Understanding the investment fundamentals of the logistics sector

Joseph Wong    Alan Lok, CFA, Eunice Chu, ACCA, Guruprasad Jambunathan
15 Apr 2019
Categories: Industry/Sector Analysis, General Market Analysis, Fundamental Analysis, Investment Management, Investor Education

Country or region: Asia Pacific (Overall)

Summary:
A part of the series "Sector Analysis: A Framework for Investors", generated to help investors undertake proper due diligence on companies in the rapidly evolving logistics sector that is a back-bone of today's supply-chain system.

This publication qualifies for 1.0 CE credits under the guidelines of the CFA Institute Continuing Education Program.
We encourage CFA Institute members to login to the CE tracking tool to self-document these credits.


Abstract

INTRODUCTION TO THE LOGISTICS SECTOR ANALYSIS: A FRAMEWORK FOR INVESTORS

The key to a company’s success depends on how well it executes its business model. This calls for optimising the allocation of limited resources to generate sustainable cash flows, for investing in new products, technologies, and services in responding to the wider competitive landscape or societal changes and mega trends, as well as for devising appropriate responses in the face of an evolving macroeconomic, regulatory, and political environment.  

Different industries often require very different business models; and even within the same industry, the model that does add value to the business may vary somewhat from company to company.  

To help investors undertake proper due diligence on a company, we have generated a framework of analysis designed to tease out the following: (1) whether the pertinent factors favour the firm in question; and (2) whether management is effective in executing its business model or value-generating strategies, while responding appropriately to its external environment.

This framework is customised to specific sectors and incorporates interviews with professionals within those sectors. 

LOGISTICS INDUSTRY

Logistics is the backbone of today’s supply-chain ecosystem, ensuring that people and goods are
transported efficiently from one point to another, on time, in good condition, and at competitive prices. The sector is evolving rapidly, as advances in technology respond to distribution demands from e-commerce firms. Furthermore, disruptive forces are in play as new entrants create services that we suddenly cannot live without.

Logistics is also a labyrinthine industry that includes a multitude of stakeholders, ranging from governments to warehouse operators, freight specialists, port authorities, transport companies, and ultimately, the end-user. In the logistics industry, finding two firms that are entirely alike is difficult. Thus, establishing a complete picture of a company’s portfolio of services to gain insights into the
logic of its business model is vital. For example, does the company cater to the retail or industrial markets? Armed with that information, you will have a roadmap to help drill into the demand factors in each division of the logistics company’s business.
 
To read more, download the full sector analysis for the airline industry with accompanying question bank below.

This publication qualifies for 1.0 CE credits under the guidelines of the CFA Institute Continuing Education Program.



Date of original publication:

01/15/2019


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