Transportation and Logistics

The U.S. Transportation and Logistics industry experienced uncertainty in the second half of 2019 through 2020. Nevertheless, the industry’s overall outlook remains optimistic as the U.S. economy recovers from the COVID-19 pandemic. Market volatility is projected to stabilize as global and domestic trade begins to return to pre-COVID-19 levels. Merger and Acquisitions (M&A) activity is expected to increase significantly in 2021, likely preceding overall economic recovery.

The North American logistics market reached a total value of $947 billion in 2019 and is expected to exceed $1,254 billion by 2025, registering a CAGR of 4.8% throughout the projection period. Ecommerce, globalization of the North American supply chain, and the expansion of U.S. manufacturing and energy production are anticipated to be the main drivers of growth domestically. Exhibit 1 shows the Transportation and Logistics sector’s performance since 2016 relative to the overall economy, comparing sector revenue change to GDP growth from 2016-3Q2020.

COVID-19 expedited the consumer shift from retail to e-commerce, increasing the strain on supply chains and forcing businesses to reevaluate operational practices. This shift to e-commerce fostered demand for fast and reliable shipping times, with many customers expecting packages within 48 hours. As a result, the industry is ripe for new technology and startups to disrupt the status quo. Cloud Computing based freight brokerages and fleet management platforms are already replacing archaic models, driving efficiency into dated operations. Autonomous trucking and delivery drones are expected to constitute a $1.6 billion market by 2025, thus ushering in the era of autonomous last leg logistics. Although this is expected to be a significant disrupter in the industry, uncertainty around DOT (Departments of Transportation) approval has hindered autonomous vehicle adoption, and regulatory indecisiveness is expected to remain.

The Transportation and Logistics sector saw a substantial reduction in M&A activity in 2021, with logistics M&A totaling $20.7 billion, roughly 37% of deal volume and 27% of deal value. The rise of e-commerce compounded by COVID-19 has resulted in high demand for last leg delivery services and solutions, thus driving M&A activity as smaller regional players fill the last-leg service void. This trend is highlighted by FedEx’s acquisition of ShopRunnner in December 2020 for an undisclosed amount.

M&A in the shipping sub sector accounted for $15.72 billion, or 17% of deal volume and 19% of deal value. COVID-19 related lockdowns reduced ocean freight demand and ports were forced to operate at limited capacity, thus reducing revenues across the industry. This loss in revenue is projected to drive M&A activity as large players with robust balance sheets seek to expand their portfolios by acquiring smaller, less financially stable shippers. Hyundai Merchant Marine joined THE Alliance, an agreement between Hapag-Lloyd, ONE, and Yang Ming to share stowage plans, vessel assignment, and scheduling, in April of 2020 to facilitate lower costs.

COVID-19 travel restrictions resulted in $35 billion in losses for the Airline Industry in 2020 alone. This is expected to drive M&A activity as larger airlines seek to acquire smaller carriers. There is potential for a mega-deal amongst industry leaders, but an anti-competition stance from the White House is likely to prevent such a transaction from being approved. Even so, the Airline M&A sector was responsible for $15.69 billion in 2020, with 10% of deal volume and 17% of deal value. Delta Airlines acquired a 20% stake of LATAM Airlines Group, and Hawaii’s only two commuter airlines, Mokulele Airlines, and Makani Kai Air announced a merger in June 2020.

Transportation and Logistics M&A activity started to rebound in 3Q2020 and has continued to increase throughout 2021, with 10 deals announced from January to March 2021. Thus far, 2021 has already seen James Richardson & Sons, Ltd. acquire Bison Transport for an undisclosed amount and Titanium Transportation’s acquisition of International Truckload Service Group (ITS) for $60.5 million. Overall investment activity is projected to increase throughout 2021 and return to pre-COVID levels in 2022. Exhibit 2 shows the trends in investing activity from 2015-2020.

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