A Truckload of Money for a Freight Company

In M&A, it’s always good to have a Plan B. Danish logistics group DSV A/S has now come up with a credible alternative to its failed attempt to buy Ceva Logistics AG last year — a 4 billion-franc ($4 billion) tilt at Swiss peer Panalpina Welttransport Holding AG. There’s a clearly of lot of value trapped inside Panalpina. DSV can afford to pay up for it.

Panalpina’s small size in an industry being battered by a trade war is becoming a major hindrance. It would struggle to acquire scale on its own. The natural answer is to embrace a suitor.

The industrial logic of this potential tie-up rests on reducing costs and introducing better management. Panalpina’s operating margin is about 2.6 percent and DSV’s nearly 7 percent. In air and sea transport, Panalpina’s main activity, DSV is even more profitable. Assume the acquirer can lift the target’s margins to something closer to its own, and the jump in operating profit would be considerable. 

Margin for Improvement

DSV is spying the chance to bring Panalpina's lowly operating margin in line with its own

Source: Bloomberg

True, DSV’s performance is unusually strong for the industry. And Panalpina’s perhaps unwieldy ownership may explain some of the disparity: The company is 46-percent controlled by a philanthropic foundation, although activist shareholder Cevian Capital AB has been shaking things up lately.

These dynamics make the offer valuation less scary than it first appears. The all-in cost at the mooted price would be about 4.2 billion francs, including assumed net debt, based on the last accounts. That’s about 16 times estimated Ebitda for 2018 — similar to DSV’s own valuation, despite the gulf in operating performance.

Panalpina is expected to make 237 million francs of operating profit in 2021. That already assumes some margin improvement. But suppose the purchaser can double it, and the return on invested capital would be an acceptable mid-teens percentage. That’s not an implausible outcome given DSV’s track record in M&A and the room for improvement at Panalpina. The uncomfortable truth is that this takeover is almost certainly predicated on large job losses, most likely outside Switzerland.

Can't Keep Up

DSV's approach for Panalpina follows prolonged underperformance of the target's shares

Source: Bloomberg

The snag for DSV is winning over the foundation, which will prefer to take shares rather than cash so it can stay invested. That explains the structure of the offer. The stock component is as large as it can be without requiring the approval of DSV shareholders, who could be an unhelpful obstacle if an auction developed. Switzerland’s Kuehne & Nagel International AG is the obvious interloper.

DSV’s current proposal, worth 170 Swiss francs a share when it was delivered to the board, is clearly below the suitor’s pain barrier. Hence the gain in DSV’s stock on Wednesday. Panalpina can demand more. The foundation will determine the outcome, and there’s no indication it will be driven by anything other than price. The freight company isn’t its only asset, and only a minority of the firm’s employees are based in Switzerland. Time to hold DSV’s feet to the fire.

source: https://www.bloomberg.com/opinion/articles/2019-01-16/denmark-s-dsv-can-afford-to-pay-up-for-logistics-rival-panalpina

Indian Govt unveils national air cargo policy

Chennai: The government has announced its national air cargo policy with which it aims to make India one of the top five air freight markets by 2025. Besides, the government, with implementation of the policy wants to create air transport shipment hubs at all major airports over the next six years.

The policy document released during the two-day Global Aviation Summit 2019, which kick started on Tuesday, stated that the policy will encourage code sharing/inter-line agreements between foreign and Indian carriers.

As per the policy, international cargo comprises 60 per cent of the total air cargo tonnes handled in the country, logging a growth of 15.6 per cent in the previous fiscal, while domestic cargo grew by over eight per cent, which reflects the skewed modal mix, in which roads account for over 60 per cent of cargo transportation as compared to the global average of around 30 per cent.

Indian express industry, one of the fastest growing markets globally, grew at a compounded annual growth rate of 17 per cent over the past five years and was estimated to be Rs 22,000 crore in 2016-17, it said. However, it has a small share of about two per cent of the global market, it added.

Stating that the domestic express industry will be worth Rs 17,000 crore, the policy document added that the international express is estimated to contribute Rs 5,000 crore to the Indian express industry.

As per the document, the potential in the new markets needs to be explored with long-term infrastructure creation in order to sustain cargo growth in the next 10-15 years at least.

It must be noted that the government issued a massive tax cut on ATF earlier this year which brought a litre of fuel for airlines lesser than a litre of petrol.

The cargo policy also seeks to establish agreements between national carriers/freighters and integrators to improve domestic connectivity as well as encourage the establishment of agreements between national and international carriers/freighters and other airline operators to provide access to key global cargo hubs. It also aims to promote the development of a last mile/first mile connectivity program at international/regional gateways, as per the document.

As part of the security strategy under the policy, the strategy will address security related to the physical cargo, people handling the cargo, data and information related to shipments within and across all chains of custody transfers, it added.

To increase process transparency while decreasing shipment delays, costs and dwell time, a fully automated paperless trade environment with minimum face-to-face interactions will be implemented, as per the policy document.

The policy covers all three categories of air cargo transport – domestic cargo to ensure efficient flow of goods across India; international cargo facilitating all indigenous export and import of goods; and transit international cargo by making India the transit cargo hub of choice to and from other parts of the globe.

