Transportation & Logistics
Market Insight
The transportation/logistics market offered a tale of two segments in 2007. Asset-based companies found themselves mired in an over-supply of capacity and squeezed by price and margin pressures. This choppy operating environment led to a flat-to-down year. Life on the service side of the industry was quite different, however. Non-asset-based third-party logistics companies (3PLs), for example, were able to stay flexible and flow with demand; in the process, they expanded growth and margins.
Trends to Watch
- A number of asset-based companies in this market will be forced to sell in a wave of consolidation spurred by weakness.
- M&A will become a necessity
- The question facing the stronger companies—those doing the acquiring—will be whether to take on debt or private equity to consummate deals.
- The 3PLs will continue to do well and maintain high valuations.
- Private equity could play a role here, too—only instead of defensive deals, we may be looking at more offensive deals, especially given what many analysts believe will be the market peak in 2008.
Financing the Future
Asset-based companies in this market need to get bigger or face marginalization. The road to survival is paved with specialization—either geographic or vertical. On the service side, 3PLs need to specialize as well; if they do, theyÕll see increasing margins and valuations continue.