CMA CGM reached a deal to receive 25% equity of CEVA Logistics. The France-based company is hoping to grow their shipping presence by entering into the logistics sector. The proposed investment is looking to continue momentum within the global shipping sector while it continues to establish and find its place.
Late last week, Marseille, France-based global container shipping company CMA CGM said it reached an agreement to acquire a roughly 25% equity stake in CEVA Logistics, a global third-party logistics (3PL) services provider based in Hoofddorp, the Netherlands.
CMA GGM said that the objective of this deal is to grow its presence in the logistics sector, which is closely related to shipping. And it added that the closing of this deal is subject to the completion of CEVAs planned IPO on the SIX Swiss Exchange, which was announced on April 20, in addition to approval from regulatory authorities.
CEVA is a major presence in the global 3PL market and had revenues north of $7 billion and is ranked fifth in contract logistics. It manages more than 9 million square-feet of warehouses in more than 750 global locations, and is ranked tenth on global freight forwarding, with a strong presence in Asia.
This deal comes at a time when the global container shipping sector continues to find its footing, as it has dealt with myriad issues, including: overcapacity; industry consolidation; rates pressures, due to supply continuing to outpace demand for services, among other factors.
With this proposed investment in CEVA, CMA CGM makes a significant move, in line with its development strategy, said Rodolphe Saadé, Chairman and CEO of CMA CGM, in a statement. CEVA is a major player in the logistics business, which is closely related to the shipping industry. Together, the two companies will also explore possible cooperations allowing us to propose an ever more differentiated and qualitative offering while integrating services beyond maritime transport.
As previously reported, CMA CGM is not the only global container shipping company looking to spread its wings on the on the logistics side.
Earlier this year, Maersk said it intends to transform its logistics and supply chain model to compete with package delivery behemoths like UPS and FedEx. But industry analysts maintain that shifting away from its core competency presents a major challenge in that global ocean carriers like Maersk lack the long-established shipper relationships on the same level that the industrys largest global 3PLs and integrators do. Part of the impetus for companies like CMA CGM and Maersk to branch out stems from the dynamic growth in e-commerce driving demand for more agile deliveries.
Evan Armstrong, president of supply chain consultancy Armstrong & Associates, told LM this is a deal that could ultimately be more advantageous for CMA CGM.
I would rate this 25% minority investment as an attempt by CMA CGM to get further upstream in the supply chain management process from tactical ocean shipping to true global supply chain management and tap more strategic relationships with CEVA’s customers, he said. From a CEVA perspective as a 3PL and the 14th largest ocean freight forwarder in terms of TEUs managed, this new relationship may provide it with better buy-side ocean pricing; however, ocean shipping is still in a overcapacity situation and rates continue to be fairly depressed. All-in-all, I think this will have more benefit for CMA CGM than CEVA. Apollo Management has been shopping CEVA for some time and this investment allows them to take some money off the table.
Taking a bit of a historical appriach, Ben Hackett, founder of maritime consultancy Hackett Associates, was somewhat skeptical of this planned arrangement.
First, it was Maersk with its logistics arm Damco and now it is CMA CGM [with CEVA], he said. MSC may be the winner if they do not do the same. When I first entered the maritime industry back in 1975, Overseas Containers LTD. In the UK tried to do the same, and I spent days going through manifests identifying forwarders and trying to work out who their clients were based on the cargo description. Forwarders do not like the competition from carriers and mistrust them. I once had a boss who had a saying: Horses for Courses i.e. dont put a steeplechase horse in competition in a race that is not a steeplechase. Carriers can lose focus of their core business if they spread their wings too far. As they are not managing their finances that well in their core business with very low ROI and EBITDAs, how do they expect to manage freight forwarders?