Li & Fung, the Hong Kong-based consumer goods sourcing, logistics and distribution group, has acquired the non-vessel-operating common carrier China Container Line as part of a restructuring that will focus on sourcing and logistics while spinning off its global brands business.
The company, which supplies some of the world’s biggest retailers, including Wal-Mart, Target and Inditex, announced the acquisition as part of a new three-year plan. CCL, which will be absorbed into the firm’s LF Logistics division, represents Li & Fung’s first major logistics acquisition since it acquired IDS in 2010. CCL currently has 24,000 square meters of warehouse space and 24,000 square meters of depot area, equipped by 86 container trucks, according to the company’s website. CCL, which was founded in 1996, focuses its business mainly on trade between China and the U.S., although it has also expanded into other east-west routes as well as some north-south lanes.
“This is an important development for our logistics business,” said Bruce Rockowitz, Li & Fung’s president and CEO, in a written statement. “Along with our very strong Asian in-country logistics business, the acquisition of CCL puts LF Logistics in a leadership position in the freight forwarding space.”
The acquisition will expand Li & Fung’s global forwarding business and increase operating profit, according to the firm.
“If you look historically, our core business is trading,” Rockowitz told the South China Morning Post. “There’s a huge synergy with freight forwarding and our trading business. Our business was 10 percent freight forwarding and 90 percent in-country logistics. After the acquisition, we’ll be 50-50.”
CCL will add more than 500,000 TEUs to the logistics division’s current 50,000, according to SCMP. Only a portion of that volumes is destined for the U.S.; CCL moved 33,015 TEUs into the U.S. from Asia in the first half of 2013, representing 0.5 percent of trans-Pacific eastbound NVO market share and ranking it 17th among NVOs in the trans-Pacific eastbound market, accoriding to PIERS, the data division of JOC Group.
With new plans to focus on freight forwarding, Li & Fung is simultaneously intending to exit the brand business. As another part of the restructuring, the firm has plans to spin off its U.S.-focused brands and licensing business, Global Brands Group, through a stock split.
“Knowing where to source material for the latest hot T-shirt trend is very different to marketing it,” FT.com said in an article.
If the spin-off is approved by shareholders, Rockowitz will resign from his position at Li & Fung to lead the new company, and Spencor Theodore Fung, Li & Fung’s current chief operator officer, will take his place, SCMP reported.
Rockowitz explained that the brand business is higher margin, but more volatile, and has had problems over the past few years, according to FT.com. Rather than focusing on mainly American brands, especially as the U.S. market is still not robust, Li & Fung will return to its core business, Rockowitz said, according to SCMP.
Shareholders with a stake in Li & Fung will automatically get one share each in the spin-off, and therefore the spin-off will not raise cash, Reuters reported
Li & Fung said that by 2016, it wants its trading core operating profit to be larger than the entire group’s operating profit today, double that produced by the logistics business and more than double that of its Global Brands Group, SCMP reported. The company reported core operating profit in 2013 was $871 million, jumping 70 percent year-over-year. In 2012, the company’s operating profit was $511 million, representing a 42 percent drop compared with 2011.
“Important ‘mega trends’ have been emerging, such as a rapidly changing retail environment which relies increasingly on multi-channel sourcing, the movement of production out of China to lower cost countries and the need to manage risks associated with sourcing in less mature production markets,” Rockowitz noted.