Analyst sees upsurge in forwarding mergers

04 / 08 / 2017

Increasingly disparate financial performance among leading players will lead to more mergers and acquisitions in freight forwarding, says two industry experts.

David Kerstens and Hamish Dalgarno, respectively equity analyst and equity associate at investment banker Jefferies International said in a report that there is a growing performance divide in the freight forwarding sector, due to differences in customer and product mix and the effectiveness of IT systems.

With both DSV and XPO Logistics recently expressing an interest in buying competitors, which would further consolidate the fragmented freight forwarding sector, other companies could find themselves takeover targets, said the analysts.

They added: “Panalpina has become an increasingly likely takeover target in our view,” pointing out that it had suffered the most from higher freight rates while “a restructuring-driven earnings recovery has so far failed to materialise, with the operating performance further deteriorating after the strategy update by the new chief executive in September 2016.”

While the forwarding sector enjoyed the strongest volume growth in years (8% in air, 4% in sea and 3% in road freight), yields were under pressure, due to increased freight rates, which resulted in relatively sluggish earnings growth of 5% on average in the first half of 2017.

They said that DSV remains the best-in-class freight forwarder, with the strongest growth track record and the highest and least volatile profit margins. Underlying earnings growth of 54% in the first half of 2017, largely driven by the successful integration of the UTi acquisition.

They add that Kuehne+Nagel has met its 5% earnings target since 2015, despite still relatively low profitability in overland and contract logistics.