Consultant Insight: Bigger or better — which strategy rings true for shippers?

Ocean freight carriers are expanding their capabilities by adding air freight services to provide alternative solutions to their customers in a market with tight freight capacity and high rates. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] In September 2020, French container transport and shipping company CMA CGM acquired 30% of French-based Groupe Dubreuil Aero in a partnership that enables the CMA CGM Group to offer its clients services complementary to ocean freight, while keeping hold of the transport chain in markets served by both groups. “The acquisition of this stake will enable the CMA CGM Group to strengthen its position in airfreight,” Rodolphe Saade, chairman and CEO of the CMA CGM Group, said in the press release about the acquisition. at the time. “We will bring to Groupe Dubreuil Aero all our expertise in the transport of goods in ultra-marine territories.” Now comes word that CEVA, CMA CGM’s logistics subsidiary, is rumored to be Air Belgium’s customer involved in the carrier’s recent announcement of a business model expansion that will include cargo operations. Meanwhile, Maersk, which announced impressive 2020 yearend earnings today — including a record fourth quarter and the doubling of its 2019 profits — plans to continue its focus on inland transportation and logistics. Could this focus perhaps include a stake in an airline? To expand its capabilities, the ocean freight carrier has made a number of acquisitions over the years and it has undergone a few reorganizations, including integrating its freight forwarding Damco group capabilities into the larger Maersk , beginning in Q3 2020, and ceasing to market Damco as a separate entity. “Businesses need Air and LTL [Less Than Container Load] products to connect their supply chains, and with these offerings firmly placed in our global integrated portfolio, we aim to serve our businesses better and more efficiently across their supply chains,“ said Vincent Clerc, CEO of ocean and logistics at Maersk, in a press release . In terms of ocean freight carriers expanding their capabilities, is bigger really better? In the early 2000s, that line of thinking was ubiquitous in logistics. At the time, DHL, UPS, XPO Logistics and others within the transportation and logistics markets went on acquisition sprees to add such capabilities as freight forwarding, customs brokerage, contract logistics and more, in order to be everything to everybody. Now, however, we’re seeing some of these same companies begin to unbundle their capabilities. In January 2020, XPO Logistics said it would sell or spin off up to four of its business segments . Then, in December, XPO announced plans to spin off 100% of its logistics segment as a separate publicly traded company “By uncoupling our transportation and logistics segments, we intend to create two high-performing, pure-play companies to serve the best interests of all our stakeholders,” said Brad Jacobs, chairman and CEO of XPO Logistics, in a press release ,” Both businesses will have greater flexibility to tailor strategic decision-making and capital allocations to their end markets, with the benefit of strong positioning as customer-focused innovators. We currently believe that this spin-off is the most effective way to unlock significant value for our customers, employees and shareholders.” “Better not bigger” is also UPS’ new strategic focus. We saw that philosophy in action recently when the company sold its UPS Freight division to TFI International. “We do not need to own the business [UPS Freight] to provide LTL services to our customers,” Carol Tome, CEO of UPS, said during the company’s 2020 year-end earnings call. It is an extraordinary time for transportation and logistics providers as well as their customers. Capacity constraints, high transportation rates and the ever-increasing impact of B2C and B2B e-commerce are transforming businesses. As the year progresses, which strategy will be embraced by customers? Bigger or better? Or will successful companies strike a balance between the two?

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