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Copyright © 2005 by BG Strategic AdvisorsNo part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording or otherwise — without the permission of BG Strategic Advisors.
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
Page 2
BG Strategic Advisors: Leading Mergers & Acquisitions Advisor to the Logistics Industry
Representative Clients / Relationships
Page 3
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 4
State of the Logistics Industry:The Year in Review
Conventional Wisdom 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!
• In a market dominated by the West, a little-known logistics company from Kuwait…
• Buys Trans-link, TransOceanic, and GeoLogistics to become an $8 billion powerhouse!
• The ports of California get more crowded…
• And Wal-Mart decides to build Houston into a port competitive with Long Beach!
Page 5
Assets: an Albatross…
(50)
0
50
100
150
200
250
300
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
EB
ITD
A,
in M
M$
C.H. Robinson
Expeditors
Uti Worldwide
EGL
Landstar
Forward Air
CAGR
26%
18%
25%
23%
6%
13%
• 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 6
… or an Advantage?
37%
75%
24%27%
58%
30%
24%
45%
-11%
30% 29% 29%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2003 2004 2005
An
nu
al S
tock
P
erfo
rman
ce
Non-Asset Logistics
Asset-Light Forwarders
Truckload Carriers
Class I Railroads
CHRW, EXPD, UTIW
EAGL, FWRD, HUBG, LSTR, PACR
CVTI, HTLD, JBHT, KNX, SWFT, WERN, XPRSA
BNI, CNI, CP, CSX, NSC, UNP
• Assets are back in vogue
• Class I Railroads saw share appreciation of 29%, outpacing non-asset logistics companies for the first time in three years!
Page 7
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 8
Infrastructure: Can North America Keep Up?
SAFETEA-LU
Asian Infrastructure
Capacity Solution: PierPass Effort
Port of Houston?
• 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?
• 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%!
• $286.4 billion, 6-year plan for transportation infrastructure
• “Alaskan bridge to nowhere”
Page 9
Acquisitions: The Consolidation Continues
Non-Asset-Based SurfaceTransportation
Air/Ocean FreightForwarding
Asset-BasedTransportation
C. H. Robinson
Transplace
Ryder Logistics
Hub Group
Schneider Logistics
UPS
Cat LogisticsRR Donnelley Logistics
PacerPenske
MenloNYK LogisticsExel (Mark VII)
FedExPittsburgh Logistics
Landstar Transport Industries
$18.9 B
Exel Americas (T&B)
Ingram Micro Logistics
UPS
APL (GATX)
KN (USCO)Americold
TPG (TNT/CTI)CAT LogisticsLogistics Insights
GencoOzburn-Hessey Logistics
Standard
Value-Added Warehouse
$12.7 B
UPS(Menlo, Fritz)
DHL(Danzas, AEI)
EGL (Circle)
BAX Global
Expeditors
GeoLogisticsUTI
Maersk LogisticsPhoenix International
PanalpinaKN
Kintetsu World Express USAHellmann Worldwide Logistics - USA
$9.4 B
Ryder Dedicated
Penske Logistics
Schneider Dedicated
JB Hunt Dedicated
Averitt Express
Ruan Logistics
SIRVA Logistics
Swift Transportation
$7.9 B
0%
20%
40%
60%
80%
100%
20% 40% 60% 80% 100%
Total = $48.8 Billion
200
4e R
eve
nu
es
Note: Only includes the top-50 companies, or $49 billion. Total U.S. logistics market is actually over $75 billion.
U.S. Logistics Market Map: Top 50 Companies
Page 10
3PL Consolidation: Convergence of Global Freight Forwarding and U.S. Warehousing
Non-Asset-Based SurfaceTransportation
Air/Ocean FreightForwarding
Asset-BasedTransportation
C. H. Robinson
Transplace
Ryder Logistics
Hub Group
Schneider Logistics
UPS
Cat LogisticsRR Donnelley Logistics
PacerPenske
MenloNYK LogisticsExel (Mark VII)
FedExPittsburgh Logistics
Landstar Transport Industries
$18.9 B
Deutsche Post
(Exel, T&B)
Ingram Micro Logistics
UPS
APL (GATX)
KN (USCO)Americold
TPG (TNT/CTI)CAT Logistics
Logistics InsightsGenco
Ozburn-Hessey LogisticsStandard
Value-Added Warehouse
$12.7 B
UPS(Menlo, Fritz)
DHL(Danzas, AEI)
EGL (Circle)
BAX Global
Expeditors
GeoLogistics
UTIMaersk Logistics
Phoenix InternationalPanalpina
KN
Kintetsu World Express USAHellmann Worldwide Logistics - USA
$9.4 B
Ryder Dedicated
Penske Logistics
Schneider Dedicated
JB Hunt Dedicated
Averitt Express
Ruan Logistics
SIRVA Logistics
Swift Transportation
$7.9 B
0%
20%
40%
60%
80%
100%
20% 40% 60% 80% 100%
200
4e R
eve
nu
es
Note: Only includes the top-50 companies, or $49 billion. Total U.S. logistics market is actually over $75 billion.
APL
Kuehne & Nagel
Deutsche Post
Exel
TPG
International Acquirors
Total = $48.8 Billion
U.S. Logistics Market Map: Top 50 Companies
PWC Logistics
Schenker (DB)
Page 11
Acquisitions: Other Key Deals
Emerging Leaders
Convergence
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
• 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
Page 12
State of the Industry:IWLA Member Survey Confirms These Trends
Page 13
State of the Industry:IWLA Member Survey Confirms These Trends
• 80% of respondents saw revenues increase in 2005
• Nearly 90% expect to see growth in 2006
• Public warehousing is flat-lining – 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!
• 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
• 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
Strong Growth Throughout the Industry
Growing Gap between Winners and Losers
Clouds on the HorizonConsolidation Wave Creates Threats and
Opportunities
Source: IWLA 2006 Business Outlook
Page 14
Implications for LQ’s Executive Exchange
Key Questions to Consider Possible Responses
• Will assets be an albatross, or an advantage?
• Will infrastructure shortages constrain growth in the US, as customers seek new markets?
• Will consolidation create larger competitors who pressure the mid-market?
• Many small and mid-sized companies are choosing to respond strategically:
Sale or merger – taking advantage of record valuation levels and strong buyer interest, over 20 companies took this route
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 15
Contact Information
Benjamin Gordon
Managing Director
BG Strategic Advisors
(561) 655-6677
www.BGstrategicadvisors.com