Deutsche Post?s (DP) interest in acquiring Exel should come as no surprise, as rumors have swirled around Exel for months. On the face of it, consolidation in the European Logistics Service Provider (LSP) industry makes a lot of sense; no provider can claim full leadership across all forms of transport and in every geographic market. There is also an especially long list of providers with different specialties and regional dominance. However, as a bidding war looms, it is not clear if anyone will end up with the prize.

The Bottom Line: The company that ends up acquiring Exel will face a number of headaches along with opportunities. Foremost will be the integration of separate IT systems to ease the flow of information in customer companies.

What It Means: This acquisition is not about gaining trucks and sheds. The physical asset side of logistics is the low-margin part of the business that logistics firms would rather live without. In fact, nearly all European logistics services firms are trying to move to non-asset services, where the margins are much higher for the investment. These include among the following:

* Customized assembly/kitting services within warehousing operations
* Returns management
* Freight management
* Global trade management

All of these services, however, are data hungry and integration intensive activities, requiring resource and expertise to integrate with the client host systems. Two logistics providers with which we spoke saw the IT integration in areas like postponement, assembly, and kitting as the biggest hurdle in engaging in new contracts.

Exel and DP have their plate full already, aligning with recent acquisitions like Tibbet and Brittan (recently acquired by Exel). And this will become exponentially more difficult as they try to integrate with each other. They face the double challenge of integrating systems and processes within themselves as well as integrating with their customers? systems and processes. However, the public face of the companies post-merger is typically one of a single facade, peak behind the curtain. The IT infrastructure and business practices are seldom unitary or tidy. Warehousing, transportation, and accounting systems in different operating units and countries are usually not integrated internally, which makes the claim of timely track and trace across all services questionable.

Conclusion: Clients engaging with LSPs should already be pressing them closely on their IT integration abilities. Dealing with logistics service firms that are undergoing significant acquisitions means that IT should be an even greater area of concern?checking the claims of internal integration is vital if real-time reporting and tracing is part of your Request for Information (RFI). Successful extension of valuable services from highly aggregated companies may well be hinged more on the long-term success of the backroom IT staff, than of the synergies of physical assets and services.

Source: AMR Research

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