2024 saw macroeconomic forces continue to shape the Freight and Logistics landscape, with operators remaining alert to both the challenges and opportunities that presented themselves throughout this year. Following the DSV-DB Schenker deal, it has become increasingly clear that scale, in terms of global coverage and shipping volume, are key. Moreover, the topic of decarbonisation remained a huge talking point driven by changing regulations and customer demand. The persistent Red Sea Crisis, alongside political events like port strikes and elections have impacted the sector this year and look set to remain influential ongoing.
Niche Verticals and Geography Demand
There has been interest from strategic trade buyers and private equity wanting to pursue freight forwarding companies servicing niche markets, such as time sensitive air shipments and temperature monitored cargoes in pharmaceutical, medical and perishables. In Q4 we saw Life Couriers’ acquire Aktiv-Trans, whereby the healthcare logistics operator backed by Auctus Capital Partners further developed their radiopharmaceuticals specialism.
Due to global conflicts and the need for humanitarian aid, there has been a growing demand for forwarders to develop in aid & relief logistics. This complex niche vertical is critical for delivering time sensitive products to those most in need. Freight forwarders offering project logistics solutions within aid, relief, and the government sector have seen continued demand from the organisations responsible for bringing supplies into the worst conflict zones. The Logistics Emergency Team (LET), a World Economic Forum partnership between Agility, AP Moller-Maers and DP World, have supported efforts to deliver humanitarian supplies across the Middle East and Ukraine.
From the selection of deals we tracked this year, the LATAM region continues to see investment, such as Scan Global Logistics acquisition of Blu Logistics which provides an entrance into a new market and extends their air and ocean services in a priority market. There was also activity across the infrastructure supply chain, between port operators and carriers such as CMA CGM acquiring terminal operator Santos Brazil in a $1.2 billion deal. These two deals highlight the strategic position Brazil holds within the emerging LATAM region and the growth opportunities still looming there.
Decarbonisation remains a priority
The European Environment Agency predicts that logistics will account for up to 40% of global carbon dioxide emissions by 2050 unless effective measures are taken. With this in mind, it is clear that in 2024 and beyond decarbonising remains a major priority for players at each stage of the supply chain. The industry continues to see increasing pressures for systemic changes to be made, both from customers and regulatory bodies.
The Corporate Sustainability Reporting Directive (CSRD) has increased the scrutiny on ESG reporting, from 2025 onwards (including 2024 emissions) large European enterprises must report their scope 3 emissions, including those generated from upstream and downstream transportation and distribution. SME's and non-EU HQ companies with a large European presence will have to follow suit in 2027 and 2029 respectively. Whilst the previous NFRD regulations applied to roughly 11,000 companies, the new requirements will force nearly 50,000 to comply. This framework makes accurate, accredited, and timely emissions reports a necessity, and a significant amount of this responsibility will fall on freight forwarders, having to ensure that both freight carriers and their customers are supplied with sufficient reporting. These stringent reporting regulations, coupled with a requirement to reduce emissions in line with the Paris Agreement, have forced transformation across the supply chain. As the number of customers seeking greener transport solutions looks set to expand considerably, logistics companies who view sustainability as a lever for competitive advantage, rather than an obligation, could be the big winners in this.
A McKinsey survey estimates that 66% of customers consider sustainability when making a purchase, with a sustainable supply chain being a significant component of this demand. DSV's ‘Green Logistics Solutions’ offer customers a variety of decarbonisation options, such as sustainable warehousing, sustainable fuels and carbon offsetting. Similarly, DHL's ‘GoGreen Plus’ service offers scope 3 emissions reduction such as the use of sustainable aviation fuel in their air cargo fleet. As customers increasingly integrated CSR and sustainability into their selection process and business requirements during 2024, carriers and forwarders both had to respond with stronger and more varied ESG solutions to appease this demand.
Carriers are exploring numerous methods to reduce the environmental impact of their operations. These vary from using LED lighting in warehouses, electric vehicles in their automotive fleets, to sustainable fuels in their air and ocean fleet. MSC sees these alternative fuels as the key to achieving net-zero carbon emissions across the maritime industry. They believe that synthetic and bio-methanol, green ammonia and bio and synthetic LNG, may become fuel choices for larger ocean-going vessels, while green hydrogen, batteries and fuel cells may be used for smaller vessels and short-sea shipping. These fuels are not widely utilisable yet, so MSC are focusing on the readiness of their fleet to adopt them when they become more easily available. CEVA logistics have already made strong strides in 2024 by embracing sustainable fuels, avoiding more than 26,000 tons of emissions through the use of sustainable maritime and aviation fuels.
