Takeover trend takes hold

At a time when corporate
muscle is often required to
overcome the depressed global
freight market situation,
takeovers, mergers and
alliances are becoming a
frequent source of conversation
in the SA freight industry.
And it’s not only here, but
worldwide, as companies battle
to stay in front in times where
survival is often a result of
acquiring extra market share in
an industry where the market
pie is getting decidedly smaller.
For some time, observers
have been keeping a close eye
on the global shipping lines,
which have been sorely tried
by a market where demand
has been plummeting, but
overcapacity – fed by the
delivery of large numbers of
mega container ships – has
significantly pushed up the
supply side of the equation.
But the forecast takeover/
merger trend in this industry
has not transpired. Rather
the lines started to indulge in
major alliances, and where
large even began to be allied
with equally large. On the
local scene, this has been
highlighted in the last week
with CMA CGM (the world’s
third biggest container carrier)
allying with AP Moller/
Maersk (the world’s number
one) on a number of SA trades.
Airlines (except in the US)
have been largely exempt from
the takeover/merger scene.
But multi-airline alliances
have become almost the norm
in this industry – like the
13-member OneWorld, the
18-member SkyTeam and the
28-member Star Alliance, of
which SA national carrier,
SAA, is one.
What of the clearing and
forwarding industry?
Yes, we are definitely
seeing the start of a takeover
trend involving SA, said
Dave Logan, CEO of the
SA Association of Freight
Forwarders (Saaff), citing
the most recent examples –
the Bridge Shipping group
being taken over by Dutchbased
Steinweg, and Turners
Shipping acquiring the DTB
Cartage shipping business.
And he added that he
had heard a number of hints
about other companies being
involved in negotiations,
although he said he would
hesitate before saying who
might be taking over whom.
“We are definitely part of
an international trend in the
logistics industry,” Logan said,
“and I think that there will be
more acquisitions and mergers
in the future.”
Another observer told
FTW that there were distinct
advantages in takeovers, at a
time when market conditions
were tight, and competition
getting towards the cut-throat
stage.
Rather than a relatively
slow internal expansion of a
business, with a takeover a
company immediately gets
a larger set of resources at
its disposal – which includes
manpower, inventory and other
assets.
With the larger set of
resources, efficiency is
increased – which, in turn,
increases the output. The
increase in output leads to
lower costs of producing
services or products, which is
the input.
“The increased output
or lowered input definitely
translates to better business
growth for any entity,” he
added. “Another advantage
of a takeover is that brand
awareness increases as the
business expands, allowing
more advertising, products and
services.”
Also, in the competitive
SA market, those lower
service production costs
give a company the distinct
advantage of being able to
offer competitively better
pricing levels – without
necessarily reducing cash flow
to unsustainable levels.
“There is also an advantage
in any synergy you gain in a
takeover,” the commentator
added. “The combined
company can often reduce
duplicate departments or
operations, lowering the costs
of the company relative to the
same revenue stream, thus
increasing profit.”
A company also shows
distinct gains from the
increased revenue/increased
market share.