Is industry consolidation about to slow down? Not a chance

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Listening to the federal finance minister’s refusal today to either apologize for or reconsider the government’s plan to curb the growing trend towards income trusts, I’m left wondering what this will mean to the pace of industry consolidation in 2007.
There were 135 US or Canadian transportation-related M&A transactions in 2006, according to market analysts BMO Capital Markets, and trucking income funds were amongst the most aggressive. Almost half (48%) of those transactions took place in the logistics sector (defined as asset-light transportation and warehousing) and a bit more than half (27%) in the TL sector. Mullen Group, Transforce, and Contrans, all income funds, were the most active acquirers in 2006, each with four announced transactions.
I think the new legislation, which places trusts on an even footing with corporate tax rules, will likely clip the wings somewhat of income fund structured players, at least for the short term.
But over the long term I can’t see how the industry trend can be anything but continued consolidation.
In our January/February issue of Motortruck Fleet Executive we asked the CEOs of six leading motor carriers to look 25 years into the future and give us their insights on what the industry will look like 25 years from now. Their thoughts were so insightful, I think it’s easily one of the best features we’ve brought to you over the past decade – definitely worth a read.
All of them spoke of continued consolidation, driven by a variety of factors. John Doucet, CEO of Day & Ross, believes there will be 10-15 carriers that will handle the majority of the trucking business and they will be much larger than they are today. Allan Robison, CEO of Reimer Express Lines, believes that for motor carriers to compete with large sophisticated companies like UPS and FedEx, they will have to become capable of handling freight from anywhere in the world.
That spells more industry consolidation.
As Scott Johnston, CEO of Yanke Group explains, the days when traffic managers controlled the movement of goods from a manufacturing plant in the heartland of either Canada or the United States are coming to an end. Tomorrow’s freight moves will be global as more and more companies move their manufacturing and sourcing offshore. Johnston believes this will force Canadian carriers to first identify the parties that control the movement and routing of the goods, or the ultimate offshore true owner, and establish relationships and provide value-added services to participate in the supply chain. That requires sophisticated strategic thinking and that usually means larger carriers.
Ron Tepper, CEO of Consolidated FastFrate, believes 25 years from now motor carriers will have to either be very good at offering niche, regional services or become large enough to go global, offering a wide menu of services. He’s already looking for a partnership with a steamship line to be used as an ocean linehaul carrier, similar to the long-standing arrangement FastFrate has with CP Rail.
Again, such moves require large sophisticated players.
In fact, I think the real long term impact of the government’s trust legislation will be to provide more opportunities for the traditionally structured players to more aggressively pursue mergers and acquisitions.

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With more than 25 years of experience reporting on transportation issues, Lou is one of the more recognizable personalities in the industry. An award-winning writer well known for his insightful writing and meticulous market analysis, he is a leading authority on industry trends and statistics.

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