Currently It’s undeniable that the cost of these sustainable fuels, due to availability limitations remains the key issue. Many players in the market see this as the major hurdle to actually improving global supply chain sustainability. Until they become more widely accessible, greener logistics will be more expensive, and a compromising split of this premium is necessary between carriers, forwarders and shippers in order to see greater take-up. It is estimated that customers' willingness to contribute towards this low-emissions shipping premium is c.23%.
The continued impact of geo-political events
The red sea crisis has persisted throughout 2024 with far-reaching repercussions. The hostility around the strategic chokepoint of the Bab el-Mandeb Strait, which connects the Red Sea to the Gulf of Aden, has turned this essential shipping corridor into a highly dangerous passage. Consequently, ocean carriers have chosen to largely reroute vessels to avoid this conflict zone, often going around the Cape of Good Hope instead. This has increased both transit and lead times for shipments that would typically have taken the Red Sea route, proving particularly burdensome for shipments between Asia and Europe. The unpredictable and extended timeframes have profound effects on customers, especially those who rely on a just-in-time delivery system, such as the electronic and automotive manufacturing industries. These changes force production processes to lean towards stockpiling inventory which increases storage and operational costs. Tesla and Volvo had to halt part of their production in Europe due to delays in supply of critical components. Furthermore, the diversions have led to heightened freight costs, due to the longer routes and resulting congestion, with Asia-Europe container rates remaining considerably higher than normal levels throughout 2024. An additional cost of this crisis has been an increase in environmental impact. According to Reuters, diverted routes lead to 50-60% longer distances covered and a 40% increase in C02 emissions due to the related hike in fuel consumption. Furthermore, the prevalence of congestions at ports leads to idling ships that continue to burn fuel while they wait. The World Bank identify this increase in emissions as a substantial challenge to achieving the Paris Agreement targets.
The East and Gulf coast port strikes in the US caused issues this year. According to CNBC, up to 49% of US imports flow through these ports, with the region containing 6 of the 10 largest ports in the country. When the master contract between the International Longshoremen's Association (ILA) and the US Maritime Alliance expired on the 30th September, the ILA went on strike from the 1st - 4th October. JP Morgan estimated that the strikes could have cost the economy between $3.8-4.5 billion per day. The perishable goods market was hit with massive losses due to the delays. While some importers were able to redirect to West coast ports, as well as pre-emptively padding inventories in preparation for the contract expiration, this still led to congestions in the ports. With contract negotiations pushed back until 2025, massive uncertainty looms. The key issue remains the degree of automation in these ports. A stark productivity gap has emerged due to the ILA's hard stance against any technology that could impact jobs. The USMX argue that enhancing efficiency through automation is essential to maintaining US' economic competitiveness, and with depleting capacity at most US terminals, increasing productivity is the only way to manage the rising volumes. With the current agreement viewed as a temporary solution, the situation is certainly one to monitor in early 2025 as Trump enters office.
Trump's second term in office is another event that could impact global freight and logistics. The headlines revolve around his commitments towards tariffs, notably against China, Mexico, and Canada. When coupled with his deregulation plans and oil production focus aimed at driving strong domestic performance. There is a sense of relief amongst Indian shippers as they were a notable exclusion in the initial tariff action plan. The US is India's largest trading partner, and Indian stakeholders hope the reduction in Asian trade could lead to long-term volume growth in the India-US trade. There is also uncertainty on the sustainability of nearshoring manufacturing in Mexico to then truck goods into the US, a strategy becoming popular with Far East based manufacturers. Trump has made it clear that he will keep a close eye on this activity and punish any manufacturers looking to subvert the USMCA trade agreement.
2025 Outlook
We largely expect this years themes to carry into 2025, with the Freight and Logistics industry seeing continued consolidation amidst persistent geopolitical situations. With multinationals focussing on reinforcing their scale, both in terms of specialist verticals and underrepresented geographies / trade lanes.
M&A activity is hinged on interest rates continuing to fall, as this makes the cost of financing acquisitions less, if monetary policies relax further, it should result in buyers being more comfortable with rising valuations, resulting in an improved M&A market.
Digitalisation, via AI and other technologies aimed at streamlining supply chains looks set to be adopted further. It will be interesting to see how small to mid-sized privately owned logistics companies integrate technology in 2025, whilst larger players have the scale and resources to develop proprietary systems, smaller operators need to partner efficiently when attempting to digitize some of their processes.
Whilst the EU legislative changes of CSRD only apply to large European companies in 2025, we also expect SMEs and Mid-market players to offer customers and suppliers better shipping transparency, as these changes will become mandatory for all soon.
It will be fascinating to see how a Trump administration impacts the global shipping industry, despite the talk of protectionist policies, he did not have as much impact on the market when he was last in office. Only time will tell if political leadership changes, particularly in the US but also globally will effect the supply chain sector in 2025. For now M&A deal makers are still on the proverbial sidelines, but additional clarity around trade and monetary policies will drive the bounce back in M&A numbers, so it could be a very interesting year to watch play out.
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