This April, Danish transportation and logistics company DSV acquired Swiss freight forwarder Panalpina in a deal worth $4.6 billion.

The deal will make DSV-Panalpina one of the world’s largest transport and logistics companies, with a combined revenue of about DKK 118 billion ($17.6 billion) and a combined workforce of more than 60,000 employees.

Mergers and acquisitions (M&As) of freight forwarders like these can have huge implications on the shipping market. They can often be incredibly beneficial with better all-in-one solutions offered with a greater reach, at more competitive prices.

However, M&As are complex and lengthy processes which can also disrupt service levels. In 2017, while FedEx and TNT Express were undergoing a tricky integration process, they were caught out by the NotPetya cyber attack. Of course, this damaged the two companies involved greatly. However, it also affected shippers with entire TNT operations being shut down, leading to long delivery delays and even complete losses of shipments.

I doubt the DSV-Panalpina move will have such cataclysmic consequences for shippers. Quite the opposite, the deal is likely to improve DSV-Panalpina’s rate prices and service solutions, while also improving competition within the market.

Obvious benefits

DSV and Panalpina offer very similar, complete solution portfolios. There are also some complementary aspects where DSV will offer improved strength in road shipments, while Panalpina will improve air freight solutions. This synergy will provide DSV Panalpina with a more complete portfolio of supply chain solutions, which will be a cheaper option for shippers than multiple providers.

Shippers will also be able to reduce costs thanks to DSV-Panalpina’s increased global reach, having further access to countries through the new entity. This will again reduce the need to use multiple providers.

In addition, the volume possessed by DSV-Panalpina will drive down rates for shippers. Taking the two company’s volumes in sea freight alone as an example, the move will see each of their volumes double to close to 3 million TEU per year. Considering that both DSV’s and Panalpina’s volumes are already impressive, this move will make the new entity a major player in the freight forwarding industry and an attractive option for shippers. If margin alignment is achieved through cost synergies, rates should remain low, too.

DSV-Panalpina will become the fourth major global freight forwarder, providing considerable competition for major players such as DHL, Kuehne + Nagel, DB Schenker, Sinotrans, and Expeditors. I believe the presence of such a force in the market — offering an advantageous all-in-one solution across the supply chain with impressive volume and global reach — will drive prices down for shippers, yet another advantage of the merger.

However, M&As are unpredictable. For one, this deal may be prevented by antitrust laws like we’ve seen in the past with UPS’ proposed takeover of TNT in 2013. The European antitrust regulators disapproved the acquisition as they believed it would create a duopoly, where customers would be left to choose between UPS-TNT and DHL. Still, this will not be the case for DSV and Panalpina, as there is enough competition present to avoid a duopoly. In fact, on July 29, the acquisition was approved by the EU commission, so it will go ahead in Europe. However, other jurisdictions may want to issue their own approval.

Additionally, M&As are unpredictable because previous successes, such as the DSV-UTi acquisition, do not guarantee success with Panalpina. Panalpina is a much larger company than UTi, making the integration far more complex, which can put service levels at risk of disruption.

Nevertheless, these considerations should not detract from the fact that DSV-Panalpina is exciting news for shippers. If the integration is completed in time and within budget, the new entity will be well-positioned to be a strong competitor in the freight forwarding market, offering improved pricing and service solutions while driving competition within the market.

Contact Naz Solomon at Naz.Solomon@charltonmorris.com.