Where is the Logistics Service Provider Industry Going?
Logistics Today: The World Turned Upside Down
Benjamin Gordon
Managing Director
BG Strategic Advisors, Inc.
April 20, 2006
Copyright © 2005 by BG Strategic Advisors
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BG Strategic Advisors: Leading Mergers &
Acquisitions Advisor to the Logistics Industry
Representative Clients / Relationships
Page 2
The World Turned Upside Down
• 1783: surrender of Lord Cornwallis at Yorktown, to the tune of
“The World Turned Upside Down”
• 2006: same tune?
Page 3
State of the Logistics Industry:
The Year in Review
Conventional Wisdom
Page 4
Surprising Reality
• An era of asset-light giants like
Menlo, K&N, and UPS…
• And the first Class 1 Railroad
startup in over 100 years!
• The ports of California get
more crowded…
• And Wal-Mart decides to build
Houston into a port competitive
with Long Beach!
• In a market dominated by the
West, a little-known logistics
company from Kuwait…
• Buys Trans-link, TransOceanic,
and GeoLogistics to become
an $8 billion powerhouse!
Assets: an Albatross…
300
250
CAGR
200
C.H. Robinson
Expeditors
EBITDA, in MM$
Uti Worldwide
EGL
150
Landstar
Forward Air
18%
26%
25%
23%
6%
13%
100
50
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
(50)
• For the past decade, asset-light logistics firms have outpaced the market
• Firms like Expeditors, UTi Worldwide, and CH Robinson have led the way, becoming
multi-billion-dollar giants due to their ability to manage freight networks and take
advantage of an abundance of capacity
Page 5
… or an Advantage?
80%
75%
• Assets are back
in vogue
70%
58%
60%
Annual Stock
Performance
50%
40%
30%
45%
37%
27%
30%
30%
29%
24%
29%
24%
20%
10%
0%
2003
2004
2005
-10%
-11%
-20%
Page 6
Non-Asset
Logistics
CHRW, EXPD, UTIW
Asset-Light
Forwarders
EAGL, FWRD, HUBG, LSTR,
PACR
Truckload
Carriers
CVTI, HTLD, JBHT, KNX, SWFT,
WERN, XPRSA
Class I
Railroads
BNI, CNI, CP, CSX, NSC, UNP
• Class I Railroads
saw share
appreciation of
29%, outpacing
non-asset
logistics
companies for
the first time in
three years!
Growing Importance of Assets: Key Drivers
• Truck driver capacity crunch
- Current shortage of 20,000 truck drivers
- 10% driver pay spike expected
• Steamship capacity crunch
- NOL: 16% profit jump
• Railroads shedding assets
- BNSF, Norfolk Southern, Union Pacific, and Kansas City
Southern declared plans to exit trailer/container market
• Result: new asset investments
- Dakota, Minnesota & Eastern Railroad: seeking $2.5 billion in
federal funding, to create the first Class I railroad startup in
over 100 years
Page 7
Infrastructure:
Can North America Keep Up?
Port of Houston?
Capacity Solution:
PierPass Effort
Asian Infrastructure
SAFETEA-LU
• $286.4 billion, 6-year
plan for transportation
infrastructure
• “Alaskan bridge to
nowhere”
Page 8
• India, with a market of
$15 billion, is investing
$17 billion over the
next 5 years
• So the US is investing
5% of its annual
logistics spend on
infrastructure, but India
is investing over 23%!
• Marine terminal
operators of Los
Angeles and Long
Beach launched
PierPass
• Goal: boost efficiency
through technology,
use fees, and extended
hours
• Fed up, Wal-Mart took
matters into their own
hands
• Plans to build a 4
million square foot
facility in Houston
• Ripple effects for other
retailers and importers
• Threat to West Coast
forwarders?
Acquisitions: The Consolidation Continues
U.S. Logistics Market Map: Top 50 Companies
Total = $48.8 Billion
100%
$18.9 B
Transport Industries
Landstar
Pittsburgh Logistics
FedEx
Exel (Mark VII)
NYK Logistics
Menlo
2004e Revenues
80%
60%
Penske
Pacer
RR Donnelley Logistics
Cat Logistics
UPS
Schneider Logistics
$12.7 B
Standard
Ozburn-Hessey Logistics
Genco
Logistics Insights
CAT Logistics
Ryder Logistics
Panalpina
Phoenix International
TPG (TNT/CTI)
Maersk Logistics
Americold
KN (USCO)
UTI
GeoLogistics
APL (GATX)
Expeditors
BAX Global
UPS
Hub Group
40%
$9.4 B
Hellmann Worldwide Logistics - USA
Kintetsu World Express USA
KN
EGL (Circle)
Ingram Micro Logistics
DHL
(Danzas, AEI)
Exel Americas (T&B)
UPS
(Menlo, Fritz)
Transplace
20%
C. H. Robinson
0%
20%
Non-Asset-Based Surface
Transportation
Note: Only includes the top-50 companies, or $49 billion.
Total U.S. logistics market is actually over $75 billion.
