Carrier-3PL vertical integration ‘no panacea’

Moves by container lines including Maersk and CMA CGM deeper into logistics may not provide the financial returns they hope in an increasingly competitive market, analysts warn.

Moves by container lines including Maersk and CMA CGM into the space formerly occupied by 3PLs in a fight to claim the customer for themselves may not provide the financial returns that they hope it will in an increasingly competitive logistics market, analysts have warned.

Alix Partners director Henry Pringle said carriers’ attempts “to capture more of the value chain in logistics” was also driving more M&A activity in the 3PL market and yet more indebtedness, noting that 3PLs have benefited from a fair amount of revenue growth but less impressive earnings growth, in “an increasingly important market in terms of revenue, but an increasingly competitive market. There are very few winners and this move towards 3PLs for carriers certainly isn’t a panacea to their woes in respect of increased capacity, low-freight rates and low profitability on their core ocean profits.”

Bill Payne, an independent consultant and former vice-chairman of NYK Line, said the strategy of carrier supply chain acquisition was not new, highlighting Maersk’s Mercantile, Maersk Logistics and Damco businesses, APL’s APL Logistics business, and NYK’s Yusen Logistics. He said vertical integration was good for the liner sales team because it gave access to the software and contacts of the customer, but gaining core competency in all facets of the supply chain had proven more difficult.

And Christian Roeloffs, CEO of container repositioning platform xChange, believes vertical integration is a throwback no longer relevant in container shipping’s digitalised future, offering some benefits “but always more inefficiencies in conglomerates compared to organising a business through specialists, as long as you can manage the interfaces between the specialists”. That can be achieved via a platform model or “ecosystem approach”, where carriers hire in the specialist expertise that they need, interfacing with xChange, Traxens or a freight market place – because “the marginal cost is the same and the conglomerate doesn’t have the advantage anymore”.

This is an edited extract from a longer Special Report article published in Lloyd’s List. Lloyd’s List subscribers can read the full original article via this link: Carriers bet big on vertical integration

Source: Lloyd’s