The global air freight market struggled during the first three months of the year as a slowing trade environment took a toll. Data from the International Air Transport Association (IATA) indicated that freight-ton-kilometers declined 2.0 percent while available-freight-ton-kilometers increased 3.3 percent for the quarter.
However, a look at a few of the publicly traded forwarders’ first quarter earnings finds a mixed bag of results, suggesting that the air freight forwarding market is struggling with imbalances within the air freight market and profitability.
Volumes
Declines in air volumes were reported by DHL, Kuehne + Nagel, Expeditors International and C.H. Robinson. DHL attributed its declines to a combination of “selective stance” and strong market levels in the previous year. For Kuehne + Nagel, the declines were attributed to a “volatile environment.”
However, Panalpina and DSV reported year-over-year volume gains. For Panalpina, volume increased 8 percent. Of that, 6 percent of Panalpina’s total increase was attributed to its acquisitions including Newport Cargo, Adelantex and AD Handling, all of which have a niche focus on the perishables market. Meanwhile, DSV’s air volumes increased 5 percent; the company cited a strong performance on Americas’ exports.
Revenue
While revenue increased for many of the forwarders thanks to higher rates, profitability was a different story. Expeditors’ total air net revenues declined 5.5 percent and there was a 1 percent decrease in net revenue per kilo. According to the company’s SEC first quarter filing, North America and North Asia net revenues decreased 10 percent and 11 percent respectively, due to a 3 percent and 9 percent reduction in tonnage and higher buy rates not fully offset by higher sell rates.
Panalpina struggled to convert its strong volume gains into profit. Gross profit per ton declined 10 percent. Its strategic focus on perishables, while great for volume, did not seem to be great for profits and will probably be evaluated by DSV (Panalpina’s new owner) in the coming months.
There were certainly some positives – C.H. Robinson reported that its air transport net revenues increased 0.4 percent despite a 4 percent decline in volume.
Likewise, despite a 3.1 percent decline in volume, Kuehne + Nagel reported a 19.4 percent increase in gross profit per 100 kilograms. Its integration of recently acquired Quick International Courier contributed a “significant increase in gross margin.”
Perhaps one of the biggest turn-around stories is that of DHL’s Global Freight Forwarding division. Beset with internal and market issues as well as a well-publicized IT integration project that figuratively blew up a few years ago, DHL is coming back. Gross profits for the overall Global Freight Forwarding group increased 4.3 percent, led by air freight revenues (up 3.4 percent), customs clearance and industrial projects and freight. An overhaul of the forwarding group by simplifying the organization and processes is proving financially successful.
Technology
Increasingly, forwarders are linking technology integrations to efficiency improvements, improvements in visibility and simplifying doing business with customers. DHL’s global roll-out of its TMS solution is on track to be completed for the group’s ocean freight forwarding service by the end of the year and it is just underway for the air freight group, beginning in smaller countries.
Kuehne + Nagel noted in its press release, “Consistent with our business strategy, we focus on introducing new digital platforms and highly specialized industry solutions.” For DSV, its Air and Sea division is also benefiting from its technology investments. Several initiatives are underway including a mobile information on delivery (IOD) app and further digitization of workflows.
Outlook
The global freight forwarding market is expected to struggle through much of 2019. However, slight upticks will likely occur leading up to such global events as the reset Brexit deadline of October 31 and the usual seasonal demands. But, year-over-year comparisons will be difficult. According to Expeditors’ current SEC filing, customers remain focused on improving supply chain efficiency, reducing overall logistics costs by negotiating lower rates and utilizing ocean freight whenever possible. At the same time, customers are increasingly utilizing airfreight to improve speed to market.
Market risks also need to be taken into consideration. DSV reported that its direct exposure to the China-U.S. trade lane is limited to about 10 percent of Air and Sea volumes. Brexit is another risk the company continues to monitor. The United Kingdom represents about 5 percent of DSV’s total revenue.
Volumes will remain important to air forwarders, particularly in terms of market share. Those companies best able to manage risk and profitability in this difficult market will be the true winners.
