent shortage. Logistics is competing against other industries. So I expect more automation investments in workplaces. And a resultant change of job profiles, and increase in safety. Money will go there. The solving of the talent issue could dictate investment.”

Another significant trend will be in contracting, says Ms Banks.

“Contracting between shippers and carriers will change. Shippers need to get more specific forecasting. Shippers are spending time to improve their forecasting, and that will help them ask for contractual changes, based on relationships, rather than transactional. They will get access to capacity for the volumes that they commit. There will be more accountability, and carriers respecting that volume.

“The appetite is there to make changes on the contracting side. And there will be some regulatory changes on congestion, penalties, fees. That will help provide more certainty.”

Much of this year’s distress has been related to infrastructure – or lack thereof. But can anything be done in 2022?

“Infrastructure is the big bucket,” says Ms Banks. “It takes a lot of investment and time. But in the short term we will see some improvements.

“What we had in the ‘adequate’ supply chain were pockets of issues that we weren’t able to respond too well, but we could live with that. Now, regulators will look at how we manage free time and penalties. I am hopeful about that.

“And technology has been brought to the front and centre. Infrastructure is the hardest part, but there is a higher adoption of digital technology, such as payments. More pockets of that will happen, as it is a proven improvement. That will be in the next six months, and is key to getting out of the volatility.”

Digitisation will also help those most negatively affected by the past year’s disruption: small shippers.

“SMEs are a worry for now. The challenges are affecting everyone. The biggest BCOs will get more attention, no doubt. But, as we get though the disruption – and it will continue for some time with the next four to six months still very disruptive – digitisation will help give access back to smaller shippers.

“Carriers like smaller shippers. Global companies have benefits for them, but also challenges.”

They could also be helped by a changing shape in the logistics calendar.

“The traditional peak season is a question mark for me,” admits Ms Banks. “Shippers are doing everything they can to pull inventory forward. From raw materials to semi-finished goods, more is getting into the system. So will the traditional peak season look the same? There is new planning in the supply chain.

“And we will order differently? Will shops stock differently? Yes, there will always be Santa dolls and so on, but for lots of others things, I am not so sure that there will be a ‘peak’ season.”

Last – but very much not least – is sustainability, a topic that could very well be the single thing that sets companies apart. Ms Banks says: “2022 should be a growth area and there will be more sustainability. Lots of promises have been made for 2030 and 2050. It’s now time to get those strategies defined. And we’ll get more visibility into that.

“And I don’t mean carbon calculators – we need to see significant strategies, and we should get a sense of that. There will be a higher frequency of headlines on sustainability.”

She adds that while companies have done well by at least making pledges, regulatory authorities need to ensure they follow them through.

“The reality is, that without regulatory bodies making targets, there will be no deadline. What moves humans forward is a deadline. If authorities don’t create one, it won’t happen. Because, what are the implications if you miss your own targets?”

And her conclusion about 2021? “What learning can we take forward?

“We really need to evolve the way we manage and execute supply chains. The extreme nature of 2021 has given us the opportunity to fix the supply chain.”