The Supply Chain Daily provides a curated overview of Panjiva's research and insights covering global trade policy, the logistics sector and industrial supply chains.
DSV-Panalpina has balance and opportunities; white knights limited
Consolidation in the freight forwarding sector has returned following DSV A/S' unsolicited $4.2 billion bid for Panalpina Welttransport (Holding) AG. DSV has indicated that the deal provides "significant growth opportunities and potential for value creation." DSV has higher profit margins than Panalpina, with an EBITDA margin of 7.9% versus 4.2% in the 12 months to Sept. 30. That would suggest there is some room for cost-cutting through sharing of best practices.
The combined business would have a more balanced revenue stream, with 27.6% from ocean freight based on 2017 data; 32.4% from air freight; and the remainder from logistics services. By contrast, DSV is much more reliant on logistics services.
There may be limited room for cross-selling as the two groups have a similar mix of ocean-freight business on U.S.-inbound lanes with China representing 37.0% of DSV's business and 34.5% of Panalpina's.
The new company may have more pricing power, being the fourth-largest forwarder for U.S.-inbound seaborne freight, with its container-service providers. Those are led by Hapag-Lloyd AG at 23.5% of volumes followed by A.P. Møller - Mærsk A/S at 16.9% and CMA CGM SA with 16.5%.
Panalpina's stock price is close to DSV's offer, suggesting that investors do not appear to be expecting a "white knight" buyer. The trend toward integration between forwarders and container lines may be one source of such a bidder, though its top three liner service providers already have some form of tie to a Panalpina competitor. That does not rule out horizontal integration or a deal with a smaller container line, however.
Ocean's 4 cut services, add capacity to tackle 2M threat
The Ocean Alliance of container lines, including CMA-CGM, Cosco Shipping Holdings Co. Ltd. and Evergreen Marine Corp. (Taiwan) Ltd., has cut the number of services it offers to 38 from 41 in its latest "Day 3" service plan. While the number of vessels deployed has fallen 2.9% versus the "Day 2" product, the use of larger vessels by the alliance means that there was a 5.6% rise in deployed capacity.
The service update follows a 41.1% rise in global revenues for the three firms combined in the four quarters to the third quarter of 2018, compared to the calendar year 2016. Ocean may have struggled to compete with its closest competitor — Maersk and MSC Mediterranean Shipping Co. SA's 2M Alliance — on U.S. routes, however.
Ocean's volumes on U.S. inbound routes climbed 8.0% year over year in 2018 compared to 13.1% for 2M. Both nonetheless outpaced THE Alliance (Hapag Lloyd, Ocean Network Express and Yang Ming Marine Transport Corp.), which managed just 3.1%. All three face a review of their block exemption from competition rules by the European Union in 2019.
China's tariff bargains, Canadian fuel drive U.S. import deflation
U.S. trade price inflation continued to slow in December 2018, with import prices dropping 0.6% year over year. That was the first decline since October 2016. Fuel prices were a major part of the decline, though nonfuel/food prices still only rose by 0.6%.
The slowdown in inflation has been driven in part by imports from China, average prices for which fell by 0.3% after a 0.2% drop the month before. That would suggest Chinese exporters are — at least in a small way — cutting prices in response to tariffs being paid by their U.S. customers.
In the absence of formal trade balance data due to the U.S. government shutdown, it is possible to take a view on the progress of imports from this pricing data when combined with seaborne imports. A 9.0% surge in seaborne imports year over year in December is likely to swamp the effect of declining prices and suggests that U.S. imports likely climbed once again in December.
Guangzhou Automobile parks its car plans; China components a bigger issue
Guangzhou Automobile Group Co. Ltd. has delayed plans to ship cars to the U.S. from China to early 2020, with General Manager Yu Jun citing U.S. tariffs as a major reason. Weak U.S. sales of sedans at the end of 2018 will not have helped the case for a 2019 launch. Tariffs applied since July 2018 have cut Chinese exports to the U.S. by 55.2% in the three months to Oct. 31 compared to the same period a year earlier, while preliminary seaborne data showing similar declines in November and December. The ongoing Section 232 review of the automotive industry raises risks for Guangzhou's plans, though auto component suppliers arguably face bigger problems. There has been a surge in shipments of car parts from China recently. That is shown by a 34.2% year-over-year jump in December in seaborne imports to reach a new high, led by shipments of brakes and wheels.
(Panjiva Research - Autos)
Albecour sees trade agreement as the future after US tariffs bite
Aluminum manufacturer Albecour Inc.'s general manager, Pierre Boisvert, has noted that the Canadian aluminum exporters have "netted less" because of U.S. Section 232 duties. Instead, they have switched sales to the EU as a result of the Comprehensive Economic and Trade Agreement as "metal free of duties in Europe were key for this shift." Canadian exports of aluminum to the EU have surged 533.4% higher in the three months to Nov. 30, 2018, compared to year earlier, with U.S. exports having fallen 18.7% and those from Russia dropping 18.5%.
Christopher Rogers is a senior researcher at Panjiva, which is part of S&P Global Market Intelligence. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence.
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