A.P. Moller-Maersk Group (OTCMKTS: AMKBY) has reached an agreement with Bridgepoint Development Capital to acquire the Swedish customs broker, KGH Customs Services, for an estimated $279 million.
The liner carrier said the acquisition of the Gothenberg, Sweden-based company, which is subject to regulatory approval, will expand its customs services offerings to European shippers.
“We achieve all this in one go instead of having to build our expertise through multiple acquisitions,” said Vincent Clerc, CEO of ocean and logistics at A.P. Moller-Maersk, in a statement released on Monday, July 6.
“KGH has a strategy focused on digital solutions and technology as an enabler for a more seamless customer experience, which also corresponds with Maersk’s own digital transformation journey,” Maersk added in a press release.
According to Maersk, KGH has in the past years achieved double-digit annual growth resulting in revenue of about $95.5 million, recurring earnings before interest, taxes, depreciation and amortization (EBITDA) of about $17.2 million, and an EBITDA margin of about 18%. KGH has 775 employees and a yearly business of 1.98 million import clearances.
With the acquisition, Maersk estimates that it will have 960 customs services employees across offices in 22 European countries. This will result in an estimated 2.38 million import customs clearances, and a combined turnover of $109.4 million.
Maersk has expanded its logistics and customs brokerage service offerings worldwide in recent years through acquisition.
In February 2019, the company acquired Vandegrift Inc., a Clark, New Jersey-based customs broker, increasing its North American customs services staff from 80 to 250 people and added 25 more licensed customs brokers.
On April 1, Maersk completed a $545 million acquisition of U.S. warehouse and distribution firm Performance Team, which more than doubled its warehouses in the North American market to 46.
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Frank Appel, CEO of Deutsche Post DHL Group (OTCMKTS: DPSGY), said the German logistics company used its diverse services portfolio to outflank the coronavirus pandemic and significantly increase its second-quarter profit.
The company’s preliminary pretax profit for the quarter increased 16% to 890 million euros ($1 billion), compared to 769 million euros ($868 million) for the same period last year.
“Our fundamental strength and resilience as a group has paid off in recent months,” Appel said in a statement. “With our broad portfolio of leading logistics services, we have the right business model to form the backbone of global trade.”
To reward its employees for their work during COVID-19, Appel said the company has set aside about 200 million euros ($225 million) to cover a one-time pay bonus of 300 euros ($340) per employee worldwide.
DP DHL had earlier warned that its second-quarter profits were in jeopardy due to the coronavirus disrupting global supply chains. Since late March, however, the company has recorded increasing freight volumes in e-commerce orders.
The company said measures such as adjusting its service network and maintaining its own aircraft flight capacity also kept its operations positive.
Broken down by service, Express division profits rose to 560 million euros ($632 million) compared to 521 million euros ($588 million) for the previous-year period, while the German Post and parcel segments generated about 260 million euros ($293 million) in operating income, compared to 177 million euros ($200 million) a year ago.
DP DHL’s global forwarding unit recorded Q2 operating income of 190 million euros ($214 million) compared to 124 million euros ($140 million) during the same period last year.
The pandemic and a restructuring of the DP DHL’s electric cargo bikes unit, however, cut its supply chain earnings to about 30 million euros ($33 million) during the quarter, compared to 87 million euros ($93 million) in the 2019 period. The company’s eCommerce Solutions lost about 30 million euros ($33 million), but it broke even with the 2019 Q2 operating profit of about 18 million euros ($20 million).
The company said its 2020-2022 investment plans remain unchanged at between 8.5 billion euros ($9.6 billion) and 9.5 billion euros ($10.7 billion).
DP DHL will release more detailed Q2 financial results at its Aug. 5 general meeting.
The company said going forward that it will no longer differentiate between adjusted operating results before and after the coronavirus pandemic, saying “this distinction became increasingly artificial and less meaningful during the second quarter.”
In response to a “V-shaped” economic recovery from COVID-19, DP DHL said it anticipates a pretax profit for 2020 of 5.3 billion euros ($5.9 billion).
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Project cargoes may not be the fastest movers on the high seas, but they have proved much less volatile than the U.S. container trades during the coronavirus pandemic.
Singapore-based AAL Shipping, one of the world’s largest marine project cargo carriers with 25 vessels, has witnessed a steady increase in ship sailings involving the transport of large capital equipment from Asia to U.S. ports during the first half of 2020. Between April and June alone, the carrier completed 12 sailings to the U.S.
“This has been driven mostly by our 2020 strategy to increase our coverage of the Asia-U.S. trade lane and commit tonnage and resources to really expanding our presence in the region,” Christophe Grammare, AAL’s commercial director, told American Shipper.
However, he noted this continuation of business during the virus-induced economic upheaval hinges on the nature of project cargo shipments, which by their nature can take years of logistics planning.
