DHL Forwarding and Damco’s suffering contrasts with parental prosperity

If there is a comfort for DP-DHL over its freight forwarding business it might be that the torrid history of DHL Express demonstrates that it can turn problematic businesses around. For the group’s latest quarterly results saw its 2% increase in revenue and 4.2% increase in operating profits driven by the dynamism of Express, which individually saw a jump in EBIT of 23%, to €305m.

The result at DHL Forwarding, Freight was very different with a fall in EBIT of 49% to €72m. In common with most other forwarders, DHL saw an increase in volumes with air freight up 4.8% and sea freight up 4.5% year-on-year. However air and sea freight revenue for the first nine months of the year only crept up by 0.6% and down 1.2% respectively. DHL Forwarding cites currency fluctuations as part of the problem. However the core problem is the crunch in yields, with gross profit down by 9.9% after the airlines aggressive rationalization of capacity collided with the increase in demand. The situation in sea freight might be expected to be different, however DHL Forwarding cites “ocean carriers [who] continued to reduce effective capacity” as the reason for a 4.5% decline in gross profit.

Yet these already existing conditions were amplified in their effects by heavy investment for the ‘New Forwarding Environment’ programme, which is largely concerned with creating a new IT platform for the business.

The problems at Maersk are not too dis-similar. The core shipping business drove-forward with an impressive 23% increase in profit through a combination of firmer freight-rates and continuing increasing productivity, resulting in the whole group seeing an underlying improvement in profits of 25% year-on-year. In contrast Damco fell heavily into the red, with a loss of US$68m for the quarter. Disturbingly volumes fell, with air freight down by 16% and sea freight volumes down by 7%. Revenue did increase but Maersk described gross profit as “declining and unsatisfactory.” The environment at Damco does seem to be one of aggressive consolidation but losses are still being driven by write-offs including goodwill write-downs, presumably of its previous acquisitions.

It also appears that the carriers, particularly the shipping-lines, have regained a grip on the market creating a tough market despite the theoretical surplus of capacity. This is flushing-out the weaknesses in these forwarders, with the acquisition errors at Damco and the loss of direction at DHL, proving to be expensive. The sole consolation for these companies is that they have wealthy parents who will probably give them the time and the money to sort themselves out. In other circumstances they might not be so lucky.