Is increased M&A in transportation a signal of a shifting market?

Over the past year we have watched M&A in the transportation space pick up to a pace we have not seen in recent history What we usually see is investors – PE, infrastructure, or strategic – whose core business or investment focus is on the transportation space. This is what makes the recent article in the WSJ about AEO buying Quiet Logistics so interesting; we don’t normally see the client of the transportation company buying the transportation company!

It could be that we’ll see others follow suit. Fulfillment and especially digital fulfillment is experiencing rapid growth and capacity is hard to come by. What better way to get instant capacity than to buy a turnkey solution? Combine this with increased focus on automation/robotics, which Quiet has also done, then this can mitigate potential labor shortage challenges. If we see other similar businesses follow suit –  aggregating small and medium size companies – we may see some serious competition to the distribution networks of the largest retailers and e-com companies.

However, there are always risks associated with investing in a space that is not in a traditional core competency area. In the transportation sector we have seen failures in the past when buying similar companies; a newcomer in the space could face may experience similar challenges. For example:

1. Is there a risk that a competitors might not want to use your digital fulfillment operations?
2. How will a company that does not traditionally focus on a space ensure it is getting the right investment, what is the impact on the existing organization to ensure they get this correct?
3. What if the tide turns and what was seen as a potential competitive advantage becomes a distraction from the core business?
4. Does the company looking to purchase the transportation company already have some form of transportation competency in house that can be leveraged?
5. At what scale does this make sense for retailers and other companies? What size companies should be targeted? If it is too small does it matter and if it is too big does it impact the focus of the organization?

With the current supply chain disruption that is occurring companies are definitely thinking out of the box. It will be interesting to watch if other retailers follow AEO’s path into the transportation space.