Page 9
40%
60%
Value-Added Warehouse
80%
Air/Ocean Freight
Forwarding
$7.9 B
Swift Transportation
SIRVA Logistics
Ruan Logistics
Averitt Express
JB Hunt Dedicated
Schneider
Dedicated
Penske
Logistics
Ryder
Dedicated
100%
Asset-Based
Transportation
PWC Logistics
3PL Consolidation: Convergence of
Global Freight Forwarding and U.S.
Warehousing
Schenker (DB)
TPG
Deutsche Post
Kuehne & Nagel
U.S. Logistics Market Map: Top 50 Companies
APL
Total = $48.8 Billion
Exel
$9.4 B
100%
$18.9 B
Transport Industries
Landstar
Pittsburgh Logistics
FedEx
Exel (Mark VII)
NYK Logistics
2004e Revenues
80%
60%
$12.7 B
Standard
Ozburn-Hessey Logistics
Genco
Menlo
Logistics Insights
CAT Logistics
Penske
TPG (TNT/CTI)
Pacer
RR Donnelley Logistics
Cat Logistics
UPS
Schneider Logistics
Ryder Logistics
UTI
Averitt Express
APL (GATX)
Expeditors
BAX Global
Ingram Micro Logistics
EGL (Circle)
DHL
(Danzas, AEI)
Transplace
20%
Deutsche Post
C. H. Robinson
0%
20%
Non-Asset-Based Surface
Transportation
Note: Only includes the top-50 companies, or $49 billion.
Total U.S. logistics market is actually over $75 billion.
Page 10
(Exel, T&B)
40%
60%
Value-Added Warehouse
SIRVA Logistics
Ruan Logistics
GeoLogistics
UPS
$7.9 B
Swift Transportation
Panalpina
Phoenix International
Maersk Logistics
Americold
KN (USCO)
Hub Group
40%
Hellmann Worldwide Logistics - USA
Kintetsu World Express USA
KN
International
Acquirors
UPS
(Menlo, Fritz)
80%
Air/Ocean Freight
Forwarding
JB Hunt Dedicated
Schneider
Dedicated
Penske
Logistics
Ryder
Dedicated
100%
Asset-Based
Transportation
Acquisitions: Other Key Deals
Convergence
Emerging Leaders
Mega-Deals
• Deutsche Post-Exel for
$6.7 billion
• Deutsche Bahn-BAX for
$1.17 billion
• A.P. Moller-Maersk-Royal
P&O Nedlloyd for $2.95
billion
Page 11
• Far from the US, new
leaders emerge
• PWC Logistics acquisitions
vault the company from
Kuwait onto the global
scene
- Trans-Link
- Transoceanic
- GeoLogistics
• JP Morgan Chase-Vastera
for $129 million
• Convergence of logistics
with financial services?
• Implications for logistics
companies’ future
competitive requirements
State of the Industry:
IWLA Member Survey Confirms These Trends
Page 12
State of the Industry:
IWLA Member Survey Confirms These Trends
Strong Growth
Throughout the
Industry
• 80% of respondents
saw revenues
increase in 2005
• Nearly 90% expect to
see growth in 2006
Source: IWLA 2006 Business Outlook
Page 13
Growing Gap between
Winners and Losers
• Public warehousing is flatlining – 8% expect a
decrease, while only 10%
expect a 10%+ increase
• Value-added logistics
providers and niche
solutions companies are
gaining share
- Pick/pack: Only 4%
expect a decrease, while
70% expect an increase.
- Cross/dock: Only 3%
expect a decrease, while
73% expect an increase.
- Freight forwarding: 92%
expect an increase!
Clouds on the Horizon
• 93 percent of IWLA
members expect fuel
costs to increase, with
58 percent expecting
spikes of 6 percent or
more.
• Similar hikes for
health insurance,
utilities and security
Consolidation Wave
Creates Threats and
Opportunities
• Due to customer demand to
reduce logistics suppliers,
record-high valuations, and
record-low interest rates,
M&A activity is at an all-time
high
• A record 74% of IWLA
members said consolidation
has “some impact” on their
company
• 55% of IWLA members were
approached about an
acquisition
• 26% are more likely to
consider a transaction or
other strategic option in 2006
as compared with 2005
Implications for LQ’s Executive Exchange
Key Questions to Consider
Possible Responses
• Will assets be an albatross, or
an advantage?
• Many small and mid-sized companies are
choosing to respond strategically:
• Will infrastructure shortages
constrain growth in the US, as
customers seek new markets?
- Sale or merger – taking advantage of
record valuation levels and strong
buyer interest, over 20 companies took
this route
• Will consolidation create larger
competitors who pressure the
mid-market?
- Others are leveraging aggressive
financial markets and raising capital
- Still others are seeking growth in new
markets, e.g. China and India
Control your destiny.
Pick a strategy – by choice, not default.
Make investments to ensure you will be a winner.
Page 14
Contact Information
Benjamin Gordon
Managing Director
BG Strategic Advisors
(561) 655-6677
Ben@BGstrategicadvisors.com
www.BGstrategicadvisors.com
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