The “freight markets have largely normalised” is how Jens Bjorn Andersen, CEO of DSV, describes market conditions. This makes comparisons with previous years hard as 2022 and 2021 numbers were very high. However, at the freight forwarding division, which is now the largest business, things seem to have been tough over the past six months. Gross profit is down 23% and Earnings Before Interest and Tax (EBIT) is 35.7% lower. Both container shipping forwarding and air freight forwarding have been hit hard. The situation is such that certain parts of the air freight market were perceived by DSV Forwarding as being “not super rational” leading them, in the words of Mr Andersen to “step away from those opportunities”. This willingness to sacrifice unprofitable business has resulted in the ability to continue to increase operating margins, yet the management of DSV say that they wish to return to “growing faster than the market” in the medium-term.
The road freight business is described by Mr Andersen as “rock solid” which for a business focussed on Germany and neighbouring economies is surprising. However, the numbers show that much of the business’ resilience is due to improved margins, with revenue over the first half of 2023 down 4.5% year-on-year but EBIT just 2.8% lower.
The contract logistics business was hit by lower air and sea freight volumes. In addition, costs have increased. Over the half-year EBIT fell heavily, being 23.4% lower year-on-year, a number affected by DSV expanding warehousing capacity and thus seeing falling utilisation. Clearly DSV’s contract logistics operations are positioned to be highly exposed to areas such as air freight, rather than specific verticals, a strategy that has supported profits in other contract logistics providers.
The world is used to consistently impressive results from DSV, so it is hard to know what to make of these results. Although the profits from the forwarding operation have not been hit as badly as some others they are also not much of an indicator for the future. Also, the performance of the contract logistics business is not excellent by past DSV standards. As with its competitors, the challenge for DSV is to reposition itself for the new market conditions and this is still unclear although DSV’s management seem optimistic.
Author: Thomas Cullen
Source: Ti Insights
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