DSV and UTi Worldwide Combination Provides a Balanced Global Presence
The industry had just barely digested the XPO Logistics acquisition of Con-way when DSV announced its intentions to acquire UTi Worldwide.
Perhaps not as surprising as XPO Logistics’ recent acquisitions but it is one that can be a game changer within the global logistics market. In fact, the acquisition will catapult DSV among the top 5 global logistics providers.
With the acquisition, DSV’s reach will expand further into Asia, Africa and the Americas. Not only will it expand geographically but it will also gain industry-specific expertise. Of particular interest are UTi’s automotive and pharma industry-specific solutions. Earlier this year, UTi formed a partnership with Changjiu Logistics, one of the largest independent automotive logistics company in China. As part of this relationship, UTi runs Europe-to-China rail shipments using the Changjiu Logistics network. This rail network should benefit DSV’s well-connected European road network.
DSV’s European road network will also benefit from UTi’s pharmaceutical specialty. This year, UTi has expanded its Good Distribution Practices (GDP)-certified facility in Rome as well as achieving several certifications at its facility at Brussels Airport.
Here in the US, the combined entity will offer stronger freight forwarding, contract logistics and road solutions. For the first half of 2015, DSV handled an almost 9.0% year-over-year increase in air tonnes attributing the gain to strong Europe and US exports. Sea freight TEUs were up 2.9% but it appears this was mostly attributed to the weak Asia-European lane. UTi’s freight forwarding division has struggled but once it is right-sized and combined with DSV, synergies will be noticed particularly on the trans-pacific lane and could become a competitive threat to such freight forwarders as Expeditors International of Washington.
Both companies offer a road network service throughout North America. DSV’s service involves multicarrier relationships with the likes of YRC, Pitt Ohio, ABF, FedEx and Roadrunner. UTi’s network is more extensive and helps link its distribution centers across the region. Even though this has become a crowded competitive field, it will be a plus for specialized offerings as well as for international customers looking to expand into the North American market. Perhaps a competitive advantage for DSV/UTi is potentially extending its North American road network through Central America to the Panama Canal Zone and into South America. In April 2015, DSV opened an office in Costa Rica primarily for freight forwarding but also offers road services via its agents in the region.
Why UTi Worldwide? The company’s financial problems have been well-documented in the press but according to DSV CEO Jens Andersen, “One of the reasons we like UTi is that its business model is very similar to ours; it has been built up the same way and it is stronger than us in the Americas and some merging markets.”
Mr. Andersen further noted the economies of scale that will be achieved with the combined entity. However, the process DSV will need to take to achieve these economies of scale may prove difficult and painful but it is achievable.
This acquisition is similar to other recent acquisitions such as Geodis/OHL and XPO Logistics/Norbert Dentressangle, all expanding geographically but also to grow revenue in a slowing growth market and one that is still heavily fragmented.
Who’s next? Well, if you followed our Twitter Chat (Summary available here) a few weeks ago, we identified Uti as a primary acquisition target. That has now come to fruition. We still expect C. H. Robinson to make an acquisition perhaps in either the North American or European market. Will Expeditors International of Washington make a move or will it become an acquisition target? There is lots of speculation floating about but it is clear to all that the pace of logistics mergers & acquisition remains strong and will continue into 2016.