Influx of Cash into Supply Chain Technology
Investment funds are piling money into supply-chain technology companies like never before. The shift from brick and mortar to e-commerce shopping, high demand for technology to reduce costs and speeds of the flow of goods, and low cost of capital and excess liquidity is spurring these investments. Funding for YTD 9/30/21 surpassed the entire year of 2020 by 58%. The influx of cash is driving up valuations (+41% from the prior year), much like the broader technology sector. Several companies such as Flock Freight, ShipBob Inc., and Stord Inc exceeded $1Bn in valuations this year. While the growth in access to capital and a corresponding rise in value is a positive for logistics companies, it is best to assume the money will not always be as readily available, especially if the companies getting large valuations start to underperform expectations.1
FedEx Works to Become Carbon-Neutral Operations by 2040
FedEx has earmarked $2 billion to make its operations carbon-neutral by 2040. A key part of the plan is making half of all vehicle purchases electric by 2035 and 100% of purchases electric by 2030. The entire fleet is expected to be electric a decade later. In December 2021, FedEx took steps toward this goal by ordering 500 EV600 commercial vans from BrightDrop, a General Motors-owned company. The vehicles have a range of up to 250 miles. This move follows UPS's order of 10,000 electric vans from Arrival LTD and Amazon's of 100,000 trucks from Rivian Automotive LLC. These purchases are expected to reduce last-mile emissions, which have been rising as more people engage in e-commerce, requiring more vans on the road. FedEx will also focus on sustainable energy and carbon sequestration and reducing aircraft fuel consumption.2 3
Shippers Plan New Strategies, Stopgap Measures to Ease Freight Pain
As freight and lease expenses continue to climb, companies are forced to adapt to reduce supply chain issues in the new year. Large operators such as Wal-Mart can lessen the pain by chartering their ships, but smaller companies don't have such options and must improvise with other strategies. Such strategies include sourcing goods from the USA or Mexico instead of overseas, storing goods in trailers instead of warehouses, raising prices, and accepting lower margins. Furthermore, all companies are reassessing price changes more often to keep up with the rise in costs, leading to further inflation.4
Transportation and logistics M&A summary
Transportation and Logistics M&A deal volume was up 11%, and deal value up 84% for LTM 11/15/21 compared to the prior year. Drivers of the M&A increase include companies trying to diversify their supply chains geographically, the need for enhanced data and supply chain visibility, the growth in e-commerce, ongoing covid-19 challenges, and the recently passed Infrastructure Investment and Jobs Act. Strategic investors looking to strengthen their supply chains were the largest contributors to deal value, while financial buyers looking to improve portfolio returns drove up the volume.5
Allegiant Air to Buy 50 Boeing 737 MAX Jets
Allegiant Air, a discount airline that traditionally purchased used jets, has ordered 50 new Boeing 737 MAX Jets with an option to purchase 50 more. The first delivery will be received in 2025 and will complement its fleet of used Airbus planes. Allegiant cited cabin features and fuel efficiencies in buying the Boeing planes and implied the COVID-19 pandemic improved pricing. Boeing's brand remains tarnished from two crashes in 2018 and 2019 caused by a malfunctioning flight control mode, causing many customers such as KLM and Qantas to switch to Airbus; however, the flight control mode has been redesigned, and the ban was lifted in November 2020. Orders for the plane are increasing, and Boeing is currently targeting a production rate of 31 aircraft a month.6
Transport Companies Profits Rising Rapidly
Due to supply and demand dynamics and the ongoing COVID-19 disruption to the global supply chain, freight carriers such as ArcBest Corp., Knight-Swift Transportation Holdings Inc, Schneider National Inc., and A.P. Moller-Maersk A/S have all exceeded the prior years quarterly earnings by a wide margin, in some cases doubling or tripling the bottom line. Furthermore, companies such as C.H. Robinson Worldwide Inc, a logistics company, are also enjoying the windfall with an 81% increase in earnings compared to the same quarter last year. In contrast, customers of the freight carriers see the increase in costs coupled with the tight labor market weigh down earnings.7
Largest Transactions Closed
- Kansas City Southern
- Canadian Pacific Railway Limited
- Transplace Inc.
- Uber Freight LLC
- Echo Global Logistics, Inc.
- The Jordan Company, L.P.
- Molo Solutions, LLC
- ArcBest Corporation
- Trinity Highway Products, LLC
- Monomoy Capital Partners
- Midwest Warehouse And Distribution System, Inc.
- Ryder System, Inc.
- Substantially all of the assets and assume certain liabilities of Summit Truck
- Rush Truck Leasing, Inc.; Rush Truck Centers Of Tennessee, Inc.; Rush Truck Centers Of Texas, L.P.; Rush Truck Centers Of Missouri, Inc.; Rush Truck Centers of Kansas, Inc.; Rush Truck Centers of Oklahoma, Inc.; Rush Truck Centers of Arkansas, Inc.; Rush Truck Centers Of Mississippi, Inc.
Other Financial Buyer Transactions Closed
- ICAT Logistics, Inc.
- Midwest Mezzanine Funds; KCM Capital Partners; Lightspring Capital Partners
- MNX Global Logistics
- Quad-C Management, Inc.
- Redwood Logistics, LLC
- AEA Investors LP
Other Strategic Buyer Transactions Closed
- Greyhound Lines, Inc.
- FlixMobility GmbH
- I-66 Express Mobility Partners, LLC
- Cintra Servicios de Infraestructuras, S.A.
- RAC MME Holdings, LLC
- Knight-Swift Transportation Holdings Inc.
- Choptank Transport, Inc.
- Hub Group, Inc.
- T.F. Boyle Transportation, Inc.
- Andlauer Healthcare Group Inc.
Source S&P Capital IQ as of 1/11/2022 and PCE Proprietary Data
This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.
EBIT - Earnings Before Interest and Taxes