Consultant’s Insight: Freight forwarders gain volumes despite lower financials in Q1

Volumes turned positive for several freight forwarders during the first quarter. But, due to excess capacity and low rates, it was difficult for many to correlate the volume growth to strong financials. [caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] “Both air and ocean carrier capacity continue to grow, further pressuring rates that have already come down significantly from their peaks,” Expeditors President and Chief Executive Jeffrey S. Musser said in a May 7 statement. The first quarter is historically a slow period for trade due to the closure of Asian manufacturing facilities during the Lunar New Year. But, as noted by DSV , the air cargo market was impacted by continued high growth in e-commerce volumes from China, which drove market volumes and rates up. E-commerce, Red Sea conflict drive air cargo DHL Chief Financial Officer Melanie Kreis cited “nice chunks” of e-commerce business out of Asia that were attractive to DHL’s forwarding group during the quarter. Global air cargo market demand increased 11% year over year for a third consecutive month in March due to strong e-commerce volumes and concerns over the impact of conflict in the Red Sea region on ocean freight services, according to ocean and airfreight rates analytics platform Xeneta in an April 4 research report . However, Xeneta cautioned, “The air cargo market has clearly enjoyed a stronger-than-anticipated start to the year, but there’s a different quarter coming along and more capacity coming in, so we do expect an overall downward pressure on load factor and rates, aside from selected corridors where the continuing rise of e-commerce and the residue of the Red Sea uncertainty will continue to boost rate levels.” Air cargo capacity continued to increase in Q1 due to more passenger travel, which generated more available belly capacity, multiple forwarders have stated. Combined with more freighter capacity compared to before the pandemic, this has led to overcapacity in the air cargo market. “During 2024, we expect that some of the excess capacity will be offset by retirement of old aircrafts,” a DSV statement said. Cost-cutting measures To adapt to increasing capacity and lower market rates, freight forwarders turned to cost-cutting measures in Q1. “We continue to adjust to an environment of soft rates and volatile demand,” Expeditors Senior Vice President and Chief Financial Officer Bradley S. Powell said in the company’s Q1 earnings report on May 7. “Salaries and related costs fell by 8%, primarily through decreased commissions and bonuses on lower revenues and operating income. “We reduced headcount by 7%, largely through attrition, as we remain focused on aligning headcount with tonnage and volumes shipped,” he said. C.H. Robinson reported that its freight forwarding group’s employee headcount decreased by 10.9% in Q1. Meanwhile, Kuehne+Nagel Chief Executive Stefan Paul said in a Q1 earnings statement, “Our focus on efficiency and streamlined structures allowed us to reduce costs per unit by 12% in Sea Logistics and 14% in Air Logistics.” Kuehne+Nagel announced in an April 8 release that it will be reorganizing. Changes include simplifying operations and enabling direct reporting from country organizations. “By discontinuing the regional structure, we have laid the foundations for further growth and enabled more direct access to our customers worldwide,” Paul said. Outlook The uncertainty of the global market has some freight forwarders expecting improvements in the second half of the year at the earliest, whereas other forwarders are not even providing outlook guidance. “As expected, a broad and dynamic economic upturn failed to materialize in the year’s first three months,” DHL’s earnings report stated. “DHL Group continues to expect more positive global economic momentum in the second half of 2024.” Expeditors’ Musser agreed that current events have made predictions challenging. “To be sure, our ability to see much beyond our day-to-day levels of activity remains very difficult,” he said. “As capacity is growing and rates are falling, events such as the Red Sea circumvention, the Baltimore bridge collapse and low water levels in the Panama Canal continue to make the global freight market highly unpredictable. If current conditions represent something like a new normal for our industry, then I would say we are adapting very well.” Air Cargo Next has launched a business directory listing cargo carriers, service providers and technology companies. Each category has sub-categories, allowing users to find the right business to meet their needs. Users can also add their businesses to the directory and claim existing entries. Visit the Air Cargo Next Directory here.

Consultant’s Insight: Freight forwarders gain volumes despite lower financials in Q1

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