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Recovery from the storm
In the first half of 2021, COVID-19 continued to affect the transportation and logistics (T&L) industry. Despite the disruptions, it has also presented new opportunities but with that comes its own challenges. The global economy may have already reached pre-pandemic levels of activity, but the recovery is highly uneven, riddled with uncertainty and many points of friction.
In Asia Pacific, even as mega deals return to pre-crisis levels and the region dominates in terms of the total number of T&L deals announced, regional distortions remain with Asia and the US recovering much faster from the economic shock than Europe. Most T&L sub-sectors have developed positively in H1 2021. The aviation sector, however, continues to operate significantly below pre-COVID-19 levels in the passenger business. As vaccination rates around the world increase, we expect H2 2021 to ride on the positive progress of the earlier half of the year with higher levels of activities and deals.
Singapore is one of the countries around the region with a higher vaccination rate. As the local government starts reopening its borders to the world, it could potentially encourage neighbouring countries to adopt the same approach, inspiring them to be more resilient and propelling longer term economic growth within the region. This would have a positive impact on Singapore’s T&L industry given that the country is the regional business hub.
Key challenges Singapore’s T&L players are facing
Surging cost pressures
Similar to the construction industry, T&L sectors which rely heavily on manpower are also facing manpower crunch. This translates to increasing manpower costs which, in turn, drives shipping and logistics handling costs upwards. On the other hand, supply chains remain disrupted adding into the cost pressures.
Differing vaccination rate across borders may slow down recovery
As Singapore becomes 'COVID-19 resilient' this will hopefully encourage the neighbouring countries around the region to adopt the same approach. However, the challenge lies in convincing the neighbouring countries to reopen the borders as vaccination rate increases. Trust between countries coupled with a good system to detect and manage the virus needs to be implemented for this to progress forward and this might prove to be the most challenging task till date.
Low rate of passengers transiting through Singapore
While Singapore has recently slowly opened its borders up to certain countries with a similar 'COVID-19 resilient' approach, this is still not fast enough. Low rate of passengers transiting through Singapore Airport is still having an impact on the country’s aviation and hospitality sectors. Until the world recovers from the virus, it is going to be a challenging task for the aviation sector to go back to pre-COVID-19 level of activities.
H2 outlook
H2 2021 will continue to see a steady level of deal activity in T&L on a global level as the industry is highly fragmented and holds a lot of potential for growth. Business models are changing due to new requirements, while the drive for market share, digitalisation and decarbonisation will trigger investments and acquisitions in the industry.
The new normal for T&L and shipping
The virus has not slowed down these sectors as most businesses continue to engage T&L services for business purposes as consumers started adopting online purchases as a new norm given the travel restrictions. We expect this trend to continue growing, and in a post-COVID-19 world, this might become the new normal, potentially pointing towards a stronger T&L industry after the virus.
A steady path to recovery in aviation
To preserve Singapore’s status as a regional business hub, the local government has been working on safely reopening our borders for both business and leisure travel. An example is the opening of the Vaccination Travel Lanes with Germany and Brunei, which encourages travelling between the countries thus bringing renewed optimism to the aviation and tourism industry. We expect the positive developments to continue in H2 2021 as Singapore continues to keep vaccination rates high and maintain an effective and efficient system to control the virus.
Prices heading back to normal
Since the median of sales multiples fell to only 1.0 in 2020, close to reaching the record low set in the financial crisis, we are now seeing prices of T&L targets recovering to reach a level equal to pre-pandemic. However, prices are still well below the overall long-term median which currently stands at about 1.8 times sales. With the current rate of recovery, we expect prices to continue improving back to pre-COVID-19 levels and higher.
Financial investors entering larger deals again
After the average deal value plummeted by approximately one third to US$417 million in 2020, it has climbed considerably by about 22% to US$509 million in H1 2021. Financial investors focused on Logistics and Trucking once more, accounting for 60% of their transaction in the first half of the year. Due to the large quantity of dry powder in the market, financial investors will likely continue to be actively invested in T&L targets and they could become even more important in providing support to affected companies.
Methodology
This report is an analysis of the current industry environment and of global transaction and strategic collaboration activities in the T&L industry. The analysis covers all mergers, acquisitions, sales, leveraged buyouts, privatisations and acquisitions of minority interests with a transaction value greater than US$50 million. All transactions announced between 1 January 2021 and 30 June 2021 have been included. Project transactions, such as public-private partnerships – which are more common than corporate transactions, especially in the field of infrastructure – do not fall within the scope of the analysis.
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