K+N flies high as first-quarter air freight volume surges

Switzerland-based forwarder and logistics services provider Kuehne + Nagel reported first-quarter 2018 net income up 11.5% y-o-y to US$191 million, as gross profit (what some forwarders call net revenue) rose 11.8% to $1.92 billion. Operating income (EBIT) for the quarter was up 12.9% to $245 million.

All three of the company’s forwarding divisions (Airfreight, Seafreight, and Overland) performed strongly, with Airfreight and Seafreight reporting Expeditors-like operating margins of 28.6% and 27.2%, respectively.

Airfreight: K+N’s Airfreight division followed a strong year in 2017 with an even stronger start to 2018, with volume up 20.6% to 422,000 tonnes. Some of the volume gain came from “the successful integration of two acquisitions,” but the company also cited “particularly strong growth” in exports from North America. Gross profit in the division was up 17.4% to US$294 million, and operating profit rose 12.9% to $84 million.

Seafreight: Growth in K+N’s Seafreight division was nowhere near as strong as in the Airfreight division, but the results were still positive, with volume up 5.0% to 1.08 million TEU, gross profit up 5.9% to $371 million, and EBIT up 4.3% to $101 million. And it should be noted that this modest growth came in what the company called “a challenging market environment.” Which is to say that while the air freight market had been strong for the previous eighteen months, the ocean freight business has struggled. But, as mentioned above, despite the difficult conditions and mid-single-digit growth rates, operating margin in the Seafreight division was close 30%.

Overland: The company’s road freight division reported gross profit up 16.8% to $275 million, with strong  growth in the North American intermodal market, and continued strength in Europe. In an interesting parallel with what has been happening in the air freight industry in recent times, K+N said the drivers behind this growth were “industry-specific solutions, particularly for the pharma industry.” Overland operating profit leaped almost 250%, but this was from a very small base.

Contract Logistics: As with its three forwarding divisions, K+N reported a big jump in gross profit in its fourth operating division, Contract Logistics. The company said “double-digit increases in China and South-East Asia were crucial as well as significant business wins, in particular in the area of e-commerce fulfilment.” However, unlike the forwarding divisions, operating profit declined. This was due to the “realignment of the production model at a business in the UK coupled with the costs of introducing innovative technologies and new systems.”

Overall, it was another strong performance, and CEO Detlef Trefzger, speaking on the quarterly earnings call, said he foresaw more of the same. “We see strong volume growth, high consumer confidence and spending in all major markets. This should drive opportunities for volume growth.” Regarding the air freight market, he said he expected demand growth of about 5% per year, and predicted that his company’s goal was to “grow twice as fast as the market.”