The GST and other economic legislation to be reviewed by the appropriate government agencies to ensure effective measures are in place to support the national air cargo development strategies, among others, the policy document said.

Source: https://newstodaynet.com/index.php/2019/01/16/indian-govt-unveils-national-air-cargo-policy/

Global Third-Party Logistics Market Analysis, Size, Share, Projections, SWOT Analysis, Key Players, Trends and Forecast by 2025

The latest report from the Bizwit Research on the global third-party logistics market provides key actionable insights into the third-party logistics market. The report on the global third-party logistics market states that the market is estimated to value US$ xx billion at the end of 2016 and is projected to record steady growth rate of xx% throughout the forecast period to reach US$ xx billion by 2025. The various factors affecting the projected market trends are discussed in detail along with its analysis in the global third-party logistics  market report.

The global third-party logistics market report includes the various segmentations of the market. Each sub-segment within the report has been discussed in detail and its analysis and forecast has been provided in the global third-party logistics market report.

By Service:
DCC/Freight forwarding
DTM
ITM
Warehousing & Distribution
Value Added Logistic Services

By Transport:
Roadways
Railways
Airways
Waterways

By End Use:
Manufacturing
Retail
Healthcare
Automotive

The industry is seeming to be fairly competitive. Some of the leading market players include BDP International, Burris Logistics, CH Robinson Worldwide, CEVA Logistics, DB SCHENKER Logistics, Exel, Expeditors International of Washington, Inc., FedEx Corporation, J.B. Hunt Transport Services, Amerigold Logistics and so on. Acquisitions and effective mergers are some of the strategies adopted by the key manufacturers. New product launches and continuous technological innovations are the key strategies adopted by the major players.

Reference: https://industryjournal24.com/2018/12/global-third-party-logistics-3pl-market-analysis-size-share-projections-swot-analysis-key-players-trends-and-forecast-by-2025/

Logistics, freight thrive on rising trade

The logistics and freight industries in Bangladesh have been thriving for years in line with the steady growth of exports and imports, according to sector players.

Currently, about 1,000 local and 20 international logistics and freight forwarding companies are providing necessary support to the export and import sector in Bangladesh.

The country imported goods worth about $52.84 billion in fiscal 2017-18 and exported products worth about $36.67 billion, according to data from the Bangladesh Bank.

“The industry is growing in line with the export and import growth,” said Amirrul Islam Chowdhury Mizan, senior vice-president of the Bangladesh Freight Forwarders Association (BAFFA).

The total business roughly reached $1.5 billion in 2017, he said. The industry has grown amidst the absence of quality infrastructure and use of substandard equipment for the last 30 years, according to Mizan, also the managing director of Transworld Logistics & Distribution.

Foreign companies mostly open joint ventures with local companies and this collaboration built the foundation for further accumulation of domestic logistical expertise.

Logistics companies provide transport services of freight through sea, road and air ways. The rail transport of freight for exports and imports is yet to be introduced in Bangladesh.

Rail and road freights are major segments for inland services, Mizan said. Shipping freight's share in the export and import business in Bangladesh stands at 80 percent, while that of air and road is 20 percent.

Logistic companies carry out all responsibilities, including loading and unloading until goods reach warehouses.

In Bangladesh, the industry came into being in 1991-92 without any experience and suffered in the beginning because of a lack of skilled workforce and communication skills. There was no guideline and policy regarding the industry and even government officials, exporters and importers had no basic idea on how to operate the industry, Mizan said.

“The industry faced a lot of hassles to run businesses but went on to achieve global standards. The entrepreneurs developed their business just using common sense as they had no orientation about logistics support or freight trading.”

Since the annual export and import trade volume reached $100 billion, the sector has a huge potential to improve.

The industry directly generated about 40,000 jobs in the last 30 years. “Still, there is a lack of skilled manpower,” he said.

According to the Agility Emerging Markets Logistics Index (AEMLI) 2018 of Kuwait-based Agility Global Integrated Logistics, Bangladesh recorded the third-highest improvement in the index score.

It made gains across all three facets of the index but the country's most notable gains were in the market size and growth and compatibility sub-indices.

The report also said Bangladesh showed the biggest improvement in infrastructure, having manufacturing ambitions beyond the apparel sector. The country wants to grow its pharmaceutical, steel, shipbuilding and food processing industries.

According to the AEMLI, Bangladesh is considered one of the 45 major emerging markets in the world.

Entrepreneurs provided support to exporters and importers including that on shipping, packaging and distributing, said Mahbubul Anam, president of the BAFFA and managing director of Cross Freight.

He put emphasis on the necessity of communication skills to run the industry and find business.

However, Mohammed Nasir, vice-president for finance at the Bangladesh Garment Manufacturers and Exporters Association, said the freight forwarding industry tried to create pressure on those availing the services as there was no policy or guideline.

The government should address the issue to maintain global standards for freight forwarding in the greater interest of the export market, he said.

“Of course, the sector is booming in line with the country's growing economy,” he said.

Reference: https://www.thedailystar.net/business/news/logistics-freight-thrive-rising-trade-1678594