Q3 2024 Freight-View

The Freight & Logistics sector continued to experience steady growth, despite the backdrop of a volatile macro-economic environment beyond the UK. This freight view will explore the surging Latin American demand, as companies seek to claim a stake in growth regions. Moreover, we discuss the behemoth DSV – DB Schenker deal that piqued industry attention and continued the pursuit of scale. Additionally, the looming UK October budget and the scepticism regarding taxation rises creates an intriguing contrast between those awaiting economic clarity and those willing to be acquisitively opportunistic in times of uncertainty.

DSV acquiring DB Schenker

The €14.3 billion enterprise value transaction of DSV, signing the initial agreement to strengthen their global network capabilities, was rumoured to be imminent for some time, but finally moved into the completion phase. This acquisition will give DSV a stronghold presence in Germany and build upon its Central European ambitions to create a ‘sustainable’ opportunity for their digital transport and logistics divisions. Jens Lund, Group CEO of DSV, added that it will “improve their competitiveness across all three operational divisions, air, sea and road”. DSV have demonstrated an ability to handle integrations with the Panalpina merger in 2019, which boasts a successful pathway for future large deals such as DB Schenker. It is being reported that DB Schenker’s margins post-integration will grow in-line with DSV’s. The deal rationale is to encourage size and scalability as a means to achieve competitive advantage and a greater product offering which establishes a commanding position in the global logistics market.

We continue to see mid-market logistics players seeking niche and diversified deal opportunities to enhance their services. Bracchi purchasing an out of gauge specialist transportation business Mateco in September. This broadened their service offering and expanded their presence across the European market.

Surging demand in LATAM

The emerging markets of Latin America have continued to draw significant interest from Freight and Logistics providers. The economic and developmental potential of the region, coupled with its unique geographical positioning, has driven logistics firms to consider expanding their footprint in the region through market entries, expansions, and acquisitions.

Scan Global Logistics have boosted their presence in the region, with their acquisition of Blu Logistics Brasil, a Brazilian freight forwarder. This bolsters their existing operation in LATAM by establishing a presence in Brazil - the 8th largest economy. J?rn Schmersahl, CEO for Latin America, explained their rationale for the deal:

“Besides a significant Intra-Latam trade, the region provides great opportunities for growth with North America due to existing free trade agreements, but also has strong and growing links with Asia and Europe”

In another deal involving Brazil, CMA CGM, the French shipping giant, acquired a 47.6% stake in port terminal operator Santos Brasil in a $1.2 billion deal. This enables CMA to control the largest port in Latin America.

These deals come at a time where the importance of LATAM is being amplified amidst the ongoing US and China trade tensions. Mexico, with their 13 trade agreements and proximity to the US, has seen surging trade volumes as nearshoring emerges as a critical strategy for many manufacturers. Trimble’s Transporeon Report indicates that U.S. carriers see nearshoring as having the most impact on freight transportation in the next three years. Through this, Mexico have become the No. 1 importer to the US, with many believing that this will continue until the end of the decade. Moreover, the trade of raw materials and components from China to Mexico has surged, with many Chinese manufactures nearshoring to Mexico to bypass US tariffs. Freight and Logistics companies have continued to invest in the US and Mexico to capture these increasing cross-border freight opportunities.

Maersk recently opened a 30,000 sqm facility in Tijuana, with ambitions for additional capabilities in Guadalajara and Manzanillo. DHL are similarly looking to enhance their presence in Mexico, with plans to expand their Mexico City hub. The Mexican Freight and Logistics market is expected to see a 5.82% CAGR from now until 2033 according to SPER Market Research, companies may look to consolidate the currently fragmented market through M&A activity.

For example, UPS are set to acquire Estafeta, a Mexican express delivery company with a dedicated freight forwarding team and six aircraft, further illustrating the appetite for the region. Carol Tomé, UPS CEO, explains

“As the shift to nearshoring continues, our combined business will give customers in Mexico unprecedented access to global markets with seamless service and greater efficiency.”

A surge in deal flow is something to look out for, both in Mexico and the wider LATAM region, its importance within global supply chains looks set to grow continuously. Imperative Logistics Group’s early Q4 move to acquire JAMCO, with the aim of integrating their Mexico-US trade corridor capabilities, is an early sign of this continuation. There was also an announcement today that MSC has agreed to acquire Wilson Sons, Brazil’s largest integrated provider of port and maritime logistics services for $767m.

UK M&A and geo-political tension

Q3 acquisition volume slowed in the UK, however MSC continued their acquisitive plan and enhanced their intermodal offering, via the cross-border acquisition of market leader, Maritime Transport.

Danish based DANX Carousel, backed by investors Axel, acquired Logik Logistics to progress the 24/7 on-demand logistics offering.

There were other SME acquisitions in the UK freight market, this trends alongside BDO’s UK logistics M&A index, which suggests high levels of optimism for acquisitive growth. As the October budget looms and an expected change

to capital gains tax (CGT) allowances, M&A activity is slightly subdued whilst buyers and sellers await news from the UK chancellor. The outcome, if not as drastic as first thought, could kick-start an M&A resurgence over the coming months. As global political uncertainty lingers, notably in the Middle East and the US with pending port strikes, it is imperative that M&A buyers consider geo-political tensions and their impact upon countries growth trajectories. US forwarders have expressed their growing concerns for limited air cargo capacity, due to the fixed stance of the International Longshoreman’s Association (ILA). The union which represents over 45,000 dockworkers agreed to suspend the striking activity until January 15th 2025. This tentative deal kicks the issues of labour renumeration and technology engagement into a new presidential term, when port workers will be seeking the opportunity for the United States Maritime Alliance (USMX) and the ILA to ratify a renewed agreement.

Conclusion

As LATAM demand surges, potentially influenced by the forthcoming US election, we may continue to see rising deal flow as boards attempt to capture value in a blossoming market. The long-awaited DSV – DB Schenker deal is being labelled as the deal of the century, dividing opinions and undoubtedly altering the forwarding landscape at the top of the volume charts.

It will be fascinating to follow any knock-on effects throughout the logistics and forwarding market, as well as monitoring any uptick in M&A deal volumes during Q4

Director’s Outlook

Head of Logistics, David Roberts

“A common theme running through the freight-views is turbulent times. It’s what we’ve become used to, that being said there are strategic winners and losers in periods of economic and geopolitical uncertainty. We are seeing the buyer- seller valuation discussion become a much easier one, and instead of the frothy shipping rates from two years ago, it’s now a question of Tonnage/TEU volume sustainability and trade lane exposure.

Still a relatively reduced year of M&A activity, the market ahead looks quite different. A few issues hinge on this playing out though, such as monetary policies easing further, regulatory timelines reducing and the presence of international buyers remaining high, alongside a private equity community able to deploy their resources. If the environment becomes clearer, competition for deals will increase, therefore companies need to get ready now. When momentum picks up, it’s key for buyers to have a defined M&A strategy and robust screening / origination process, to identify acquisition opportunities ahead of a competitive market vying for the same types of deals. As Forwarding and Logistics remains ripe for consolidation, companies looking at bold moves should consider the clear momentum within LATAM, in particular Brazil and Mexico —to avoid missing the boat (poor pun intended).”