Travel, Logistics & Infrastructure Practice

Asia: The highway of

value for global logistics
Logistics—a bright spot in a global economy still recovering from
the pandemic—presents many opportunities in Asia. How can
stakeholders make the most of them?

This article was a collaborative effort by Fox Chu, Yuanpeng Li, Detlev Mohr, Yuta Murakami, Cuiwei Sun,
and Hanish Yadav, representing views from McKinsey’s Travel, Logistics & Infrastructure Practice.

© Panksvatouny/Getty Images

May 2021
 As with most other industries, the COVID-19 logistics industry and its subservice lines, such as
pandemic has transformed global logistics in cross-border e-commerce logistics. The pandemic
profound ways. But unlike most other industries, the accelerated e-commerce adoption, perhaps
decline in economic activity during the pandemic irrevocably. According to our COVID-19 retail-
has not affected global logistics too negatively. The recovery survey, online penetration is now likely
consumption of goods—and thus the corresponding to remain six to 13 percentage points above pre-
logistics needs—has been left relatively unaffected. COVID-19 levels. While this puts greater pressure on
global logistics, it also presents a huge opportunity,
This article reports that while the COVID-19 as consumer goods and retail make up almost half
pandemic has accelerated the growth of global of the logistics market. The logistics industry has
logistics, it has also widened the gap between outperformed most other sectors during the crisis.
the sector’s leaders and laggards. The market is
becoming more dynamic, with many new start- The COVID-19 pandemic has accelerated the
ups providing increasingly intense competition. In polarization of leaders and laggards in the logistics
response, legacy players are acting to consolidate industry. The biggest challenge faced by the logistics
strength with M&A activity or scale up operations industry is less about the demand and more about the
by going public. This is especially true of the Asia supply side. Companies that are best able to mobilize
market, where all indicators point to the continent’s operations and assets to serve their customers
recovery outpacing the rest of the world’s in the consistently and resiliently will be the ones to capture
next year. The continent is expected to account for a disproportional share of value. Companies that are
57 percent of the growth of the global e-commerce able to steal a march on their competitors will quickly
logistics market between 2020 and 2025. outstrip them, and it will be increasingly difficult for
the laggards to make up the growing distance.
This may make Asia the single-most-important
region for global trade and logistics activities
going forward. Whatever their role in the logistics Asia is fast becoming the global hub
ecosystem—a global logistics operator, a local of the logistics industry
specialist, an e-commerce player, or a logistics real- To grow and stay competitive, logistics players
estate player—companies could seize opportunities have realized that Asia will likely be the single-most-
now and act quickly to capture value. Those that important addition to their business portfolios. Asia
leverage this window of opportunity to create a is projected to recover faster than other regions
lasting competitive advantage and a strengthened economically and will be at the center of all logistics
market position will emerge from the pandemic activity—both in growth and investment. With
as leaders. regard to growth, Asia will contribute about half of
the world’s trade growth by 2030. Trade growth
between Asia and the rest of the world will contribute
The pandemic has catalyzed the about 55 percent, with intra-Asia trade growth
growth of global logistics but polarized making up the rest. The Asia e-commerce logistics
leaders and laggards market will account for 57 percent of total market
While the pandemic caused severe and sudden growth from 2020 to 2025 (Exhibit 1). Industry
supply-chain disruptions in its initial months, players will, therefore, need to reconfigure their
the crisis has also yielded opportunities for the networks if they aim to capture these opportunities.

2 Asia: The highway of value for global logistics

Web 2021
AsiaGlobalLogistics
Exhibit
Exhibit 1 of13

In both
both GDP
GDP and
and e-commerce logistics,Asia
e-commerce logistics, Asia is
isexpected
expectedtotorecover
recoverfaster
fasterfrom
from
the economic
the economiceffects
effectsofofCOVID-19
COVID-19than
thanthe
therest
restofofthe
theworld.
world.

