Taking stock of the industry's big mergers

Taking stock of the industry's big mergers

Two major acquisitions got a lot of attention in the transportation segment of the logistics market in 2003. One integration appears to be proceeding better than the other, based on a study conducted by equity firm Morgan Stanley.

Nearly 22% of Roadway Express customers say service levels have deteriorated since the December merger with Yellow Corp. In contrast, only 8% of shippers using Airborne Express report service declined after that carrier was acquired by DHL.

Most Roadway shippers (76.4%) reported service levels had remained the same following the acquisition. At Yellow, 12.9% of shippers saw some decline in service, and 83.9% said service had not changed. The remaining 1.8% of Roadway shippers and 3.2% of Yellow customers saw improvements.

More disturbing for the carriers was the response that 28% of shippers said they expected to reduce the amount of freight they ship on the combined Yellow-Roadway units. Only 13% said they would increase volumes on the two carriers. Given the fact that shippers report across-the-board increases in freight volumes for the next six to 12 months, this amounts to diversions away from the carriers. (Yellow-Roadway announced when it was formed that it would continue to operate Roadway Express and Yellow Transportation as separate units.)

Where will the diverted freight end up? 54% percent of the shippers say they'll use regional LTL in place of either of the two nationwide carriers. Another 17% say the freight they move off of Yellow-Roadway will go to ABF and 11% say they would move it to non-union Overnite Transportation.

The air and parcel segment served by DHL/Airborne is no less volatile. In the last 12 months, 15% of air/parcel shippers say they changed domestic carriers. Of that group, 41% changed because of price and a further 13% moved for a combination of price and service.

Given the environment where the combined DHL/Airborne Express was seeking to make a mark, only 8% of Airborne shippers reported a decline in service after the combination. DHL, with its smaller footprint in the domestic U.S. market, got a worse score with 15% of its shippers saying they saw service decline.

Shippers appear to view the DHL/Airborne combination positively — 50% said they plan to ship more freight on DHL/Airborne in the coming year and 39% say they will ship the same volume.

To put the DHL/Airborne reaction in perspective, shippers report very high reliability and strong service measures for FedEx and UPS air and ground services. The rankings indicate shippers see very little to differentiate the carriers. Again, of the 15% of shippers who changed carriers in the last year, only 18% changed because of service.

In 68% of companies, corporate policy encourages less use of premium services and more use of deferred and ground modes. Forty three percent of that group say they will continue shifting modes and 44% say they'll keep the mix as is. Only 2% say they intend to go back to premium modes.

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May, 2004

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