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| 3 days ago
The logistics industry might not be the first sector at the top of investors’ minds for investment opportunities, but it’s a sector that is deeply relied upon on an everyday scale – from regular consumers to businesses all around the world, the logistics and transportation industry is simply one we cannot live without.
On a broad scale, the logistics industry is made up of organizations that manage how goods and resources are acquired, stored and transported from the first destination to the last. In other words, logistics companies transport literally everything you can think of – groceries, clothing, materials, furniture, your dog’s favourite toy, you name it.
Essentially, the supply chain industry would not work without logistics because every company or business relies on logistics as a part of its business strategy. Logistics is segmented into different transportation modes, including roadways, seaways, railways and airways.
At present, roadways are the largest segment of the logistics market. Industries that rely on logistics include everything from manufacturing, consumer goods and retail, food and beverages to IT hardware and telecom, to healthcare industry, chemicals, construction, automotive and oil and gas.
In an interview with The Market Herald Canada, Richard Maloney, Senior Operating Officer of Mullen Group Ltd. (TSX:MTL, OTC Pink:MMLGF, Forum) explained that countries like Canada rely on imports from all around the world.
The importance of logistics
“In order [for imports to happen, [there needs] to be a really good transportation and logistics sector with an infrastructure that supports the movement of those goods,” he said, adding that Canada imports more goods than it exports.
Maloney explained that in order for society to continue functioning in the normal course, goods and services need to be transported seamlessly, which is where the logistics sector comes in.
“There has to be facilities where the freight can be stored, and they have to be in strategic locations,” Joanna Scott, Senior Corporate Officer at Mullen Group, told The Market Herald Canada, referring to these facilities as “burger stands.”
From there, if the freight is going the long mile it could be transported by road or rail and once it gets to the next destination, Scott said there needs to be another “burger stand,” and from there the freight gets transported to its ultimate destination which are often smaller communities – Mullen Group refers to this last leg in the logistics chain as the “Final Mile.”
“When you think about all of the different freight that is transported – life-saving medication, food, recreational goods, things you need for your home – when you look at it that way, you can see how logistics plays such an important role overall,” Scott said.
Why the logistics market is a good investment opportunity
Maloney explained to The Market Herald Canada that logistics are especially crucial to smaller communities for goods and services such as food or medications.
[“The logistics industry] has a social responsibility to make sure the pharmaceuticals and food that are taken out to remote communities still get there,” he said. “If we do not do that, communities starve. Logistics is critical to keeping a functioning economy going.” Scott told The Market Herald Canada that one of the biggest things for investors to understand about the logistics sector is that it’s a critical component of the economy.
While the logistics sector might not be the trendiest or flashiest industry to invest in, Scott explained that the logistics market is sustainable and tied to the economy in virtually every way.
The logistics industry, Scott further added, is also tied to the consumer rather than a commodity, which also gives it an advantage.
“[Logistics] may not be recession-proof, and people will dial back on spending from time to time, but people will always consume and people will always need essential items,” she said.
In other words, what makes logistics a stable investment opportunity is because it is so closely tied to people and keeps the economy moving.
The logistics market share
In the wake of the COVID-19 pandemic, the logistics industry almost changed overnight as consumers around the world stayed home and flocked to online retail.
Additionally, even though many things shut down, Maloney said that industries such as health care, emergency response, grocery stores and transportation did not and were deemed essential services.
“Logistics is critical to a country’s existence and the ability to get the goods where they need to be in a timely fashion,” Maloney told The Market Herald Canada.
To provide context in terms of how large the logistics industry is, it is estimated the sector was valued at US$9.96 trillion in 2022, fueled in large part by the e-commerce industry and an increase in high-speed connectivity. As the e-commerce industry continues to thrive as consumers shop more and more online, so too is the demand for fast and efficient logistics services.
Between 2023 and 2028, the logistics market is projected to reach a valuation of $14.37 trillion, growing at a compound annual growth rate of 6.3 per cent during the forecast period.
Keeping the logistics market share growing will be continued advancements in technology, including advanced logistics platforms and continued growth of online shopping among many other things.
The continued availability of linked logistics systems with high interoperability, security and accessibility will also drive the demand for technological advancements.
The Mullen Group angle
With headquarters out of Okotoks, Alberta, Mullen Group is one of North America’s largest logistics providers with a network of independently operated businesses that provides a wide range of service offerings including less-than-truckload, truckload, warehousing, logistics, transload, oversized, third-party logistics and specialized hauling transportation.
Since the company went public in 1993, it has completed more than 77 acquisitions, ranging from small tuck-ins to larger, well-established name-brand companies. Mullen Group currently has 40 subsidiaries under its belt, accounting for strategic mergers and internal reorganizations.
The company also provides a diverse set of specialized services related to the energy, mining, forestry and construction industries across Western Canada.
Mullen Group’s operations are divided into four key segments: Less-Than-Truckload, Logistics and Warehousing, Specialized and Industrial, and U.S. and International Logistics. These are differentiated by the type of service provided, equipment required and, of course, customer needs.
The company’s fleet of truck drivers delivers essential goods and services to more than 5,000 Canadian communities every day as well as every state in the U.S. Mullen Group also boasts 2,700 international business customers.
In other words, Mullen Group’s impact is nothing short of significant as it continues to shoulder the backbone of the economy.
Maloney told The Market Herald Canada that the company also continues to adopt new technologies, such as artificial intelligence and machine learning so Mullen Group can be a more efficient logistics provider.
“We can optimize loads to make sure that a truck or a trailer going to a final mile destination is as full as it can be,” he said. “We are adapting the right technologies within our operations.”
Similarly, Scott said that even during times of economic uncertainty – including the financial crisis, the energy crisis and the COVID-19 pandemic – Mullen Group was able to stay consistent and generate the same amount of cash flow it otherwise would have.
“[Our cash flow] didn’t waver despite all the noise,” she said. “[Mullen Group] is a very sustainable business. Our diverse business model provides stability in otherwise challenging markets.” Additionally, what makes Mullen Group stand out is every month the company also issues a monthly dividend to its shareholders amounting to $0.72 per share per year paid on a monthly basis at $0.06 per share.
Moving forward into the rest of the year, Mullen Group aims to generate consolidated revenue of $2 billion and achieve operating earnings of roughly $300 million.
The company also intends to continue pursuing acquisitions that will make its existing business units more profitable as well as strategic opportunities that will expand its network.
The bottom line
Putting it simply, the logistics sector isn’t going anywhere – and regardless of where the market is, or if there’s economic uncertainty, goods and services will always need to be transported.
For investors looking for an opportunity that is a little bit outside of the box – but just as reliable, if not more than investing in a commodity – the logistics sector just might be what you’re looking for in terms of long-term growth.
This is sponsored content issued on behalf of The Mullen Group please see full disclaimer here.