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Kuehne + Nagel 2021 earnings swell on 50% air, ocean margins

Global logistics provider harnesses acquisitions, dedicated aircraft and technology to boost volume, yields

Kuehne + Nagel had a strong fourth quarter, including its road transport division. (Photo: K+N)

Kuehne + Nagel, the world’s largest air and sea freight forwarder by volume, was richly rewarded last year by supply chain disruptions, elevated rates and its ability to steer customer shipments through the chaos, culminating with a 300% fourth-quarter rise in operating income to $1.2 billion.

The company also announced Wednesday that it has suspended all import shipments into Russia, except for pharmaceuticals, health care and humanitarian supplies.

On a full-year basis, earnings before interest and taxes grew 175% to $3.2 billion on top of similar growth the prior year, with gross revenue totaling $35.7 billion on a 61% gain, according to Kuehne + Nagel’s quarterly earnings report. Fourth-quarter gross revenue nearly doubled versus 2020 to $11.9 billion.

Kuehne + Nagel’s (OTCUS: KHNGY) profit margin hit 30%, far above the 16% target by 2022.

The Switzerland-based logistics giant moved 4.6 million twenty-foot equivalent units last year, 2% more than in 2020. Although volume was 300,000 TEUs below pre-pandemic 2019, EBIT soared 235% to $1.7 billion for the ocean business, reflecting the tenfold rate increases on major trade lanes due to slow port processing, along with vessel and container scarcity. K + N said its ocean shipping profit margin reached 55.5% last year.

The ocean market grew 6% last year, but K + N’s organic volume fell 3%. CEO Detlef Trefzger said on a call with analysts the decline was intentional because the company shifted business away from low-margin businesses such as wood pulp, recycled paper and other forestry products. More attention is now on blue-chip customers, small and midsize businesses, high-yield services, renewable energy and less-than-container-load shipments.

Chronic shipping delays are requiring extensive manual intervention and optimization by K + N personnel to ensure shipments get through the ocean system, he added.

The company last year introduced a “disruption indicator” on its Seaexplorer platform to measure the efficiency of global container networks and alert customers to potential bottlenecks due to slow cargo handling, adverse weather conditions or other factors. 

Air cargo

The air cargo market was also constrained as record cross-border demand tried to squeeze into about 13% less cargo space, a knock-on effect of reduced flying by passenger airlines because of COVID. 

Strong bookings for essential combined with elevated rates enabled K + N to achieve $1.3 billion in airfreight operating income, a 131% leap from the prior year and 255% greater than in 2019. The air business benefited from an ocean-to-air mode shift due to the container congestion. The overall market grew 15%, but K + N’s organic growth was 27%.

The forwarder said its air volume jumped 55% year-over-year to more than 2.4 million tons, with profit margins topping 45%. Fourth-quarter volume, traditionally the busiest period, grew 65% and yield was up 9% over the third quarter.

Priority commodities for K + N’s air unit include COVID vaccines and other pharmaceuticals, perishables, aerospace and e-commerce, and on the trans-Pacific trade also automotive and consumer electronics.

K + N said its specialized capabilities, plus extensive use of long-term charter aircraft, enabled it to gain significant market share. Results were boosted by the May acquisition of Hong Kong-based Apex Logistics, a major air forwarder in its own right, that pushed K + N to the top of the global airfreight rankings. Apex accounted for about half of K + N’s volume growth because of its concentration in the hot trans-Pacific trade lane. Apex’s relationships with carriers and access to capacity, a key factor behind Kuehne + Nagel’s decision to acquire the company, is proving its value, officials said.

Last month, K + N expanded its air charter network in a contract with Atlas Air (NASDAQ: AAWW) to operate two Boeing 747-8 freighters on its behalf, starting in the second half of the year. Trefzger said controlling capacity through freighter rentals and block space agreements is a focus because of the continuing lag in passenger belly capacity.

The logistics company’s warehouse operations were very full in 2021, prompting it to expand its pharmaceutical and e-commerce offerings. It now manages 100 health care distribution centers and 175 e-commerce fulfillment centers, it said.

Contract logistics sales decreased from 2020 because the unit divested a large chunk of its U.K. operations, but EBIT nearly doubled. 

Fourth-party logistics oversight services were highly sought by customers, K + N said. The company now operates eight global control towers, where specialists monitor the movement of shipments and make sure transit times, inventories and costs are optimized. 

Kuehne + Nagel has continued to expand its eTouch digitalization program designed to standardize, sequence, centralize and ultimately automate tasks such as quotation, booking, status checks and invoicing. The goal of the technology is to free up personnel to spend time on customer service issues and reduce costs.

CFO Markus Blanka-Graff said the digital tools have doubled the annual savings in man hours from 2020. In the air cargo unit alone, for example, digital tools saved 1.27 million hours of manual work, or the equivalent of 750 full-time employees, which translates to about a 2% improvement in profit margin. 

The overall technology toolkit includes real-time sensor data with predictive visibility to provide forward-looking capability, with artificial intelligence powering predictive analysis through an application platform that is simple for customers to plug and play.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.


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Eric Kulisch

Eric is the Supply Chain and Air Cargo Editor at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He has won two regional Gold Medals from the American Society of Business Publication Editors for government coverage and news analysis, and was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. Eric is based in Portland, Oregon. He can be reached for comments and tips at [email protected]