The logistics sector is fragmented and is going to consolidate aggressively. That's the message from CEVA's John Pattullo speaking at a logistics conference in Antwerp, yesterday (November 22).
"How many other sectors are there where the top ten providers control less than 30% of the market?" asked Pattullo, suggesting that the consolidation would be paralleled by the emergence of logistics service providers from emerging markets. Consolidation would also produce a stronger breed of companies which are better capitalised and able to employ high calibre personnel. This in turn will drive more innovation and thus strengthen such providers' position in the market place.
There appears to be most evidence for Pattullo's ideas in the freight-forwarding sector, where a number of the largest ocean forwarders continue to grow at above market rates. Damco's CEO, Rolf Habben-Jansen, speaking to Ti sees consolidation "but I do not think it will be that fast. Yes the top ten will control more than now, but this will happen slowly". One of the constraints on change cited by Habben-Jansen is the structure of specific ocean container markets such as the intra-Asian trade, where the big forwarders don't yet have such a grip.
He also makes the point that size brings with it is own problems; "in freight forwarding, if you go above US$7bn-US$10bn in revenue you need to re-invent the business model" as size demands additional layers of management.
Jens Tarnowski, CEO Europe Air & Sea at Hellmann Worldwide described to Ti another type of barrier to greater consolidation; the preferences of customers. He points to his company's experience where the family-owned Mittelstand sector has driven growth. They prefer "not to be a number, but to be similar in size to their logistics provider". Certainly the big global corporations might be a good fit with the largest firms, but "if you are above a certain size and have a basic global network and the IT and volumes" you will be competitive in the market, asserted Tarnowski.However, there is one area that may well be seeing a reduction in the number of players and that is container shipping. Rolf Habben-Jansen sees a "reaction" in the sector, with carriers collectively pushing-up rates or taking ships out of commission. Yet the effects of any consolidation may still not deal with the underlying issue of too many ships. Jens Tarnowski also sees a long-term prospect of shrinkage in the number of carriers; however he notes that this may add to the resistance towards consolidation in the forwarder market as big physical asset owners resist logistics service providers with too much buying power.
Wednesday, 23 November 2011
Logistics Markets: Contract Logistics
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