A convergence of industries

A convergence of industries

There is much talk about the consolidation of ocean carriers, as evidenced by A.P. Moller-Maersk's acquisition of P&O Nedlloyd and Hapag-Lloyd's acquisition of CP Ships. Similar activities took place among forwarders in 2005 with the acquisitions of Exel by DHL, Menlo Worldwide by UPS, GeoLogistics by PWC and BAX Global by Deutsche Bahn.

While industry speculators are focused on consolidation of the large by the larger, a more interesting story is unfolding. This acquisition and consolidation activity is creating a convergence of separate and distinct industries into a single, cross-modal, multifunctional, end-to-end supply-chain service industry. That's the intent, at least, of many of these acquisitions.

Is it possible for a company to successfully run asset- and nonasset-based businesses offering end-to-end solutions, globally, across modes? Only the shippers will be able to provide us with this answer.

This convergence positions companies such as UPS, DHL, Schneider National and Maersk as potential head-to-head competitors fighting for a larger piece of the supply chain. UPS and DHL have moved from parcels and packages to forwarding and logistics. Schneider has decided that trucking opportunities in North America are too limited and has expanded into logistics and port services. Maersk has become the dominant ocean carrier and, at the same time, diversified into forwarding, brokerage and logistics. Many of the leading ocean carriers now have logistics entities. Eventually, all of these companies will be vying for the same business from the same customers.

In the meantime, the business environment for shippers has grown more complex. Shippers are looking to simplify their activities by using fewer service providers who can offer a broader range of services across a larger and more complex supply chain. The expansion and consolidation of the integrators establishes expectations that this may be possible in the foreseeable future.

Service providers still excel at one mode of service over another, and it is difficult to find the Holy Grail of global 3PLs. UPS and DHL lead in size, and the integrators are driving many of the changes in the services offered by global 3PLs and forwarders. Japanese ocean carrier MOL and global forwarder Kintetsu announced an alliance last May that was an admitted response to the massive buildup of global services by the integrators. These companies expect to capture a significant share of the growing airfreight, ocean freight and 3PL market. All are heavily focused and invested in China.

The logistics, international forwarding and domestic transportation industries are converging to a point where all three industries are competing for the same customers with similar products. In one form or another, U.S. domestic companies are seeking opportunities overseas. U.S. trucking companies and railroads realize that the largest segment of growth for their business is connected to the inbound international transportation pipeline from Asia, driven by China's exports to the U.S. The international forwarder is under increasing pressure from its clients to offer logistics solutions once the product arrives in the U.S. Finally, North American 3PLs are sensing a demand similar to the forwarders in that they have the opportunity to capture the inbound transportation leg as a byproduct of handling the logistics. This convergence is driven by four key factors:

-- Mature domestic U.S. and European markets with limited growth potential.

-- Service providers expanding into other areas of the supply chain.

-- Growth of inbound shipments from Asia, particularly China.

-- Evolution of technology to offer global Web-based solutions with end-to-end visibility.

The opportunities to establish inbound facilities to handle transload, warehousing, distribution and value-added services that complement the origin and transportation activities has established most forwarders as logistics companies. Now everyone wants a piece of this business. Who can blame them?

What will these changes signify for 2006? 2006 will be a year of transition and digestion. For some companies, it may mean indigestion. Most of the current acquisitions are so large that it will take years before success or failure can be measured. The concept of an all encompassing, end-to-end, global transportation and logistics company may still be years away.

As for service levels, expect a new breed of company to step in and fill the void left by the acquired companies. My bet is to watch the emerging Asia- and China-based forwarders and logistics companies. It won't be long before they enter the U.S. with their own brand of logistics services.

Jon Monroe is president of Jon Monroe Consulting Inc. He can be contacted at (415) 331-8890 or at ocn8@aol.com.