Ocean, NFC merger focuses on growth

By Staff -- Logistics Management, 5/1/2000

The recent merger of two United Kingdom-based service providers has created a global logistics powerhouse that is second only to Deutsche Post in size and scope. Whether its business model, which differs considerably from that of its German competitor, will succeed is an open question.

In March, Ocean Group plc, parent of international forwarding and logistics firm MSAS Global Logistics, purchased NFC plc, parent of Exel, which specializes in asset-based logistics-management solutions. The combination has created a company that claims two-thirds of the world's 250 largest companies as clients and has estimated annual revenues of $5.5 billion. The new company will be known as Exel plc.

According to company officials, what prompted the merger was the need to provide customers with integrated supply chain management and information technology on a global basis. Four trends-increasing globalization, the growth of logistics outsourcing, worldwide consolidation in many industries, and the growth of electronic commerce-also influenced the decision to merge, they said.

The merger is intended to exploit the companies' complementary strengths. Nonasset-based MSAS, for example, is strong in airfreight forwarding, offers true global coverage, and focuses on integrated logistics management. Asset-based Exel's strong suit is ground-based supply chain services, particularly in warehousing and distribution.

A question on many minds is how well the merger of equally large but very different companies will work. Paul Jackson, chairman of the Triangle Group consulting firm in the United Kingdom, points out that although the new Exel has been compared with Deutsche Post (DP), their business models are quite different. "Deutsche Post ... is run by very good people who are grabbing the moment in time to buy a range of services to offer one-stop shopping," he says. "But DP is running separate groups of companies, and Exel will merge [Ocean Group and NFC's] services and customers to gain economies of scale."

In Jackson's opinion, merging a nonasset-based operation whose main stock in trade is knowledgeable people with an asset-based provider is a tough act to pull off. "They have a whole different philosophy of managing their businesses," he says. "When you manage assets, you look for volume. When you manage people, you are looking for margins."

Jackson believes that the Ocean-NFC merger may encourage other third-party providers to consolidate. Given that nonasset-based providers these days are outperforming their asset-based parent companies, he says, the possibility of a merger should be on many a mind. "If I were an asset-based company in the United States, I'd be ... asking, should we be buying a Fritz or a Circle or an Emery? Do we need to get closer to a larger range of customers?"

Although many businesses today are bypassing intermediaries, that's not true when it comes to global supply chain management. The process is so complex and so many companies wish to focus on core capabilities that demand for global logistics services can only grow, Jackson says. Now that companies like Exel and DP are enabling multinationals to manage logistics on a global scale, other logistics service providers may well follow their lead.