Transportation and logistics deals insights: 2021 outlook

Shipping

The shipping subsector represented 19% of deal value and 17% of deal volume in the last twelve months. Government-mandated lockdowns in most Asia and Oceania countries have resulted in lower ocean freight demand, while global ports have imposed operational restrictions, leading to shipping capacity reductions. M&A activity will be driven by those with the financial wherewithal looking to expand their network capacity in the face of evolving supply chains, or increase their exposure to on-shore service opportunities.

Airlines

The airline subsector has been severely impacted by travel and tourism restrictions, in addition to increased public safety concerns associated with public travel. As airlines are facing major disruption and shifts in the demand for services, they have to be creative and nimble to adopt, e.g. by gaining regulatory approval to allow cargo shipments in passenger jet cabins.  Airline transactions represented 17% of deal value and 10% of deal volume in the last twelve months. Significant transactions were driven by state backed stabilization efforts and opportunistic private investing, including in airline related services and assets. M&A activity is expected to remain soft until a clearer path to recovery emerges.

Playing a prevalent customer-facing role

The trajectories of sub sectors have been altered, presenting significant opportunities to some (e.g. logistics and last mile delivery, tech enabled services) and serious challenges to others (e.g. airlines). Digital storefronts and doorstep delivery are replacing brick-and-mortar stores, where direct-to-consumer logistics have become the driver of consumer good sales in 2020. As a result of these dynamics, logistics is playing a different and more prevalent customer-facing role.

Companies facing the acceleration in ecommerce trends and the corresponding impact on their customer relationships, need to consider whether to build or buy logistics capabilities needed to compete. In this regard, logistics providers have become even more appealing targets for vertical integration in the arms race for capacity. Furthermore, retailers are making these strategic investments in the supply chain as a means  to get closer to customers while reducing the cost to serve.

Emerging logistics technology

The logistics industry is changing due to digital disruption. New entrants have emerged in the market, offering technologies that range from autonomous trucking to delivery drones. The change in consumer behavior and e-commerce marketplace have opened access to new consumer segments relying on faster doorstep delivery. In many respects, Covid-19 has driven supply chain innovation and accelerated the development and adoption of emerging technologies in the sector. Technologies disrupting logistics include:

1. Digital freight brokerages connect shippers and asset-based truckers in cloud-based digital marketplaces.
2. Fleet management platforms enable fleet efficiencies by monitoring vehicle performance and driver behaviors.
3. Electric trucks seek to replace diesel trucks, with reduced fuel, repair and maintenance costs while having a positive impact on the environment.
4. Freight-forwarding technology offer a software platform that automates processes, such as generating quotes, booking shipments, preparing documents and managing purchase orders.
5. Autonomous trucking enables truck drivers’ safety by using Artificial Intelligence (AI) / Augmented technology to empower one driver to drive two trucks at the same time.
6. Delivery drones and robots are anticipated to transform last-mile logistics, enabling faster delivery of small packages by bypassing congested city streets. 

Multinodal transport in global logistics

Loss of trust in institutions and increased nationalism are amongst factors leading to a multinodal world, which is driven by more individual connections.  Companies will reassess their historical pursuit of lower costs and less redundancies against business models that provide more resilience. Deals will be sought on a regional basis to gain a stronger foothold in key markets, to move closer to customers and to reduce the impact of trade barriers and supply chain interruptions. Changes in supply chains will impact the nature and extent of shipping and logistics needs. Streamlined international shipping may give way to multinodal regional and local logistics solutions. 

Capital funding trends

While economies across the world continue to wrestle with COVID, there continues to be significant capital available to do deals which causes a decoupling of M&A from broader economic activity. We expect the recovery in the deals market to precede that of the overall economy with a continued focus on growth segments, such as logistics and ecommerce fulfillment. Financial investors will lead the way with their dry powder but corporates will soon follow as they seek to acquire the capabilities and the capacity to succeed in a changed world.