“Although some project equipment manufacture was delayed by the COVID pandemic, the movement of these projects continues reasonably unaffected at this stage,” Grammare said.
The AAL fleet consists of 10 “mega-size,” 31,000-deadweight-ton, multipurpose (MPP) vessels, which have on-board cranes capable of handling cargo loads up to 700 tons and are suitable for large capital goods.
“Looking at our cargoes in 2020, we have noticed that the majority of our sailings have been filled with single cargoes, which smaller MPP vessels simply cannot transport in an economically efficient manner,” Grammare said.
Energized by wind
Some of the large-scale project cargo loads transported by AAL to the U.S. during the first five months of 2020 include gantry cranes, transformers, gas processing and mining equipment, and wind turbine components.
These cargoes, which originate in Asia and Europe, generally arrive at the ports of Houston and New Orleans but are also delivered to other Gulf ports such as Corpus Christi, Galveston, Aransas, Brownsville and Freeport, Texas; Tampa and Manatee, Florida; and Mobile, Alabama; as well as the East Coast ports of Savannah, Georgia, and Philadelphia, where they are offloaded and prepared for inland transport by heavy-duty truck or rail.
The U.S. oil and gas sector, which experienced record low oil prices in May, postponed many projects and capital investments during the first half of the year. Grammare expects that with a gradual recovery of oil prices later in the year, these types of project investments will pick up in the fourth quarter of 2020 or the first quarter of next year. “Nevertheless, these projects will not generate cargo movement for another year or so,” he said.
According to the U.S. Energy Information Administration (EIA) in early June, U.S. crude oil production will continue to decline to 10.6 million barrels per day through March 2021 due to ongoing low prices and usage rates during the COVID-19 pandemic.
“Typically, price changes affect production after about a six-month lag. However, current market conditions have shortened this lag as many producers have already curtailed production and reduced capital spending and drilling in response to lower prices,” EIA said.
Fortunately for AAL, the U.S. wind energy sector has remained strong during the COVID-19 pandemic, continuing to import numerous turbine components for ongoing wind farm projects throughout the country.
“The trend here is shifting towards larger and larger wind turbines for which AAL’s mega-size fleet is very well suited,” Grammare said.
Wind turbine blades being offloading from AAL Shipping vessel. (Photo: AAL Shipping)
The U.S. wind energy sector anticipated a banner year in 2020 for construction of wind farms — combinations of giant wind turbines spread across thousands of acres of open spaces — which is stimulated by a significant federal production tax credit. The electric power generated by these wind farms is fed into utility power grids.
According to the Washington-based American Wind Energy Association (AWEA), the U.S. wind industry installed more than 1,800 megawatts of new wind power capacity during the first quarter of 2020. That is more than double the capacity installed during the first quarter of last year, the association said.
In addition to the federal tax credit, U.S. wind farm development has been stimulated by the ongoing commitment by large American corporations purchasing clean electric power generated by wind turbines. More than 140 companies have purchased U.S. wind-generated electricity. Google (NASDAQ: GOOG) is the top corporate wind energy customer in the U.S., with 2,397 megawatts contracted. Facebook (NASDAQ: FB) is the second-largest purchaser, with 1,459 megawatts, followed by Walmart (NYSE: WMT), AT&T (NYSE: T) and Microsoft (NASDAQ: MSFT), AWEA said in mid-June.
Return to health
The COVID-19 pandemic has, however, put a dent into AAL’s ability to secure “part” or “completion” cargoes to top off some of its vessel voyages. These cargoes typically include smaller equipment and structural steel. “This decrease is directly related to a drop in demand in the U.S.,” Grammare said.
AAL maintains an office in Houston to work with its U.S. customers.
“Generally, we feel that the U.S. trade volumes, especially those outside of capital projects, are very much reduced in 2020,” Grammare said, though he did not provide a figure. “Nevertheless, it is fair to say that the European market is feeling a similar effect, while Asia seems to be less affected — most likely as the virus has hit Asia first and the initial sharp drop in cargo movement we experienced earlier this year is already behind us and Asian economies are now recovering.”
He said smaller project cargoes and other breakbulk shipments will take longer to recover.
“Once the COVID-19 pandemic subsides, we will see an uplift in cargo volumes driven by companies trying to catch up with time lost and stock levels,” Grammare said. “This could be months away and will very much depend on the overall economic impact of the COVID-19 pandemic in the U.S. and ongoing U.S.-China trade negotiations which will hugely affect supply chains.”
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The Universal Postal Union (UPU) regulations increased inbound package rates within the U.S. as of today, July 1. As agreed to by the UPU and the U.S. in October 2019, the deal will ensure that the country remains a part of the UPU. The changes were put in place after the U.S., the largest importer in the world, threatened to leave the UPU, citing mandated cheaper parcel rates granted to countries with a “developing” status tag – including China.
