Growth and change drive the global 3PL market

July 17, 2006
Whether by acquisition, joint venture or alliance, consolidation in the third-party logistics (3PL) segment has been an almost daily occurrence over the

Whether by acquisition, joint venture or alliance, consolidation in the third-party logistics (3PL) segment has been an almost daily occurrence over the last couple of years. This is one area where the global nature of logistics is clearly demonstrated.

Recent news that the European Court of Justice ruled the Dutch government's "golden share" in TNT was illegal could facilitate two more acquisitions this year. TNT had announced its intent to exit the logistics business and concentrate on express and mail where margins are stronger. But, no word has surfaced on a potential buyer. German investor Cornelius Geber had expressed an interest in TNT, but his focus was on mail and express, not logistics.

The court ruling on the golden share defense could make TNT itself more attractive as a takeover target. Geber has not yet made any noises about reviving his interest in the company, but industry watchers note FedEx or UPS could be among prospective bidders for the express business. In fact, both have been jockeying for better global positions through expansions in Asia and Europe.

While the elimination of the golden share defense removes one barrier to an acquisition of the global express-carrier, for TNT to be attractive to UPS, FedEx or other potential buyers, it must still shed its logistics operation. Other recent developments could affect TNT and other consolidation efforts in the 3PL sector.

Though not directly a 3PL deal, DP World's attempt to buy P&O Ports shined a bright light on foreign investment in U.S. logistics companies. The backlash to that deal could affect the sale of TNT Logistics if protections are put in place to avoid foreign company access to critical U.S. infrastructure or defense contracts.

Companies considering logistics acquisitions that include U.S. operations are unlikely to repeat the DP World experience. DHL's acquisition a few years ago of Airborne Express offered a good example of due diligence that would have served DP World. Sensitive to the U.S. regulation prohibiting foreign ownership of a U.S. airline, DHL arranged to establish Airborne's airline operations as a separate, U.S.-managed entity before completing its acquisition of the express operations.

Deutsche Post World Net (DPWN), which earlier acquired DHL, further expanded its global logistics capability by acquiring Exel. Exel, a British company, had a long history of acquisitions in the U.S. Already two of the world's largest 3PLs, the pair experienced little opposition from European or U.S. regulators.

Timing could have helped another acquisition by a non-U.S. firm. Though not an airline a la Airborne nor a port terminal operator like DP World, U.S.-based Aeroground Inc. provides ground services at many key international cargo airports in North America (including Los Angeles, Chicago O'Hare, New York's JFK, Dallas/Fort Worth and Vancouver). Its acquisition by British-based Menzies Aviation scarcely excited interest nor did it raise concerns over allowing foreign access to airport security as the DP World port deal had in the ocean shipping arena. The future of such deals could depend on U.S. congressional actions designed to address perceived security concerns in international commerce.

DP World's announcement that it would cede the U.S. port operations to a U.S. entity have not yet resulted in an official disclosure of who will operate the terminals and manage stevedoring services at the U.S. ports.

The acquisitive German giant, DPWN, has not been reluctant to dispose of operations that don't fit its on-going business model. It announced this spring that it would dispose of Marken, a specialized clinical trials courier company it acquired as part of the Exel deal. A number of logistics companies have also disposed of their 3PL operations in France due to constraints on business ownership in that country.

While market forces continue to drive strategic acquisitions and expansion of 3PL operations in the U.S. and across the globe, the political climate in the U.S. could spark a flurry of activity if restrictions on foreign ownership force foreign 3PLs to divest of some current U.S. contracts or operations. If one thing is clear about the 3PL scene, it is that it will look different in a year.

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