SCMAP Perspective is our fortnightly column on PortCalls, tackling the latest developments in the supply chain industry, as well as updates from within SCMAP. On this column, Henrik Batallones looks at recent developments in the supply chain industry.
Consolidation
In logistics, consolidation is the process in which smaller packages with a common destination are combined and shipped together to avail of better rates.
In the past few weeks, it seems we’re seeing that in the supply chain industry at large.
We’ve heard over the past months of Manny Pangilinan’s Metro Pacific solidifying its presence in the industry, with its acquisitions of Basic Logistics and Ace Logistics. They long have had a logistics company, but this flurry of purchases suggests bigger plans ahead.
A few weeks back, the SM Group also entered the supply chain industry, with its purchase of 34.5% of Negros Navigation, the parent firm of the 2GO Group. This transaction definitely captured the imagination of observers: the biggest retailer in the country, the people behind a wide chain of malls, department stores and supermarkets, are buying into a supply chain company, and a pretty big one at that.
SM is definitely buying into the logistics expertise of the company, if not its infrastructure – several ferries used for both passengers and cargo, a wide network across the islands – but it’s not as if they know nothing about logistics. Their supermarkets alone are a massive supply chain operation; anybody in manufacturing or distribution knows this.
Are they entering logistics to get a leg-up on e-commerce? Perhaps. E-commerce – the next frontier in retail – is more reliant on supply chain than ever. Somehow customers have different demands when they buy from their phones rather than from a store. 2GO already has a presence in e-commerce, as one of the shipping providers of Zalora. SM also has waded into the pool with a partnership with Lazada last year. With all that in mind, I think of that term again: consolidation.
The Ayala group has also expressed an intention to enter the logistics industry, going as far as saying we should expect more details later this year. They have also ramped up their retail presence, focusing on community malls serving their residential developments. They have also recently acquired stakes in Generika Drugstore and – wait for it – Zalora Philippines, which has its own delivery fleet serving major cities.
One can interpret that these big guys entering our arena is a sign of confidence. Supply chain, as I mentioned in my last column, is the backbone of any good company. Get that right, and you’ll be first of mind among customers. It also goes to say that there is money in supply chain.
But we’ve done pretty well all these years, so what are these conglomerates going for? Better synergy? SM and Ayala have their retail operations; Metro Pacific has unique supply chains for its telecommunications, energy and mining interests. But why acquire? To get ahead quickly? Or are they looking to crack open a new market by becoming 3PL titans? What can they offer that existing players cannot? We’ll have to wait and see.