Global logistics powerhouse Kuehne+Nagel suffered substantial revenue and profit erosion in 2023, including the final quarter, as excess air and ocean capacity combined with a post-COVID slow down in trade lowered rate levels, hurting bottom lines across the freight transportation sector.
Executives said they are seeing some stabilization in demand , but don’t expect a huge improvement this year.
In conjunction with Friday’s quarterly results, Kuehne+Nagel announced an agreement to acquire City Zone Express, a Malaysia-based trucking company that operates across borders throughout Southeast Asia. The motor carrier has 260 vehicles, 500 employees and 860,000 square feet of warehouse space. Completion of the deal is expected later this year.
Although the peak shipping season partially returned to form, coming out of a 15-month trough, the fourth quarter was only marginally better than prior periods for the Switzerland-based supply chain manager.
“Demand for global logistics services remains subdued and we don’t expect a material change to this situation. Sea freight and air freight did not see a broad-based peak season in 2023,” said CFO Markus Blanka-Graff in remarks to analysts.
Revenue at K+N, the largest ocean and air freight forwarder, fell 35% during the fourth quarter to $6.4 billion. For the full year, revenue declined 40% to $26.9 billion. Operating income for the three months and entire year was halved compared to 2022.
Inflation, more geopolitical hotspots and feeble economic growth in Europe contributed to weaker shipping demand in 2023.
For context, though, revenues were still 13% higher than in 2019 and operating income was 79% higher than pre-COVID.
Management said it instituted more cost controls over the course of the year to help maintain margins. The company is more than 40% through a staff reduction of 1,300 persons, which will save more than $120 million – double the amount of severance benefits paid.
Ocean freight forwarding was the biggest drag on results, with quarterly and annual revenue each down 54% year over year. Container volume totaled 4.3 million forty-foot equivalent units, dipping 1.1%, but grew in the second half of the year — an indication that weak rates were the primary culprit behind the revenue change. Inflation also increased operating costs. Segment profit actually worsened in the fourth quarter — down 55% versus 50% for the entire year.
Executives said volume would have actually increased 1% were it not for the decision to discontinue handling certain commodity goods in the fourth quarter and focus on products with higher yields. The decrease in volume was less than the 3% decline for the industry as a whole.
K+N’s air logistics division recorded a 27% drop in fourth-quarter revenue, which was an improvement from the 41% decline for the full year. Earnings before interest and taxes were off 61% for 2023 and 52% in the quarter. Air volumes fell 11.2% while rates fell 32% but the decline eased as the year progressed. Demand improved 6% from the third to the fourth quarter, and only down 4% year over year. The company handled nearly 2 million tons of airfreight during the year, with e-commerce and perishable shipments performing the best.
Global air cargo demand was down 2% last year from 2022 and would have been lower without a stronger-than-expected surge of e-commerce shipments out of China in the final months, according to various market researchers.
CEO Stefan Paul said the rerouting of ships past the Red Sea has raised interest in other options, such as sea-air movements, but has not resulted in any material increase for air cargo.
A highlight for the year was putting into service the last two 747-8 freighters ever produced by Boeing. The planes are chartered from Atlas Air and now carry machinery, automotive components, pharmaceuticals and other goods for K+N customers.
Expansion moves
In November, K+N completed the acquisition of Morgan Cargo, a freight forwarder based in South Africa that is strong in the perishables trade and fits with the company’s strategy for tuck-in acquisitions around the world.
Last week, the mega-forwarder expanded its container freight station near John F. Kennedy International Airport in New York with a 4,500-square-foot temperature-controlled zone, specifically designed for healthcare and perishable products, as well as an additional 10,000 square feet of warehouse space.
In December, relocated a spare parts distribution facility from Des Plaines, Illinois, to near Dallas Fort Worth International Airport to better support aircraft maintenance and overhaul firm MHI RJ Aviation Group
K+N is expected to complete the acquisition of Ontario, Canada-based customs broker Farrow by the end of the month.
Performance declines at the company’s contract logistics and trucking divisions were much less severe than in air and ocean.
Kuehne+Nagel was not alone among logistics providers having disappointing results last year. Denmark’s DSV saw revenue fall 29% for the fourth quarter and 36% for the full year. Seattle-based Expeditors reported a 34% contraction in revenue and 40% lower operating income year over year.
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