M&As, Restructuring to Sweep Delivery Services Industry

I read an article about M&A on businesses on deliver service industry. The quick delivery service companies are having difficulties on doing business due to fierce competition in its market. It seems inevitable to offset worsening profitability and the Analysts expect a huge number of mergers and acquisition (M&A) among those companies. The problem is that there are too many players in the market share which is becoming limited for each company to earn profit. Also, a growing interest by conglomerates to jump into the parcel services is igniting competition in the market. This adds pressure on small or mid-tier firms to fold their businesses.
Kim Sung churl, an analyst of Hyundai securities stated that the market is overflowing with players in addition to conglomerates launching delivery business. Also, everyone, including the Big Four is going through rough times. He mentioned Big four as Hanjin Corporation, CJ GLS, Hyundai Express and Korea Express. It is respectively in terms of the number of packages they delivered to customers. Those four companies dominate 60 percent of the market which their businesses are not authentically verified by any organizations.In order to face the tough competition in the limited market share, CJ GLS has recently merged with CJ HTH. This signals that the market will once again be swept by M&As and restructuring. Until now, M&A have always been highly active in the market with small or mid-tier size firms and most of the times, they were acquired by conglomerates.
One of the examples of this is that before CJ had bought Samsung Corporation, they acquired mid-sized company. They bought Samsung Corporation before liquidating most of its retail and logistics businesses. For further examples, Eugene took over logen, Dongbu acquired Aju Logistics and KTlogis, and shinsegae launched sedex while Lotte is also consider jumping into the parcel business. Most companies are trying to survive and make it through the day by offering low delivery prices. The price competition is adding downward pressure on companies’ operating profits even though they managed to increase the volume of parcel deliveries. Those companies are in trouble for the prices are already too low and further lowering will bring less profit. For customers, this phenomenon benefits them and they will certainly shun companies that raise prices. Therefore, companies are expected to either put up for sale or restructure in the near future.
My opinion about this phenomenon is that the companies should make an agreement to stabilize the price to avoid reduction on profit. Also, for mid-size and large companies, they should either focus on searching for other market (new service) or compete fiercely until they acquire majority of their market share on quick delivery service. Since companies earn profit through services, they should improve or should come up with innovative strategies on their services to gain customer’s loyalty and win their competitors.

http://koreatimes.co.kr/www/news/nation/2008/05/123_23509.html

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