Cooling market puts Ascent’s expansion into lower gear

Mexico has been a hotspot of development for Ascent Global Logistics recently, but weaker market demand has seen the company become more cautious with investments and M&A activity, while its freighter arm has suffered from reduced yields.

Ascent Global Logistics has been expanding in Mexico. With the recent addition of branches in Monterrey and Guadalajara, its footprint there has grown to about 250 people in six offices, flanked by investment in facilities along the border with the US and aviation maintenance in Laredo.

In addition, the Michigan-based provider of expedited logistics services, acquired by an affiliate of investment firm HIG Capital from Elliott Investment Management last year, has deepened its partnership with one of the largest Mexican cargo airlines.

“At the moment the one bright spot in terms of where we’re doing better than last year is Mexico,” says Ascent chief executive Paul Martins. Both business and the customer base in this lane have been growing for the company, which ranked 29th on the Top 50 US 3PL list of Armstrong & Associates last year.

Flows between the US and Mexico have been going strong on a rising tailwind of nearshoring as American as well as European and Asian manufacturers establish or expand production facilities in Mexico. For Ascent this has translated into robust demand at a time when most other lanes have witnessed a slowdown from the surge in business triggered during the pandemic.

By the latter part of last year the automotive sector, one of the key focus areas for Ascent, finally got on top of its supply chain and inventory issues that had required frequent expedited moves and charters, but the industry’s cross-border flows with Mexico have continued to be strong. Border closures and service issues on the railways have raised demand for air transport solutions.

The overall retreat of demand and pricing from the highs of 2022 has brought down yields for USA Jet, Ascent’s freighter arm, though.

“We fly the same number of trips at much lower yields,” says Martins. “The theme of the day is fiscal discipline and organic growth.”

The drop from the spike of 2021/22 was inevitable, but the extent of the ‘snap-whip’ effect has been unprecedented, he remarks, adding that the strengthening of the market should take some time. He reckons that the second quarter will be a little better than the first and that the second half of the year should begin to usher in a better balance in yields and demand.

In response to the weaker market conditions, Ascent’s broad expansion drive has shifted into a lower gear. It is still moving ahead with plans for geographic expansion and broadening its portfolio, though.

Historically focused on the automotive and industrial sectors, where it serves major manufacturers, it is extending its mission-critical offerings into the aerospace and critical healthcare verticals.

This move, which was initiated by Martins as he took over the reins last summer, has already yielded results with airlines and aerospace manufacturers. In the healthcare sector it takes longer to gain traction, he remarks.

At this point, much of the activity is around the recruitment of industry experts and a gap analysis of how Ascent’s capabilities match with the idiosyncratic requirements of shippers in this vertical.

The company’s diversification strategy can take a few pages out of the playbook of Martins’ previous work. An industry veteran who started out with UPS, he moved from the chief executive position at MNX, a specialist provider of time-critical services for healthcare firms, to Rock-it Cargo in 2019 and diversified the live events logistics firm’s range into the sports, high-end auto and film sectors.

Photo: Ascent Global Logistics

While Ascent is adding people and resources to its fold, its plans for strategic acquisitions of companies have been reined in while the market is slow and money expensive.

“We’ve paused a little bit in M&A,” says Martins. “Some of that’s driven by valuation expectations. Everyone wants a great multiple of what they got in 2022. How about I give you a really good multiple of what you did in 2020?”

He is philosophical about this. “Right now I think our time is better set on taking care of the core business, starting to migrate organically into these end verticals, and if the right M&A targets come, at the right valuation, we’ll certainly look at them, we’ll certainly pursue it,” he reflects.

The acquisition strategy is aimed primarily at the international arena. Last year the domestic market accounted for over 70% of Ascent’s business. Long term, Martins is looking at a 60:40 split with the greater portion in international activities.

“There are certain strategic areas around the world where we want to have a presence. Some of this will be through organic expansion, some through acquisitions,” he says, adding that moves on the latter front will more likely be stepped up next year.

Ascent is looking to expand beyond Mexico into Latin America.

“The other area where we’re strengthening a lot is Europe, where we have demand from our existing customers to provide the same solutions that we offer them in North America in Europe,” Martins explains.

Photo: Ascent Global Logistics

Fleet on hold 

Other than the acquisition trail, the slower market conditions have affected plans for USA Jet, which operates a fleet of 15 freighters, a mix of MD-80s, B727s and smaller planes. This has been used primarily for Ascent’s own business.

Both fleet expansion and modernisation have been on the cards, but in a market where “a lot of planes are chasing a little less freight” and the likes of Amerijet, FedEx and UPS are taking freighters out of service, the time is not right.

“I’m glad we’ve kept the fleet the same size,” Martins remarks. “There’s no real expansion of the fleet at this point.”

Down the road, he is looking to replace the two 727s with MD-80s, which have worked well for Ascent and its mobility and industrial customers.

“I’m a big believer in fleet commonality,” he says, pointing to benefits in crew training, aircraft parts and flexibility with maintenance checks.

The analysis of how to replace USA Jet’s Falcons has not been done yet. Planes of this size would work well for the critical healthcare business, reinforcing their role in the fleet, although there are limits.

“To move isotopes and radioactive material, you need the right aircraft with the right certification. We have partners who have that,” Martins remarks.

Ascent uses other airlines extensively. It has strategic relationships with a number of operators to use a broad array of aircraft, from Beechcraft 1900 turboprops to 747 freighters.

In addition, the company employs about 165 on-board couriers and has its own charter group.

“We do a lot of OBC shipments. It’s a big part of our business,” Martins says.

A fair amount of Ascent’s traffic is handled over a proprietary online platform that allows customers as well as air and truck carriers to invite bids for loads and capacity respectively. All of the carriers on the platform have been vetted and Ascent updates their performance record after every move.

“Our customers love it, and our providers love it. It takes care of track and trace, and you can pull all sorts of reports,” says Martins. “It’s used a lot by our bigger customers. They have it in their systems. We see a lot more customers migrating to it.”

He sees the role of this growing: “The more we’re getting into being a true control tower, where we’re providing all sorts of services for our customers, that bid board is great,” he says.

“A lot of our growth with our core customers comes from this marketplace, because they want more of their stuff going through this. We show them where we’re driving them savings, and we show them reports and they can see exactly how we’re doing and how the carriers are doing. It becomes a big tool for them.”

Ascent Global Logistics acquired by investment firm