Is the forwarding market really that bad?

The perception is that the freight forwarding market is in a condition of low growth verging-on depression, however the situation described by the most recent results of the major providers is more complex than that, with volumes increasing but low freight-rates driving-down revenues. Yet such an environment ought to be satisfactory for forwarders.

Of the leading forwarders, Kuehne + Nagel saw tonnage up in both air freight and sea freight over the past half-year, with the latter seeing a rise of 5.8% year-on-year. Crucially, operating profits also rose significantly, up over 8% in both businesses. This implies that the Switzerland-based company has retained its habit of increasing market-share without diluting earnings.

Fellow giant DHL Global Forwarding, might still be regarded as being in recovery from its IT exuberance. Its profits over the past half-year have doubled year-on-year but this is really a ‘bounce-back’ from the previous year’s problems. The business is clearly rationalising falling volumes in air freight in an attempt to focus on profitable trades, so it is difficult to know what the underlying performance of DHL Global Forwarding really is.

Expeditors International have traditionally been one of the freight forwarding sectors’ best performers, yet volumes here have generally fallen over the past six months as have operating profits, with the latter down 2% for the whole group in the last quarter and 10% in the first quarter. This surprising performance may be a reflection of a particularly tough environment for the trans-pacific trades that Expeditors is so strong in.

Panalpina has also seen falling volumes, although in its case this may well be influenced by a near-collapse in the oil and gas ‘Exploration & Production’ segment. Nonetheless the company may have seen an underlying profit performance edge-up in both air and sea over the past half-year, probably due to an emphasis on improving the quality of business which in turn has further depressed volumes.

DSV presents a very different picture, with the absorption of UTi boosting revenues substantially. Yet despite all of the problems that such a large acquisition must have had, the company still boosted operational profit by 7% year-on-year in the first quarter of 2016.

It might be tentatively suggested that the underlying market for both air and sea forwarding is not that unhealthy. Volumes are increasing in low to mid-single percentages whilst the low rates in sea and air freight offer the potential for widening profit margins. What the present state of the market is less forgiving of is self-inflicted problems either to do with internal systems or poor strategic positioning.

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Source: Transport Intelligence, August 23, 2016

Author: Thomas Cullen