K+N profits despite market slow-down

Kuehne + Nagel

The boom in the market for air and sea freight seems to be ending, yet Kuehne + Nagel so far has continued to make money. Thomas Cullen, Ti Chief Analyst, reports.

Its latest results for the third quarter saw the Switzerland based company increase its turnover by 16% year-on-year and net earnings were up 19%.

The core sea freight forwarding business continued to grow but at a slower rate. Revenue was up 27% but gross profit was up only 7% and EBIT (Earnings Before Interest and Tax) rose by only 3%. The reason for this was lower revenue and profits per TEU. Not only are freight-rates falling but, to quote the company, “complexity in global sea freight markets steadily decreased in the first nine months of 2022, while volatility steadily increased in major trade routes”. This seems to suggest that the sort of congestion that proved so profitable for forwarders over the past two years has reduced and freight-rates have fallen rapidly.

Slightly more surprising, air freight saw revenue rise moderately, up 7% year-on-year, but EBIT jumped by 35%. Kuehne + Nagel reports that “demand for cargo capacity on most trade routes was positive” but that “commercial airline operations were volatile in the first nine months of 2022”. As with the sea freight business, yield per consignment has been drifting downwards for the past two quarters.  

The Road Freight business seems to be following a similar path, however for the quarter Kuehne + Nagel saw a leap in profits of 91%. It is unclear why this is, as margins have been weakening since Q2. It may be that asset utilisation has achieved a high-enough level to boost profits, although it does seem a large increase. Contract logistics also seems to be benefitting from high asset utilisation, with respectable growth in sales of 8% but a 38% jump in EBIT.

For the air and sea forwarding businesses of Kuehne and Nagel there is clear evidence of decelerating markets. Although this quarter’s numbers look acceptable, the growth percentages are dramatically lower than those seen earlier in the year. For example, EBIT grew by 71% for the first nine months of the year as compared to 17% just for Q3. What Kuehne + Nagel has been able to achieve is continued the increase in profits. The question is, will it be able to sustain this?

Source: Ti Insight

Author: Thomas Cullen

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