Kuehne + Nagel still seeing tough markets

The performance of Kuehne + Nagel over the past quarter implies that, despite the optimism of many service providers during the results season, logistics markets have remained difficult. The Swiss based forwarder and contract logistics provider saw net turnover fall slightly but Earnings Before Interest and Tax (EBIT) grew by 12.4% year-on-year to CHF190m.

Results in its core sea container freight business were weak. Even though K+N saw container volumes increase by 6.9%, revenue fell year-on-year 3.6%, gross profit edged down by 2% whilst (EBIT) was down 4%. This suggests that average container rates are falling. The company stated that business from Europe to North America and Asia “increased substantially” but Latin America was not strong. Kuehne and Nagel ascribed weakness in pricing to “volatility” although they assert that the “EBIT-to gross profit-margin” was “stable” at 28.8%.

The situation in air freight was slightly better with EBIT up CHF9m to CHF62m, but revenue was flat on the back of tonnage up 1.4%. Demand appears to be ‘bouncing-back’ in North America and Europe but not in Asia and, surprisingly, the Middle-East and Africa. K+N claim that their ability to grow their margins is due to better management, so it is difficult to assess whether rates are improving or the forwarder has simply been better at avoiding rate-cuts for customers.

The surprising good news is that the road and rail freight business increased sales and saw a small profit of CHF3m, with the groupage business performing better. Contract logistics also improved with slightly higher revenue and EBIT. Both businesses have been the subject of intense efforts to improve their performance although the results of just one quarter are hardly reliable in judging the success of these efforts.

With increasing demand and a weak supply-side things ought to be looking-up; yet Kuehne and Nagel has not been able to capitalise on the weakness of rates, especially in its core market of sea container freight. There is only a slight sign that it is able to widen margins in air freight, whilst in sea freight customers appear to be able to negotiate access to lower rates. This does seem odd and may again suggest that the market is more competitive for forwarders than previously, possibly due to the shipping companies still desperate to sell discounted services.