Real GDP year-over-year growth, % E-commerce logistics market size, Share of

2020–25 growth, EUR billion growth, %
15

10 Asia–Pacific 108.3 57.3

5 North America 45.6 24.1

Asia
Africa
Latin America Europe 23.7 12.6
0
NAFTA
Middle East 4.2 2.2
Europe and North Africa
-5
South America 3.6 1.9
-10
Caucasus, Central Asia,
and Russia 2.2 1.2
-15
’19 ’20 ’21 ’22 ’23 ’24 ’25 Sub-Saharan Africa 1.3 0.7

Source: GSCi; IHS Markit

Additionally, many Asian countries can expect from more new start-ups, fast movers have already
extraordinary growth in their domestic economies. taken decisive actions to stake a stronger position
GDP growth in Asia is expected to be 4.5 percent, in the region. Investment activities have created
more than double the world’s average of 2.0 percent. momentum for logistics assets, and both industry
By 2025, 30 percent of world consumption will players and investors have been involved. With
be in Asia. While China, Japan, and India will the right injection of capital, we can expect legacy
remain the largest logistics markets in Asia, India, players to accelerate efforts to capture more of
Indonesia, Vietnam, and Thailand show the highest the market by means of M&A activity. As scale
growth potential. begets scale, smaller and weaker players may find
themselves becoming increasingly vulnerable.

Start-ups are heating up the We project that global companies with a strong
competition, while legacy players are logistics presence in Asia or those with a robust
actively consolidating strength Asia-focused logistics plan will continue to perform
In the past 12 months, the global logistics market better than their more conservative peers. Missing
has outperformed many other sectors. Mergers out on Asia will mean not only missing out on
and acquisitions and start-ups attracted about the opportunities Asia provides but also losing
$25 billion in just the first quarter of 2021 in Asia, relevance when it comes to matching the demands
surpassing the annual figures from 2016 to 2019 of global customers, since Asia plays such an
(Exhibit 2). In the face of increasing competition integral part in global supply chains.

Asia: The highway of value for global logistics 3

 Web 2021
AsiaGlobalLogistics
Exhibit
Exhibit 2 of23

Anincrease
An increase in
in investment
investment activities in Asia
Asia is
is intensifying
intensifyingconsolidation
consolidation and
and competition.
competition.

M&A, IPO, and start-up deals in Asia–Pacific1

Total value, USD billion Number of deals Average deal size, USD million
30 300 150
IPO
M&A
Start-up3
20 200 90

10 100 60

0 0 0
2016 ’17 ’18 ’19 ’20 ’21 2016 ’17 ’18 ’19 ’20 ’21 2016 ’17 ’18 ’19 ’20 ’21
YTD2 YTD YTD

Key deals, announced dates

2019 2020 2021

November August February
Hichain Logistics IPO Kerry Express (Thailand) IPO SF acquired Kerry
$147 million transaction value $278 million transaction value $2.3 billion (51.8% share)
December September K+N acquired Apex
Flexport latest funding was raised Alibaba acquired YTO $1.5 billion4
$965 million (12% share)
1
M&A deals are calculated with deal value, IPO deals are calculated with transaction value, and start-up deals are calculated with funding amount.
2
Year to date as of February 24, 2021.
3
Cumulative funding in start-ups.
4
Not disclosed.
Source: CB Insights; company websites; Crunchbase; S&P Capital IQ

Seizing the logistics opportunity — M&A. Both global players and local champions
in Asia have been active in M&A to expand their Asian
While we see competition intensifying rapidly, networks as quickly as possible. In a context
it’s important to emphasize that the logistics where speed is a competitive advantage, M&As
opportunity in Asia is still up for grabs. Although the provide a way for companies to quickly enter a
window is narrowing, there is still time for players new market and expand their business portfolios
that move quickly to benefit. as they beef up their capabilities. Kuehne+Nagel
expanded its Asia presence with the acquisition
Four tactical moves of Wira Logistics, an Indonesian logistics
Companies could use four drivers to consolidate company, for $2 million in 2018. It also acquired
their strengths: M&A, IPO, captive-function carve Apex International for $1.5 billion in 2021 to
outs, and strategic investments (Exhibit 3). strengthen its Asia air-freight-forwarding (AFF)

4 Asia: The highway of value for global logistics

Web 2021
AsiaGlobalLogistics
Exhibit
Exhibit 3 of33

Asia can
Logistics players in Asia can make
make four
four tactical
tactical moves to
to consolidate
consolidate their
strengths.
their strengths.

