DSV-Panalpina Merger Could Spark More Deals in Fragmented Freight Forwarding Sector

By April 16, 2019Power of the Profession
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Consolidation continues in the freight forwarding sector, with Copenhagen-based DSV’s pending $4.6 billion purchase of Panalpina being the latest example. The mega deal ends months of speculation about Panalpina’s future, and follows on the heels of CMA CGM’s acquisition of CEVA.

As the world’s largest third-party logistics and shipping lines get bigger, more logistics capacity is being controlled by fewer companies. The merger is expected to be finalized in the fourth quarter. DSV’s management has successfully integrated mergers in the past, including the $1.5 billion buyout of UTi Worldwide in 2015. However, the Panalpina purchase represents a much larger challenge due to the scope of the deal.

DSV posted revenue of $12 billion in 2018, on strong 5.2% growth. Panalpina’s merger with DSV will boost the combined company’s revenue to nearly $18 billion. The combined entity will have a workforce of more than 60,000 employees and a geographic presence in over 90 countries.

DSV-Panalpina will still predominantly be a freight forwarder, reaping the higher margins associated with forwarding, as opposed to contract logistics. However, moving forward, DSV’s strategy may be to invest in regional contract logistics specialists, given that finding a truly global contract logistics specialist is difficult.

The added ocean and air freight volumes from the deal should help DSV drive a greater negotiating position with airlines and shipping lines. Shippers that are DSV customers might be able to exploit this scale for better rates.

Freight forwarding remains extremely fragmented, with the top 20 logistics companies controlling only about one-third of the market.1 It’s quite possible that this deal could spark further consolidation in the industry, although it remains to be seen which major players would step into the market. Given the scope of this deal, and a likely integration period of two to three years, it is unlikely that DSV will pursue additional buyouts, other than, perhaps, much smaller deals for contract logistics plays.

DHL logistics, the largest freight forwarder, has already indicated that it will not pursue any major deals, suspecting that a large buyout would likely draw the ire of antitrust regulators, given its already large scope. Instead, the company plans to focus on organic growth and increasing operational efficiencies.

XPO Logistics recently pulled $8 billion from its mergers-and-acquisitions (M&A) budget after a large decline in its share price. The company, an active acquirer over the past several years, has pulled back from its deal-making strategy and has instead announced two share buybacks totaling $2.5 billion.

Kuehne + Nagel, the world’s largest container shipper, may seek a transformational acquisition as further M&A activity occurs in the global logistics industry. The company could add new markets with a major deal, and may also acquire high-tech freight-processing systems that could help to insulate the firm from emerging disruptive technologies.

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Supply Chain Brief: How DSV’s Acquisition of Panalpina Will Impact Global Supply Chains

John Johnson, a senior writer, supports Gartner’s supply chain practice.

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