A Bumpy Q3 for Some Freight Forwarders
Another bumpy quarter for the freight forwarding market thanks to a global economy that is slowing. The US, however, was a bright spot for many forwarders due to rising imports ahead of the peak season.
Asia-Europe trade lane was cited by several forwarders as weak while others noted weakness in emerging markets.
In terms of industries, Kuehne + Nagel indicated it experienced higher demand for “specialized services” in automotive, pharmaceutical, aerospace and perishable sectors while Panalpina indicated its airfreight group was impacted by low volumes in automotive and energy sectors.
Technology was also a focus in the quarter with Deutsche Post DHL recording a big write-off on its system and redirection. Much of this write-off played a role in the company’s disappointing quarterly earnings. Meanwhile, Panalpina is getting set to perform final testing on its SAP-based transportation management system and plans to migrate 50% of transactions to the system in 2016.
Earnings
For many forwarders, year-over-year revenue declined. Deutsche Post DHL’s forwarding group noted a 7.5% decline in revenue and Expeditors International of Washington also recorded overall revenue down 3%. Slowing in Asia was evident in Expeditors’ total revenue as its North Asia region revenue fell 3.5% and South Asia fell 9.5%. But, in terms of net revenue, these two regions posted positive gains, 27.6% and 9.4% respectively. Meanwhile, Europe total and net revenues declined 9.0% and 3.5% respectively an indication that this region continues to struggle.
Kuehne + Nagel and Panalpina each experienced declines in net revenue for both air and ocean forwarding. However, in terms of gross profits, Kuehne + Nagel recorded a 4.3% year-over-year gain in ocean and a 3.2% increase in air. Meanwhile, Panalpina appears to have struggled a bit gaining only 0.8% in ocean gross profits but a 7.7% fall in air gross profits.
Danish forwarder DSV also noted an overall decline in net revenue, 5.2%, but gross profit for ocean was up 14.6% and for air, gross profit was up 16.4%.
Volumes
In terms of volumes, gains in air were more evident versus ocean – an indication of the problems the ocean freight market is facing. DSV recorded a big 9.6% increase in air freight while Expeditors had a 3% gain and Kuehne + Nagel a 5.1% increase. DSV attributed strong European and US exports to its impressive increase.
Meanwhile, Deutsche Post DHL’s forwarding group noted the biggest drop of over 13% while Panalpina had a 2.5% decline.
Gains in ocean freight volume were minimal at best with DSV recording the biggest increase of 2.3%. Again Deutsche Post DHL forwarding group and Panalpina noted declines in volumes. Deutsche Post DHL noted declines in volumes for both air and ocean were due in part to withdrawing from some major transactions as it worked to correct declining margins and general weak demand.
Outlook
Fourth quarter will likely to continue to be bumpy. Declines in revenue most likely will continue for a while longer. Rates will remain low because of market conditions and as such forwarders such as Expeditors expect pricing to remain volatile as customers and carriers adjust.
Meanwhile, ocean freight demand and thus volumes will probably remain depressed while air freight may see a bump. According to The Loadstar, China has temporarily banned ad hoc licenses for air charters from key cities for the month leading up to the holiday season. This combined with an increase in Chinese manufacturing after China’s October holiday has created a surge in air freight demand according to Expeditors. However, how this translates in terms of profits and volumes will remain to be seen.
Global Supply Chain Insights and Logistics Trends & Insights LLC