2015 looks set to be the year for increased mergers and acquisitions (M&A) activities in logistics. Recently, we have witnessed two back-to-back announcements of national flagship logistics service providers (LSPs) being acquired by Japanese companies.
In the first deal, Kintetsu World Express Inc. (KWE) struck a deal with Singapore’s APL Logistics to purchase it for $1.2 billion, far above the $750 to $900 million purchase price widely anticipated by analysts to be the fair valuation, based on past EBITDA multiples within the industry .
The second saw Japan Post acquiring Australia’s largest supply chain company, Toll Holdings Limited, at a price of A$9.04 per share, nearly 50 per cent above its closing price on the same day .
This suggests that Japan has a growth agenda. Japan’s domestic economy has been stuttering for over a decade. Despite Prime Minister Shinzo Abe’s aggressive moves over the past year to return Japan to growth, growth has been weaker than expected and the continued bleak outlook will cascade down to the logistics sector.
Abe’s quantitative easing policies have provided Japanese companies with a war chest built on cheap financing. Japan intends to reinforce relations with India, the US and ASEAN as a counter-balance to China’s growing economic power, and wants to regain its strength in industrial output and geographical reach of Japanese products.
Increasing investments have flowed to manufacturing plants in Indonesia, Vietnam and Thailand in search of cheaper and more stable manufacturing locations away from China, due to rising costs and political tensions there.
Some Japanese companies have even moved their global headquarters out of Japan as they seeks to better internationalise and focus on growing their business beyond Japan. One such move was Panasonic shifting its entire global logistics function to Singapore.
We also see this as a sign Asian LSPs are now looking to compete more effectively with their Western counterparts beyond their traditional domestic markets, with Kerry Logistics also establishing a presence in Indonesia via a joint venture set up. “The days are over when logistics companies can survive by shutting themselves within Japan,” said Japan Post Holdings’ president Taizo Nishimuro.
Recent global one-stop shop service offerings have been typically dominated by western counterparts with Asian LSPs typically only covering a specific segment of the logistics service offering. Asian LSPs are now starting to compete effectively with the global LSPs as they look to increase their service offerings and geographical presence, especially in a key growth market such as Asia Pacific.
The implications for Asian shippers are significant. Rivalry for market share in Asia-Pacific will intensify further. As traditional core logistics services become increasingly commoditized, the competition among LSPs will have to move beyond lower prices. Accenture believes high performers can differentiate themselves by focusing on providing industry-specialized and niche logistics solutions, to win over customers, increase loyalty and stickiness, and combat declining customer satisfaction5.
Consolidation will also provide LSPs with the necessary scale and financial muscle to make and justify investments in innovation while not jeopardizing cost efficiencies. To play a more active role in integrating with their customers’ digital ecosystems, LSPs will have to invest in digital initiatives such as data analytics, internet of things, robotics etc..
On a final note, whether these companies manage to integrate their new acquisitions successfully remains uncertain. Many mergers fail to meet their original objectives. Furthermore, both buyers and sellers in the two current transactions have distinct operating cultures, posing a further challenge for proper integration.
Despite the clear intentions by Japan Post and KWE to run their newly bought companies as separate units, being able to run these companies cohesively is still key to success. Considerations include defining an efficient operating model, developing a sound IT strategy, integrating processes and organization and keeping close tabs on how well previously identified synergies have been realized.
In the race for growth, we can expect further investments and consolidation of LSPs. The Asia-Pacific logistics sector will be an interesting space to watch.
Article contributors :
Kumud Ranjan Jha, Principal, Accenture Strategy
Kenneth Heng, Supply Chain Consultant, Accenture Consulting
By Kerry Mok
Managing Director – Accenture Strategy, Operations, ASEAN
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