1. 
Intergistics Solutions is an international freight forwarder. Freight forwarders are companies that transport goods throughout the world using ocean, air, and land freight. The industry consists of several large global providers, including Intergistics, and many regional providers. Freight forwarders do not own or operate the actual means of transport. They lease the capacity needed from airlines, ocean shipping companies, and trucking firms. This makes freight forwarding a service activity that requires limited capital investment.
Intergistics focuses on air freight and the transport of small-scale, high-value machine and electronic parts. Its customers are all manufacturers. Intergistics benefits from the economies of scale it can achieve in negotiations with transportation providers, its expertise at managing vast global supply chains, its highly-regarded reputation as a business-to-business service provider, and the network effect it creates by being embedded at the heart of a global manufacturer’s logistics processes. It has grown steadily by regularly acquiring smaller regional competitors with the same product segmentation and focus, and then integrating them into its network. It has been quite successful at applying its business model to the target companies. This acquisition-based growth strategy, which is funded using stock and not cash, has enabled Intergistics to grow faster than the overall market. This, in turn, has boosted its stock price enabling further acquisitions. The company has aimed to be the provider of choice for companies that depend on the fast and reliable shipment of small-scale, high-value manufactured goods. This strategy has been successful, and Intergistics is the recognized market leader in this segment of the market.
Intergistics has avoided freight forwarding for other goods, such as bulk manufactured goods, food, and commodities, preferring instead to focus on enhancing its existing segments. It is, however, closely observing the growing volume of cross-border e-commerce for retail customers. This segment has some similarities with its current business (shipment of small-scale, high-value manufactured items), but also important differences, as e-commerce mostly involves land freight and less air freight, and shipment is usually to retail customers and not businesses. Intergistics has also avoided partnerships with other freight forwarders, and has instead decided to acquire companies completely, either through friendly or hostile takeovers.
The company’s organization is highly centralized, in contrast to competitors that traditionally operate as a loosely organized network of relatively independent companies. Although this organizational structure provides the competitors with greater geographic coverage and broader diversification, margins must be shared and quality sometimes suffers.
Recently, problems have arisen for Intergistics and the company’s stock price has started to suffer. The company has encountered unexpected difficulties in integrating a large, recent acquisition, resulting in high costs and frequent distractions for management. In addition, there are growing signs of stagnation in Intergistics’ market segments. Air freight has become increasingly expensive because of a rapid, unexpected rise in fuel costs. Concerns about climate change and the impact of aircraft on global warming weigh on air freight, too. In general, concerns about globalization and protectionism create questions about the viability of global supply chains going forward. Also, Intergistics is starting to lose business to high-tech companies that provide 3D printing equipment and services. These companies create digital production networks that use the parts designs of Intergistics’ customers and coordinate with the parts suppliers to have the part produced via 3D printing at the manufacturer’s plant. This completely eliminates the need for shipping services. Finally, the pressure on global trade in general has forced competitors to become increasingly aggressive. Competition has been mounting from freight forwarders who have traditionally avoided Intergistics’ market segments. Companies that offer customers a complete suite of transportation alternatives (ocean, air, and land freight) have become a particular threat.
These problems have created some tension between the CEO and the Board of Directors. The CEO believes the company’s problems are mostly short-term in nature and due to the difficulties integrating the recent acquisition. The board, however, is unsure whether the company’s business model can remain sustainable given the longer-term issues it is facing. This disagreement about the path forward has become public and is beginning to affect staff morale. In addition, the company’s stock price has been declining for the last several months.
The CEO has decided to convene a meeting of key executives to discuss the state of the business. To support this meeting, he engaged a market research firm, which provided an analysis of the market’s prospects (Exhibit #1) and a benchmarking of Intergistics against the average for its peer group (Exhibit #2).
Exhibit 1: Market analysis – Global freight forwarding: Forecasted growth rates
| Category | Prior Year | Current Year | Current Year +1 | Current Year +2 | Current Year +3 |
|---|
| Food | 2% | -1% | -1% | 0% | 0% |
| High-value small-scale items | 1% | -4% | -3% | -1% | 0% |
| Bulk manufactured goods | 2% | 2% | 3% | 3% | 3% |
| Commodities and raw materials | 2% | 2% | 3% | 3% | 3% |
| Total global trade volume | 2% | -1% | 0% | 1% | 2% |
| Ocean freight | 2% | 4% | 3% | 3% | 3% |
| Air freight | 3% | -4% | -3% | -3% | 0% |
| Land freight | 3% | 3% | 3% | 3% | 3% |
| Total global trade volume | 2% | -1% | 0% | 1% | 2% |
| Cross-border e-commerce | 3% | 4% | 7% | 7% | 8% |
| Airline fuel | 2% | 15% | 20% | 7% | 5% |
Exhibit 2: Competitive benchmarks
| Intergistics | Peer Group Benchmark |
|---|
| Diversification of business volume | | |
| % of business in air freight | 95% | 30% |
| % of business in ocean freight | 0% | 40% |
| % of business in land freight | 5% | 30% |
| Revenue growth - actual and forecast | | |
| Previous 5 years - organic (CAGR) | 1% | 2% |
| Previous 5 years - total (organic and acquisitions) (CAGR) | 7% | 3% |
| Future 5 years - organic (CAGR) | -3% | 1% |
| Future 5 years - total (organic and acquisitions) (CAGR) | -1% | 2% |
| Earnings growth - actual and forecast | | |
| Previous 5 years - estimated organic (CAGR) | 2% | 2% |
| Previous 5 years - reported total (organic and acquisitions) (CAGR) | 10% | 3% |
| Future 5 years - estimated organic (CAGR) | -4% | 1% |
| Future 5 years - reported total (organic and acquisitions) (CAGR) | -7% | 2% |