The UPU was forced to come to the table for negotiations, because if the U.S. left the union it would potentially destabilize the organization. The UPU convened the ‘extraordinary Congress’ meeting in this regard, an event that has only been held twice previously in UPU’s history.
The fundamental issue that bothered the U.S. was that packages shipped domestically within the U.S. could be priced higher than inbound packages from other countries. For instance, a $10 phone case bought in California and shipped to Detroit could cost more than the same phone case being purchased from China and shipped into the U.S.
The new deal will ensure that postal rates can be up to 70% of the domestic prices, with an added option of increasing rates by 1% every year to 80%. Though this is not exactly leveling the playing field, international shippers will have less of an undue advantage than before.
FreightWaves spoke with Krish Iyer, the director of strategic partnerships at ShipStation, to understand the impact of the increase in package rates on the U.S. market. “The history behind cross-border shipping rates started about 50 years ago when shipping rates were subsidized to improve Asia’s economies, particularly southeast and east Asia. But with the emergence of China as a hub for lower value products and electronics, this did not make sense anymore,” said Iyer.
The heavily subsidized rate meant China could reach U.S. consumers at a more economical rate compared to domestic U.S. suppliers, tilting commerce heavily in favor of net-exporter countries like China. With subsidies keeping inbound shipping costs very low, Chinese sellers could capture the American market, even when consumers had to wait for a few weeks to receive their orders.
With the first phase of the changes kicking in, the U.S. could witness a massive increase in package rates with countries with which it does not have a bilateral agreement. This confusion also arises in the context of the deal, as it looks to create a new era in which countries wield more power on shipping rates. The deal will now enable countries to determine the rates that foreign postal services will charge for services when the mail crosses its borders.
Iyer contended that the real effect of these changes would hit the market by mid-July. “The initial struggle will be people looking at rising rates and having sticker shock. But it’s important to note that a lot of bilateral agreements will have to be negotiated between countries. For instance, the inbound package rate is going to be much higher for countries in the European Union. The only exception to this could be Canada, but we still don’t know the exact details,” he said.
The sticker shock is expected to be universal across all logistics forwarders in the U.S., including FedEx, UPS and DHL. Iyer explained that low-value goods traders and micro finance-type merchants would see significant challenges as they contend with rising costs.
“This is a major change like we have never seen before, so we don’t know the domino effect on logistics, as there are so many other external factors at play. However, this move by the UPU was bound to happen – whether this year or a decade from now,” said Iyer.
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Pilot Freight Services, a 50-year-old logistics services provider with roots in airfreight, has placed five long-time, franchise-operated offices under its direct management.
The former franchises are located in Texas, Wisconsin and Mexico. Pilot said the acquisition of these offices was attractive due to their “strong historical growth and operational performance” for the overall company.
Financial terms of the acquisitions, effective today, July 1, were not disclosed by either Pilot or its owners ATL Partners and British Columbia Investment Management Corp. (bcIMC).
However, the Glen Mills, Pennsylvania-based logistics services provider said the franchise managers and staff have been retained in the acquisitions.
John Hill, Pilot’s president and chief commercial officer, told American Shipper the franchise office integrations for the company have been “seamless,” since these locations have long operated under the Pilot brand and systems.
Most Pilot customers were not even aware that the five offices were formerly operated by franchise owners, Hill said.
According to Pilot, the recently acquired franchise offices have strong operations serving the logistics requirements of shippers in the automotive, healthcare, home furnishings, industrial products, and packaging sectors.
“By bringing the operations along the U.S. and Mexico border in-house, Pilot further improves its ability to provide seamless trade solutions to cross-border clients,” the company said in a statement.
Since 2018, Pilot has brought 25 franchise offices throughout the country under its direct control. Hill said the reasons for these acquisitions have varied. In some cases, for example, it was a matter of retirements among franchise location operators.
“It’s not our strategy to make our offices 100% company-owned,” Hill said, although Pilot today directly controls 90% of its locations. “If we have a franchise in a market that’s working well, then we’re all for that,” he said.
In the early 1990s, Pilot rapidly grew its national presence by opening franchise-operated offices throughout the country.
Today, the logistics services provider has about 1,500 employees spread across 90 North American locations and several offices in Europe and Asia-Pacific. Pilot also operates a fleet of about 1,500 freight delivery trucks throughout the U.S.
In July 2018, Pilot acquired Manna Freight Systems, a final-mile logistics provider based in Minneapolis-St. Paul. The acquisition increased Pilot’s business-to-consumer home delivery service, which focuses on heavy and hard-to-handle goods. The company said e-commerce has also generated an uptick in these types of home deliveries.
Hill said Pilot is “keeping its eyes open to future acquisitions, if they make sense.”
While the start to this year’s freight volumes was dimmed by the coronavirus pandemic, Pilot noted it has experienced an increase in both domestic business-to-business and global freight movements in recent months.
“Overall, Pilot is looking forward to a strong 2020 with growth across all product lines,” the company said.
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