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Since September the landscape of the European third party logistics market has changed dramatically. The market leader , Exel, is now part of the German post office. Number two in the market, TNT Logistics, is up for sale. Another major player, ACR, has been absorbed by Kuehne & Nagel and Deutsche Bahn has taken a major step forward in its ambitions to be a major player in the global market with its plan to take over Bax Global. And DFDS is stalking Frans Maas.

While all this represents a major realignment of the market there is no reason to believe that consolidation is over.

The £3.8 billion take-over of Exel by Deutsche Post World Net was finally completed on 13 December. Former Exel chief executive John Allan has now joined Deutsche Post’s management board as chief executive of the new DPWN Logistics Division. He will continue to be based at Bracknell which is the new headquarters of DPWN Logistics.

The unit will operate under the DHL brand and use DHL’s red and yellow colours. After the merger, the freight forwarding business will operate as DHL Global Forwarding, while the logistic s operation will operate as a DHL sub-brand under the title Exel Supply Chain. The group expects to achieve 220 million euros in annual cost savings by 2008.

John Allan now has the task of putting together the two logistics organisations. Speaking exclusively to Logistics Manager, Allan set out his plans for bringing the two organisations together.

“The transaction has all happened extremely smoothly,” he said pointing out that the deal had been announced on 19 September and completed on 14 December. “It’s good that it has gone through swiftly,” he said.

But now he is facing the big challenge. “We have got to put together two quite large companies. We have done a lot of pre-planning and we are now moving to commence integration very quickly.

“At the same time, we are working hard to ensure that we maintain high quality in our operations and continue to grow the business.”

Customer response to the takeover has generally been very positive, said Allan.

“We have opportunities all over the world,” he said. “We are market leaders in every major economic region.”

With manufacturing moving out of Europe to China and other Asian countries, there are obvious opportunities for the business. “We are looking very hard at Asia,” says Allan. “But there are opportunities for growth everywhere, including the UK.”

“We won’t be moving to the new brands until Spring of next year and then it takes time to complete. We would like the integration to be largely complete within a year but it will take more than a year to put together the two forwarding businesses.”

Allan is committed to leading the business through the merger process. “I am very much looking forward to it. It is an extremely interesting challenge and it is what I want to do for the next few years.”

While Deutsche Post is increasing its exposure to the logistics market, the Dutch post office, TNT has announced plans to abandon the logistics market and focus on the mail and express businesses. Already, it has sold some of its French operations to Norbert Dentressangle.

Chief executive Peter Bakker said: “While our logistics business is a strong operation with a talented group of employees and good customer relationships, it will no longer fit with our strategic focus going forward. Given industry consolidation, we announce our intention to sell our logistics business. The focus on networks and the exit of logistics will allow simplification of our organisation.”

TNT has struggled with the profitability of its logistics operations. In 2003 the business produced an operating profit margin of just 0.6 per cent. It boosted this to 3.7 per cent in 2004 but in its 2005 annual report it said: “Despite this substantial progress, revenue growth was partially stifled by a relatively stagnant economic environment and was negatively impacted in 2004 by the results of a thorough review of our contract portfolio. Contracts that failed to meet our profitability guidelines were faced with termination, expiration or renegotiations of the terms and conditions. Of the under-performing business units identified in the previous year, only the performance of the French operations is still a cause of concern to us. In France, we are faced with a deteriorating trading environment due to our high cost base and particularly due to the increase of low-cost competition in the transportation area.”

TNT produces an operating profit margin of some 7.9 per cent in its express division so it is not that surprising that it wants to focus its investment in this sector. It plans to sell its logistics business representing some 3.4 billion euros in sales. The sale is expected to be completed in the second half of 2006.

The group will retain a limited amount of the logistics activities that clearly fit its core network strategy. These include the In-Night and high-tech spare parts operations.

TNT Freight Management, representing approximately 800 million euros in annual revenues, is an essential element of TNT’s global network, connecting in particular Asia and Europe and therefore is not part of the activities to be sold.

Bakker said: “We have very strong network platforms to build on – particularly our fast growing Express and European Mail Networks (EMN) businesses and our profitable Mail Netherlands business. To underline this, we have revised our revenue growth expectations for our Express division upwards to the 10 – 15 per cent range over the medium term versus “high single digit” previously.

Kuehne & Nagel completed the acquisition of ACR Logistics in January. It was, perhaps, a surprise when Platinum Equity decided to sell the business at the end of last year. However, just a quick look at the numbers reveals the reason. Platinum bought the business from Hays for £102m and two years later sold it (renamed ACR Logistics) to Kuehne & Nagel for some £340m.

Nor surprisingly, announcing the sale, Tom Gores, chairman and chief executive officer of Platinum Equity described ACR as an “outstanding investment for Platinum Equity”.

The deal propels Kuehne & Nagel into the top five global service providers with more than 40,000 employees in more than 100 countries.

ACR Logistics will operate under the Kuehne & Nagel brand and will be fully integrated into the organisational structure of the group. Xavier Urbain, former chief executive of ACR has been appointed member of the Kuehne & Nagel group management and heads the newly created south west Europe region.

While the German post office Deutsche Post, has been grabbing the headlines with its high profile deals, German railways, Deutsche Bahn, has also been building its operations in the forwarding and logistics market. It already owns Schenker Logistics.

Now it has bought Bax Global, the US-based freight forwarding and logistics business from The Brink’s Company for £623m in cash.

Margins in the third party logistics sector have been declining steadily over the past few years as has return on capital. Inevitably, that has made the sector less and less attractive to the professional investors in the stock market. As the dust from this latest round of take-overs begins to settle, perhaps it is a good moment for both the buyers and providers of logistics services to reflect on the impact of these changes and how best to deliver value in the supply chain.

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