Canada / Spotlight Reports
Mondor-Watson Deal Can Shape Transportation Sector
by Ediz Ozelkan Analyst
Feb 22 2018

A merger between three Canadian fleets, QSL, Groupe Robert and Express Mondor, could shape the trajectory of the transportation and warehousing sector in Canada. The merger, expected to be completed on April 1, would create Mondor-Watson, one of the largest ground transportation consortiums in eastern Canada specializing in oversized hauling and transportation. The vastly different capabilities of the three businesses, their salience in both US and Canadian markets and the vertical integration of the merged company is endemic to broader trends in the transportation sector.

The major players

Mondor-Watson is the sum of its parts. This vertically integrated company is premised on the synergistic benefits of shared resources and intermodal transportation. QSL is a leading maritime terminal operator and stevedore headquartered in Quebec City currently operating in five Canadian provinces and two US states with the intention of expanding its activities into the Caribbean. Groupe Robert was founded in 1946 in Quebec and boasts a fleet of over 3,200 trailers and 1,100 tractors. With 41 distribution centres and terminals as well as 3,300 employees, the company has developed its market position through key acquisitions since its infancy. These acquisitions facilitated Groupe Robert’s change from a ground transporter into a turnkey logistics provider with logistics, distribution and transportation services together under one banner. Express Mondor, founded in Quebec in 1995, segments its operations into two primary divisions: logistics brokerage, founded in 2003, and excavation services, formed in 2009. The company has expanded its business by diving headfirst into niche and specialized markets such as sand and heavy-equipment transportation.

The economic climate of the past five years has facilitated merger activity, which favourably positions Mondor-Watson to expand beyond its established markets in the near future. The vertical integration that this merger represents is not exceptional, but rather exemplifies broader patterns within the transportation sector that has catalyzed strong growth in relevant US and domestic industries. IBISWorld expects more consolidation activity akin to this merger, which is projected to influence the way that companies in these industries operate in the future. Vertically integrated transportation companies, such as the future Mondor-Watson, can capitalize on the increasingly globalized distribution and logistics industries by providing a litany of transport services under one banner.

Each of these companies has specialized its offerings while expanding its position through merger and acquisition activity alongside organic growth. Within the context of favourable economic conditions in both the United States and Canada, these companies have thrived on growing energy, mining, maritime and industrial sectors, in line with transportation sector trends. IBISWorld estimates that the Ocean and Coastal Transportation industry in Canada is expected to grow at an annualized rate of 2.6% over the five years to 2018, which is demonstrative of QSL’s, and by extension Mondor-Watson’s, primary market. Groupe Robert’s market has been equally lucrative, with the Freight Forwarding Brokerages and Agencies and Freight Packing and Logistics Services industries projected to rise at an annualized rate of 2.8% and 1.2% respectively over the five years to 2018. Express Mondor is situated in a more ambiguous territory, with the Local Specialized Freight Trucking industry expected to decline marginally at an annualized rate of 0.9% during the five-year period, while the Local Freight Trucking industry and Long-Distance Freight Trucking industry are forecast to expand at an annualized 2.2% and 2.1% respectively during the same period.

The forecast

While most of these industries have exhibited growth during the current period, the forecast for the next five years is promising and situates Mondor-Watson in a strong position to capitalize on this growth. In particular, the Local Freight Trucking industry in Canada is projected to expand at an annualized rate of 2.8% over the five years to 2023. All but two of the aforementioned industries are forecast to grow at annualized rates of over 2.0%, with only the Freight Forwarding Brokerages and Agencies industry and the Long-Distance Freight Trucking industry expected to increase an annualized 1.9% and 1.6%, respectively.

These forecasts are positive outlooks for the domestic economy as a whole but are also manifested in the US transportation sector where relevant industries are expected to grow at analogous rates in most cases. Comparatively, the greatest projected growth in the US transportation sector is anticipated for the Freight Forwarding Brokerages and Agencies industry, with an estimated growth at an annualized rate of 5.8% over the five years to 2023, which vastly outpaces its domestic counterpart. Still, a promising forecast for US industries can be beneficial for domestic businesses that often service markets on both sides of the border, including Mondor-Watson.

The wheels keep turning

Transportation industries are essential to modern economies. From global distribution strategies to local supply chain management, logistics is at the forefront of every industrial concern in both the United States and Canada. Accordingly, these industries have exhibited sustained growth and are expected to continue their expansion in the coming years. In Canada, the transportation and warehousing sector is projected to expand at an annualized rate of 2.0% over the five years to 2018 and an annualized 2.4% over the next five years. Comparatively, the US sector is forecast to display analogous growth in the same five-year periods, at rates of 2.2% and 2.5%, respectively.

In this bustling environment, large companies with expansive resources have dominated smaller businesses that thrive in their local markets. Widespread industry consolidation has been the norm in these industries as mergers and acquisitions are the most effective way to expand a company’s market share as well as its intellectual property.

Mergers can expand the scope of operations for a transportation company. Since most small companies have specialized in one aspect of logistics operations or have focused on niche markets in the past to attain a larger market share, competition has grown concentrated in certain areas of the transportation sector. While this promotes an environment where a single company can capture large swaths of increasingly smaller markets, it also entrenches its supremacy and perpetuates a competitive landscape that is relatively static. Businesses with extensive resources that strive to take a larger slice of the pie are then stuck with few viable recourses for expansion other than mergers and acquisitions.

Edited by Rebecca Simon. Designed by Emily Lidstone.