How Healthy are the Freight Forwarders?

Global trade is slowing and by some estimates, this year will see the weakest growth since the financial crisis.

The WTO estimates that trade will grow 1.7% in 2016, the weakest number since 2009. The IMF recently pointed out that normally trade growth tended to increase far quicker than world GDP, but that for the past few years, it had been considerably slower. Declining demand for goods and protectionism are considered the main reasons for the decline but other considerations are a growing amount of international commerce occurs online now, and an increasing proportion of world trade today is in services rather than goods.
How does all of this translate for the freight forwarder? Not surprisingly, it has been a struggle for many forwarders and as a result we have seen consolidation in recent years.
Against this backdrop, we take a look at some of the large freight forwarders and how they’ve fared so far this year.
Even the large forwarders have not been immune to the slow-down in trade. For the first half of this year, DHL’s total forwarding revenue declined 15.7%. Lower fuel surcharges and lower air and ocean freight rates were the primary culprits of DHL’s revenue decline. By mode of transport, DHL’s air freight revenue declined 17.3% while air freight gross profit slipped 4.5%. Meanwhile ocean freight revenue fell by 13.6% while gross profit increased 16.8%.
In terms of volume, air freight fell by 4.7% for the first half of the year while ocean freight volumes increased 3.1%. Ocean freight volume growth was mainly driven on the trade lanes between Asia and Europe, intra-Asia and trans-Pacific.
Swiss-based Panalpina was negatively impacted by the oil and gas sector. Because of the lower volumes in oil and gas, ocean freight volumes declined 9% during the first half of the year.  Meanwhile, air freight volume increased 8% with volumes from its acquired companies accounting for 6% of the total volume.
Air freight gross profit was up 3.7% while ocean freight gross profit slipped 1.8%.
According to the company’s CEO, Peter Ulber, “During the second quarter it became evident that the oil and gas business will not bounce back any time soon. Therefore we decided to realign our capabilities with the current volumes and not wait for the market to recover.”
And so, Panalpina’s priorities for the rest of this year include:
  • Growth in sectors other than oil and gas
  • Extend value-added logistics services
  • Maintain cost discipline
  • Accelerate centralization and off-shoring of non-customer facing services
DB Schenker
DB Schenker’s first half revenue was down 4.2% but operating profit was up 21.2% led by its contract logistics group. Air and Ocean volumes increased 0.9% and 2.4% respectively. The intra-Asia trade lane proved particularly strong for Schenker’s ocean freight business. For the air freight business, intra-Asia and Asia-Europe were best while Trans-Atlantic, trans-Pacific and Latin America and Middle East lanes were weak.
The company expects lower growth in air and ocean volumes through 2016. It noted that its air and ocean freight businesses depend on the performance of the Chinese market.
Kuehne + Nagel
For the first half, gross profit increased 8% while net turnover slightly decreased and operating result improved 10%.
For the first time, ocean freight volumes noted over one million TEUs in one quarter, increasing 5.8% from first half 2015. Export business from Asia to Europe and the US were particularly strong. In addition, LCL and reefer container businesses performed well.
Air freight volumes increased 1.3% for the half. Customer specific service, industry solutions and strong export business in Asia, the Middle East and Africa helped with the gains.
The company’s strategy for the second half of the year is to maintain organic growth, cost management and process optimization. Also, it plans to grow volumes, market share and EBIT. According to Dr. Joerg Wolle, Chairman of the Board of Directors, “…We are confident that we can continue the momentum in volume and profit into the second half of the year from today’s perspective.”
DSV and Expeditors International of Washington
UTi seems to have benefited DSV’s bottom line. For first half of the year, revenue was up 29.9% with second quarter alone up 36.7%. Gross profit for the half was up 46%. Volumes were also in double digits with air up 84% and ocean up 49%.
For Expeditors, it was a rough half as volumes faltered and net earnings for second quarter slipped by 1%. According to the company’s CEO and president, “We made significant progress in the second quarter, especially in Asia and the US and continued to make the right investments with the right people to advance our strategic initiatives. We remain focused on implementing our strategic plan with emphasis on markets to and within China and by leveraging our strength in North America.”
Second Half Outlook
As we enter the final two months of 2016, the view continues to dim for many freight forwarders, slowing trade, over capacity and low rates in the air and ocean freight markets and low oil prices. Cost containment is a priority for all forwarders. A renewed interest in contract logistics is underway for many forwarders as they look to lessen dependence on global transportation. Specialized transportation solutions are also on the table for many forwarders including multi-modal and cold chain transport. In terms of trade lanes, the two largest lanes, Asia-Europe and Asia-US remain focus points despite some weakness but perhaps the biggest opportunity is in the intra-Asia lane.
As we write this article, Kuehne – Nagel has released their nine month earnings and at first glance it is impressive with 4.5% growth in ocean volume and 3.8% increase in air volumes. Will other forwarders be as successful? We will review third quarter earnings and trends for major earnings next month.
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