Basics

Logistics companies offer services related to managing the transporting and warehousing of customers goods. They combine different services into a single package, or product/solution, to fulfill a customers’ requirement.

Transportation can be either via truck, rail, plane (air), ship (sea/ocean) or a combination of two or three of these transport modes.

Operators of cargo planes or ships are called carriers.

Warehousing includes services such as storage, inventory management, picking, packing, kitting, labelling, light assembly, etc.

In export driven countries logistics companies will focus on offering shipping and brokerage solutions. For consumer driven economies warehousing and distribution services are required.

Business Models

The business model of a logistics company will depend on how they wish to utilise assets such as trucks, warehouses, planes, ships etc. The model applied depends on market and customer requirements, access and cost of capital, internal ROE guidelines, availability of assets, and the local political, legal and regulatory framework. Since market strategies differ between countries large MNC’s might employ different business models.

The three common business models and their pros and cons are:

Non-asset
Characteristics: Outsourcing of transportation, warehousing, freight or brokerage operations to third parties.
Pros: Utilise only the assets required, shows as a cost of service on the income sheet.
Cons: Dependant on the capacity and availability of the asset of the subcontractor, subject to price fluctuations.

Asset light
Characteristics: Mid to long term leasing of assets such as trucks and warehouses.
Pro: Stable capacity and availability, stable mid/long term pricing, shows as cost of service on the income sheet.
Cons: Due to mid/long term agreements acts like a fixed assets and hence difficult to dispose of in case of a slowdown in demand.

Assets heavy
Characteristics: purchasing of trucks and warehouses.
Pro: Benefits from assets appreciation, stable long term pricing, stable capacity and availability.
Cons: Difficult to dispose of in case of a slowdown in demand, impacts balance sheet, cash flow and dividend payout.

Due to the transactional nature of transport and warehousing services logistics companies run the risk of their services being commoditized. To manage this risk, and to become a strategic partner to customers, logistics providers offer supply chain planning, optimisation and financing services as well as procurement and transport management – 4PL/Lead Logistics Provider.

Stock sectors

Logistics stocks are generally cyclical in nature. As exports and consumer demand increases, so does the work of logistics companies.

Geographical coverage

In order to spread the risk of over exposure to a specific market companies tend to participate in multiple geographical markets. While most markets today are inter connected it’s not usual that all global markets down equally and at the same time.

Industry verticals

To spread the risk of over reliance on a specific industry companies will have industry verticals. There are logistics companies that manage cargo of companies that are categorized as defensive, e.g. Consumer stables and utilities. Hence logistic companies with a specific focus on automotive or fashion will have a higher risk exposure to a cyclical market.