The coronavirus and its consequences: transport & logistics in crisis mode

Study: an overview

Deals and cooperation arrangements fall through

The impact the crisis is having is particularly evident in the number of deals announced, which declined sharply in the first half of the year: just 92 mergers and acquisitions with a volume exceeding USD 50 million were announced between January and June (H1 2019: 138; H2 2019: 123). There was also a precipitous drop in the number of strategic alliances in the second quarter. The total deal volume decreased by more than half, amounting to a mere USD 29.9 billion (H1 2019: USD 68.4 billion; H2 2019: USD 76.7 billion). European companies and investors proved to be surprisingly resilient, participating in some 33 acquisitions (H1 2019: 33; H2 2019: 36) with a total volume of USD 10.3 billion.

Aviation industry especially hurting

The pandemic's impact on the industry's subsectors has varied greatly. Passenger transport, and the airline industry in particular, have been hit the hardest by the crisis: demand all but evaporated with the imposition of travel restrictions and quarantines, severely impacting revenue at airlines and airports as well as bus and rail companies. PwC's experts expect the airline industry in particular to face an L-shaped recession: after a sharp slump, there are no prospects of a recovery to pre-crisis levels any time soon.

Accordingly, private investors are taking little interest in the aviation industry, while various governments are stepping in with state aid to bail out “their” national airlines. Of the 92 transactions announced in the first half of 2020, five targeted airlines and five involved airports.

Logistics proves it is essential

The pandemic has also had a significant impact on freight transport and logistics as borders were closed, demand fell and production halted. The impact on logistics companies has varied depending on the types of goods they transport and which industries they serve. While the coronavirus crisis has had a relatively mild effect on the food industry, for example, the pandemic's impact on the automotive industry has been relatively severe.

One thing is certain: logistics chains continued to function despite restrictions and the supply of everyday consumer goods was ensured at all times. The crisis has demonstrated how essential the industry really is.

The logistics and trucking subsector remains the industry's most active in terms of deal activity, particularly in two respects: On the one hand, warehouses are becoming increasingly important as consumers afraid of contracting the coronavirus while shopping and temporary store closures have propelled e-commerce. At the same time, logistics platforms are becoming more important and successful, significantly fuelling the debate on digitalisation.

Infrastructure targets remain popular

Investors have been increasingly turning their attention towards infrastructure targets, even before the outbreak of the coronavirus. The pandemic has only reinforced this trend: The four largest of the in total eight mega deals (transactions with volumes exceeding one billion US dollars) in the first half of the year were transportation infrastructure deals.

Ports and terminals remain attractive targets for investors – also and especially in times of economic uncertainty – because they are considered long-term investments with stable returns. Furthermore, capacities at terminals are finite, leading frequently to bottlenecks, making these targets even more attractive for investors.

The largest deal in the first half of 2020 was also an infrastructure investment: Port & Free Zone World announced that it would acquire the remaining shares in DP World Ltd, one of the largest port operators in the world, for USD 2.72 billion. DP World will thus again be privately owned, inching closer towards its goal of becoming an end-to-end logistics provider focusing on infrastructure.

H2 outlook

The experts at PwC expect the volume of deals in the transport and logistics industry to be muted in the second half of 2020. However, certain targets – warehouses and infrastructure in particular – will remain attractive options for investors. In addition, the financial pressure that many transport and logistics companies are under and the further consolidation of forwarders, especially in the fragmented logistics sector, will revive M&A activities and cooperation arrangements in the medium term.