M&A IPO Captive-function Strategic investments

carve outs By PE/VC1 By tech players
•To quickly enter a •To raise money from •To drive higher •To raise money •To codevelop/
new market investors for enterprise value by from investors for integrate offerings
•To expand business expansion and making logistics a expansion and •To engage in logistics
portfolios operation optimization market-facing operation ecosystem
business and scaling optimization
•To enhance
capabilities •To enhance brand
presence and partner
with other companies
•To concentrate on
major business

1
Private equity; venture capital.
Source: Crunchbase; S&P Capital IQ

network and capabilities. Meanwhile, it sold the Mahindra Logistics has achieved a P/E ratio of
major part of its UK contract-logistics portfolio 51.5x with its IPO in India in 2017, almost double
to XPO Logistics, indicating an attempt to that of its international peers.
recycle capital to fund growth in its Asia network.
In the meantime, SF Express, China’s leading — Captive-function carve outs. Parent
express-delivery company, acquired Kerry conglomerates can carve out their logistics
Logistics at $2.3 billion in 2021 to expand its business units to drive higher enterprise value
network in container logistics, freight forwarding, and enhance their brand presence by selling
and express in Southeast Asia. their services to other companies at scale. This
has become a trend in Asia. Firms like Mahindra
— Going public. Emerging local leaders in fast- Logistics and TVS Supply Chain Solutions (TVS
growing countries have been successful at SCS) have converted their logistics business
IPOs, which are a way to raise money to invest units into third-party logistics firms and reaped
in the expansion of the business and optimize the benefits. Mahindra Logistics raised about
operations. While raising money from private $129 million in its IPO, while TVS SCS has been
equity certainly remains an attractive option, raising private capital at attractive valuations
there may be some advantages to going public. over a period of time (raising about $114 million).
First, as companies are required to meet We believe this trend may continue, considering
stringent standards and undergo strict audits the value it has generated for proprietors of
as part of the due-diligence process, IPOs instill large businesses. Furthermore, a focused
greater confidence in investors and customers strategy, aggressive talent, and capital infusion
and open up more funding options at later are likely to shorten the cycle of carve-out-to-
stages and at cheaper rates. Second, there is value capture to a few years.
a low risk of losing control, as the company is
drawing from a larger pool of shareholders rather China Eastern Airline carved out its logistics
than one or two investors. Third, an IPO tends to business, Eastern Air Logistics (EAL), to pilot a
inject a higher level of liquid equity in a relatively mixed ownership in the national civil-aviation
short period of time to allow company leaders sector and plans an IPO as an integrated-
to manage their company without too many logistics service provider to raise about
constraints. Kerry Express raised $278 million $350 million. SpiceXpress, the cargo arm of
from an IPO in Thailand in December 2020, and the Indian budget carrier SpiceJet, is also

