The world’s largest container shipping line is enjoying calm seas and a prosperous voyage. Container freight rates are at record highs as global supply chain disruptions push up demand. Maersk is doing its best to ensure following winds continue with its latest acquisition.
The Danish giant will buy LF Logistics, the global freight management unit of Hong Kong supply chain group Li & Fung, for $3.6bn. It should give Maersk a new and complementary source of revenue from ground transportation. But the deal would also make Maersk, a member of the world’s shipping elite, even more powerful.
Li & Fung is waning as Maersk waxes. It was once the world’s largest sourcing company. However, the $3.6bn valuation of LF Logistics is more than twice what Li & Fung was itself valued at during a $930m buyout last year. Li & Fung has been caught in a decade-long downward spiral, failing to adapt to the online shift in the sourcing and distribution of consumer goods. The deal gives it a decent exit.
The transaction positions Maersk for a windfall. Inland transport is in short supply, giving Maersk pricing power via a network of more than 200 distribution centres across Asia, including China, Singapore and Australia.
LF Logistics is based in Hong Kong, a key Asian logistics and maritime hub controlling trade to and from mainland China. Its assets include freight forwarding, customs and trade services and cargo consolidation businesses.
Integrating these would streamline Maersk in Asia, reducing costs. The inland logistics business, bought on an enterprise value to ebita ratio of 14.4 times, should be a useful addition to Maersk’s top line, about 80 per cent of which is accounted for by ocean logistics. Maersk’s 70,000 clients, which include the world’s largest corporations, should benefit from a slicker service for global trading.
On the flipside, the acquisition will further concentrate Maersk’s market power.
Source: SWIFT HEADLINE
