Where is Logistics Headed?

Key Insights from the CEOs at the Invitation-Only BGSA Supply Chain Conference in Palm Beach

Benjamin Gordon
Feb 4 · 6 min read
BGSA’s Benjamin Gordon speaks with over 200 logistics CEOs at BGSA Supply Chain 2020

Many people call it the “Davos of Logistics.” Every January, over 200 supply chain CEOs come to Palm Beach to discuss strategy and deals at an invitation-only event. For 14 years, the BGSA Supply Chain Conference has been the place where the best and brightest converge. The event is press-free, which allows CEOs to speak with remarkable candor.

So what did we learn this year?

Let’s start with the financial markets. As Benjamin Graham has said, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.

2019 was a winning year for the supply chain public markets. In fact, the BGSA Supply Chain Index, which tracks nine segments and 63 companies in all areas of the sector, increased 26% in 2019. In addition, all nine segments produced a positive return.

Source: BGSA Holdings

That said, the spread between winners and losers was significant.

Certain niche categories, like energy transportation, technology distribution and supply chain software, spiked 57%, 54%, and 47%. They were led by World Fuel Services (up 103%, accelerated by the UVAir fuel acquisition), Tech Data (up 76%), and Manhattan Associates (up 88%), respectively.

On the other hand, the freight recession punished the truckload sector, which experienced record bankruptcies including NEMF and Celadon. The category still performed well, generating a 26% return, led by PAM and Knight-Swift (up 46% and 43%). Yet the aggregate number masks a 30% drop from February to June, and a recovery in the second half of the year, as the market looks forward to a brighter 2020.

Similarly, the parcel sector increased by 17%. FedEx grew 16% from January-April, and then dropped 20%, largely due to the “conscious uncoupling” with Amazon.

Indeed, the gaps between individual winners and losers is striking, as noted below.

Source: BGSA Holdings

Looking forward, what should we expect to see in the coming year?

On the one hand, many analysts note clouds on the horizon. Here are nine in particular. They include:

  • Is the market overpriced? The BGSA Index of public companies is at record levels, trading at 12.4x EBITDA. Is this level sustainable, or are we poised for a plunge?
  • Are we facing an economic recession? After a record 10 years of expansion, economists predict a 33% likelihood of recession in 2020.
  • What about a freight recession? The trucking slowdown already began in 2019. Will it spread? ACT and Cowen predict a 35% contraction in North American truck production. What ripple effects will follow?
  • Will the Presidential election cause disruption? It seems like the 2016 election cycle never ended. How will the Trump impeachment evolve? Will we end up with President Sanders, President Warren, or another change?
  • What about tax increases? With a Democratic Congress, the tax cuts of 2017 are at risk of rollback. All of the Democratic Presidential candidates have vowed to impose new taxes. If Elizabeth Warren, Bernie Sanders or Joe Biden wins the White House, will we see a 6% Warren wealth tax%? What about capital gains and ordinary income tax increases? And how will we pay for the estimated $32 trillion over 10 years that “Medicare for all” will cost?
  • Will the China trade war escalate? We’ve already suffered an estimated $20 billion decline in US exports to China, causing an estimated 1% drop to what GDP would have otherwise been. The impact on freight forwarders has been devastating. Will this war escalate in 2020
  • Government regulation: what happens in California… rarely stays in California. Will the AB5 legislation cause other states to reclassify independent contractors as employees? Could this bring an end to the current model of owner-operator trucking?
  • More trucking bankruptcies? 2019 was a “trucking bloodbath.” More than 800 carriers declared bankruptcy, including NEMF and Celadon. More than 24,000 trucks were shut down as a result. This represents nearly a 10x increase from 2018, when 2,800 trucks disappeared. Is the worst over, or will this trucking bloodbath continue?
  • What will Amazon do to the industry? Amazon dominated the news cycles in 2019. Whether it was expanding to deliver 3.5 billion of its own packages, fighting with FedEx in its “conscious uncoupling,” or patenting new logistics technologies, Amazon was at the center of logistics disruption. Will Amazon become #1 in logistics? Who will they displace next? And more broadly, will technology automate, displace and disrupt traditional supply chain services companies?

Despite these clouds, we are optimistic about 2020. Why?

First, we believe the growth in ecommerce is generating ripple effects that drive growth in several key areas of the supply chain. Ecommerce grew by nearly 20% in 2020, exceeding $600 billion in run-rate revenue. Winners include micro warehouses, ecommerce fulfillment companies, last mile providers, and reverse logistics, as outlined below.

Source: BGSA Holdings

Second, several niche sectors are able to thrive amidst these competitive markets. A good example is cold storage. How did a slow-growth giant, Americold, come to be valued at 27x EBITDA? And how did a 2008 startup, Lineage Logistics, grow to become the world’s largest refrigerated warehouse company, with 2 billion cubic feet? In the case of Americold, the market has come to view them as a recession hedge, given their real estate ownership and exposure to the cycle-resistant food sector. In the case of Lineage, a string of acquisitions including Emergent Cold ($900 million) and Preferred Freezer (over $1 billion) have valued them to the top. Together, Lineage and Americold now control 63% of the cold chain market.

Third, technology companies are continuing to thrive. Hundreds of companies are pursuing growth in different niches across the supply chain technology landscape, including digital freight management, Internet of Things and asset tracking, blockchain, last-mile, drones, warehouse automation, autonomous trucking, fleet management, analytics, and more.

Fourth, the capital markets continue to support the supply chain. Today, we count 53 unicorns in the global logistics technology ecosystem, including Didi Chuxing, Grab, DoorDash, Rivian, Flexport, Convoy, Uber, and many others. If $30 billion was poured into supply chain technology in the 2010s, we believe another $60 billion will be deployed in the 2020s.

That said, we see a smaller number of winners capturing a larger share of the capital available. For example, in the maritime technology arena, 2019 was a record year for capital invested. Venture funding increased from $190 million to $1.144 billion. Yet over 90% of that capital was deployed in the $1 billion Softbank investment in Flexport. If you exclude that deal, total funding actually declined 24%, to $144 million. Similarly, we expect the 2020s to be a decade when capital shifts from early-stage innovation bets to later-stage scale plays.

In sum, the supply chain market may be exceptionally competitive, but it is also full of more opportunities than ever before.

The aviation world has a phrase: CAVU. It stands for “ceiling and visibility unrestricted.”

While we see clouds on the horizon, the future of logistics remains bright.

It is worth noting that 60% of the CEOs surveyed at the BGSA Supply Chain conference anticipate growing more than 10% this year. While 2020 may be a year full of uncertainty, it remains full of opportunity for many of the firms in our sector.

We look forward to a bright year!

Benjamin Gordon, Cambridge Capital CEO, invests in logistics and technology companies. Gordon is a recognized industry expert who has built four supply chain companies. He is also Founder of BGSA Holdings, Editor of Supply Chains, and a published author at Fortune, SupplyChainBrain, and Data Driven Investor. Follow him on LinkedIn and Twitter.

Data Driven Investor

from confusion to clarity not insanity

Benjamin Gordon

Written by

Ben Gordon, CEO of Cambridge Capital and BGSA. Investor in logistics and supply chain technology. Published at Fortune and CNBC. http://bengordonpalmbeach.com/

Data Driven Investor

from confusion to clarity not insanity

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