Asia: The highway of value for global logistics 5

 reported to be preparing an IPO soon. These What you can do depends on who you are
companies will be able to use the influx of Given the fast-changing, competitive business
liquidity to make bolder plays in the market. landscape in Asia, the window for harnessing
growth and building a leading and sustained
— Strategic investments. Over the past five market position is quickly narrowing. The different
years, private equity (PE) and venture capital stakeholders in the logistics ecosystem have a
(VC) have made financial investments of variety of strategies at their disposal to help them
approximately $37 billion in Asia. Temasek capture this opportunity.
Holdings’ investment in SCOMMERCE, Warburg
Pincus’ investment in Rivigo and Stellar Value — Global logistics players. Global logistics players
Chain Solutions, and CDPQ’s investment in TVS can revisit their Asia portfolios, reconfigure
SCS are funding expansion and optimization of themselves to have Asia-relevant networks,
operations. Likewise, tech players are making reinforce their local presence in select markets,
multiple strategic investments through direct review their targeted customers, and decide
investments, start-up accelerator programs, and which ones to serve and which respective go-to-
VC arms to engage in the logistics ecosystem. market models to adopt.
Google, for instance, has backed India’s Dunzo
with $40 million in funding to codevelop new — Emerging pan-Asia logistics players.
products and solutions as well as rapidly build Emerging pan-Asia logistics players can
existing portfolios with new-business models seize the opportunity to bolster their networks
and test applicabilities at scale. within Asia and beyond and leverage their local
knowledge to differentiate themselves by their
The core belief driving these activities is that there is ability to provide both cross-border and end-to-
going to be significant growth and value creation in end products across Asian countries.
logistics over the three- to five-year horizon and that
the Asia logistics market in particular will be more — Local specialists. Country-specific, market-
vibrant and more competitive than it has ever been. specific, and asset-specific specialists that are
Pursuing inorganic growth will help companies looking to build leadership positions to capture
capture that opportunity. most of the value pools in their submarkets should
also look for opportunities to capitalize value by
playing a role in the ecosystem of bigger players.

The core belief driving several activities is

that there is going to be significant growth
and value creation in logistics over the
three- to five-year horizon and that the
Asia logistics market will be more vibrant
and competitive than it has ever been.

6 Asia: The highway of value for global logistics

 — Captive-logistics players. Parent conglomerates — Logistics real-estate players. Logistics real-
can consider carving out their captive-logistics estate players can build close partnerships
units, allowing them to explore opportunities with logistics players to consolidate different
to serve customers beyond their stable of flows of logistics traffic and also to transform
companies. In the pursuit of local expansion, the value of their properties. For example,
captive-logistics players may also collaborate on a warehouse used for storage could be
joint ventures with other players in the industry. repurposed as an e-commerce fulfillment center
and host multitenant operations. On a global
— E-commerce logistics players. The logistics scale, building a regional footprint to cope with
arm of e-commerce players aspires to serve manufacturing relocation and supply-chain
not only as the e-fulfiller of a company’s resilience will be much more valuable
products but also as an omnichannel enabler. than creating isolated facilities. This kind of
This creates complementary and synergetic real-estate expansion can be expedited by
space with traditional logistics players that logistics companies.
used to serve B2B. In the cross-border regime,
using a combination of stock-in models for
higher-frequency products, freight forwarding
for replenishment, and express for ad hoc Historically, the logistics market has grown
shipments seems to be the emerging optimal proportionately to GDP and trade, which suggests
solution. Without an obvious leader to integrate that the Asia logistics market will present hundreds
these cross-sectorial capabilities, there is of billions of dollars in growth over the next five
reason to believe that strategic partnerships, years, an opportunity that logistics players across
or JVs, and M&As can expedite service-level the spectrum can strive to capture. Those that
operations excellence, thereby capturing that succeed will secure a long-standing strategic
white space. stronghold. To reap these dividends, the time to
act is now.
— Infrastructure players. Airport, seaport, and
rail operators are owners of logistics assets.
They can revisit the scale and relevance of
their logistics assets and explore opportunities
to partner with external parties to scale their
adjacent businesses or divest to capture
immediate value.

Fox Chu is a partner in McKinsey’s Hong Kong office; Yuanpeng Li is a partner in the Shenzhen office; Detlev Mohr is a
senior partner in the Tokyo office, where Yuta Murakami is a partner; Cuiwei Sun is a consultant in the Singapore office; and
Hanish Yadav is a partner in the Delhi office.

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Asia: The highway of value for global logistics 7