While China’s current logistics market is a little messy and very cutthroat, scanning the market for candidates might be a good idea, even if you’re only window shopping. Big logistics companies who offer 3PL services lament the fragmented environment and shake their fist at the tiny guy next door with three trucks. Price wars are a common malady, especially for international companies competing for domestic customers. While giants like Kuehne + Nagel and Panalpina provide more services, like tracking systems, in the mind of many domestic clients, transport is transport – why should I pay more? This wreaks havoc on the bottom line of logistics companies, who need to reach out to Chinese clients to survive and expand.
Even so, Chee Wee Gan, Principal at AT Kearney, says the market is almost ready to consolidate. The government has started to create a more favorable environment for the bigger players by raising the costs of licenses and encouraging domestic players to improve their services and expand geographically. Enforced properly, the weaker firms will presumably go extinct while survivors will either prosper independently or be acquired by larger predators. This consolidation will reduce (not eliminate) the occurrence of price wars, but it will also start to level out the quality of logistics services.
However, given the volatile character of the market and the hit-and-run nature of some of the smaller players, Gan noted that if a logistics company is looking to expand through M&A, it would be wise to examine the players and renew your portfolio every six months. With the aforementioned policies and higher expectations, companies are changing very quickly. While it’s rare for a company to go from bad to good in a short period of time, there are many that will change from mediocre to strong in the next couple of years. Look for strong leaders to begin to emerge in domestic logistics companies, some of who will have the stringency and ability to create a strong company structure. Constantly updating a shortlist of domestic M&A potentials will help put predators at an enviable advantage when small logistics players begin looking for outside funding.
You must log in to post a comment.