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Kuehne+Nagel logistics profit plunges but still 2nd-best quarter ever

Company maintains market lead in air and ocean freight despite volume contraction

Kuehne+Nagel last year acquired Apex Logistics, the seventh largest air forwarder by volume. One of the Boeing 747-8 freighters it recently leased on a long-term basis will operate on the trans-Pacific route for Apex. (Photo: K+N)

Kuehne+Nagel, the largest third-party logistics provider in the world by revenue and the largest air and ocean freight forwarder by volume, said it expected solid growth this year compared to pre-COVID times despite a 43% drop in fourth-quarter operating income as shipping demand sagged.

It also set higher financial targets of operating profit growth of 17% to 19% above 2019 levels and a conversion rate — the ratio of earnings before interest and taxes to gross profit — of 25% to 30% by 2026. Its conversion rate was 34% in 2022 versus around 13% in the years before the pandemic.

The Switzerland-based logistics giant cruised through the first nine months of the year but hit rough seas in Q4 as consumer spending shrank in the face of rising inflation and retailers relied on bloated inventories for sales rather than new imports. EBIT of 644 million Swiss francs ($685.5 million) would have been the strongest of any quarter in company history were it not for the unprecedented record set in 2021.

Kuehne+Nagel’s (OTCUS: KHNGY) operating profit for air logistics plunged 50% to $277 million year over year during the final quarter of 2022, according to its earnings report issued Wednesday. Volumes were 15% lower than the prior year. Excluding the results of Hong Kong-based Apex Logistics, which K+N acquired in July, whole year airfreight volumes of 2.4 million tons decreased 8%. With Apex, volumes ticked up 1%. 

Air logistics yield was down nearly 23% from the same period the prior year and operating profit per 100 kilograms slumped 40.7%, but unit EBIT was still 2.3 times higher than in 2019. Management said it chartered fewer dedicated freighters in 2022 because of lower demand. The decline in yield was more modest than for sea freight because of a closer matching of capacity and demand, but CEO Stefan Paul said air cargo demand was especially weak in the final three weeks of the year. Paul assessed that K+N’s market share was stable to slightly higher in a market that declined by about 9%.

The company recently took control of the last two 747 jumbo jets ever built by Boeing. The 747-8 freighters are being flown on its behalf by Atlas Air. One of the planes operates under the Apex brand, which K+N says it will maintain rather than integrate.

Globally, air cargo rates are down 37% year over year and the market has been in decline since early 2022. 

Ocean income for the quarter fell 42%. Container yields normalized during the year, falling 33.7% from their first-quarter peak. That was still 1.9 times greater than the 2019 average, and per unit profits were three times higher than the pre-pandemic level on 4.4 million twenty-foot equivalent units of activity. Paul said K+N’s market share was stable in a market that declined 6%. 

Industrywide ocean volumes also dropped sharply in the second half of last year and rates have fallen off a cliff in recent months. 

The weak rate environment reduced the extraordinary yields K+N had enjoyed since the start of the pandemic.

Kuehne+Nagel’s smaller trucking and contract logistics business units actually grew profits during the quarter. Road logistics was especially strong in the U.S. market, according to management. The company implemented more than 150 new logistics contracts last year. 

Full-year revenue increased 20% to $42 billion and operating income was 28% higher at $4 billion. The company said more top-line growth was converted to EBIT than the previous year. K+N benefitted in the first half of the year from ongoing supply chain disruptions that prompted businesses to rely on expert freight agents. 

Management showed a photo during the earnings presentation of their warehouse in Kyiv, Ukraine, which was destroyed soon after Russia’s invasion last year.

Kuehne+Nagel reiterated its goal to increase profit margins through a focus on service excellence, value-added products and digital capabilities rather than simply chasing volume. In air cargo, continued automation will add up to $3 per 100 kilograms to earnings before interest and taxes, it said. Sales are focused on the healthcare, high-tech, automotive, consumer retail, industrial, renewable energy and aerospace sectors.

Management said the workflow digitization transformation for automating documentation, quotation, booking and status updates saved 1.5 million man-hours last year in the air logistics sector alone. 

Paul said K+N doesn’t view the move by ocean carriers Maersk and CMA CGM into contract logistics as a threat, saying that strategy aims to serve their top 200 to 300 customers and doesn’t help small-and-medium size enterprises.

“None of the carriers will tackle the SME business. 50% of our business is SME related. . . . If our quality with all of our capabilities is better than anybody else in the market, then whatever they do we will have better customer relations and can serve our customers better,” he said. The carriers’ logistics activity is something K+N watches carefully and doesn’t underestimate, “but we don’t see that as a threat. “It’s exactly the opposite. We are inspired to go the extra mile, to be always better in or der to outperform.”

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 and a Silver Medal from the American Society of Business Publication Editors for government and trade coverage, and news analysis. He was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. He won Environmental Journalist of the Year from the Seahorse Freight Association in 2014 and was the group's 2013 Supply Chain Journalist of the Year. In December 2022, he was voted runner up for Air Cargo Journalist by the Seahorse Freight Association. 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]