Consultant Insight: Forwarders benefit from tight capacity, high demand during Q1

Capacity constraints, high rates, and high demand from customers resulted in strong revenue and profit gains for most freight forwarders during the first quarter of 2021. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] “Never before in our experience has capacity been so scarce in both air and ocean at the same time,” commented Jeffrey S. Musser, president and chief executive officer of Expeditors International of Washington, in the company’s first-quarter earnings press release. Most forwarders, including Expeditors, noted high demand from Asia to North America and Europe. The demand on trade lanes ex-Asia is not surprising given the need for inventory replenishment to support strong demand from consumers, business-to-business (B2B) sellers and manufacturers. The demand did not seem to come slowly, either. It has been continuous as e-commerce drove the initial need for inventory during the early days of COVID-19 lockdowns. It continues to drive much of the demand as B2B and manufacturing demand picked up quickly when facilities reopened. DHL and other forwarders noted in their earnings statements that capacity could not be added quickly enough to handle the demand. How long this current environment will last is unknown. Still, Musser noted that it would remain “unsettled as long as constrained capacity and other disruptions, such as port congestion, the uneven lifting of pandemic restrictions, and rising fuel costs continue to impact the movement of freight.” As long as there is an unsettled environment, forwarders will benefit from strong demand for ocean and air transport. Expeditors reported air and ocean freight volumes each up 29%, with Expeditors reporting ocean freight volumes in forty-foot equivalent units (FEU). Kuehne+Nagel reported air volumes up 16.4% and ocean volumes up 2.0%. Meanwhile, DSV reported air volumes up 18.2% and ocean volumes up 8.8%. High rates for air and ocean freight, coupled with high demand, produced nice profits for forwarders, including Kuehne+Nagel, which reported gross profit for ocean freight up 40.1% and EBIT up 160.8% year over year. For air, YoY gross profit increased 30.9%, and YoY EBIT increased 129.6%. In addition, Kuehne+Nagel reported that air volume growth had returned for the first time in two years. However, it should be kept in mind that most first-quarter YoY growth rates are easy comparisons since China and other Asian countries were among the first countries to be impacted by COVID-19 and, resulting in extended shutdowns of most manufacturing as COVID-19 turned into a global pandemic, and closures went beyond the typical Lunar New Year closings of two to four weeks. Several notable acquisitions were announced during the quarter. Alongside its Q1 earnings, DSV announced its acquisition of Agility’s Global Integrated Logistics business on April 27, with Agility taking an 8% stake in the combined company. The combination is expected to create a top-three global freight forwarder, based on revenues. Tarek Sultan, Agility’s vice-chairman, said “Agility will be exploring opportunities between DSV and its other businesses, with promising areas of future cooperation potentially including Agility’s Logistics Parks business, Shipa group of companies, and technology ventures.” Other acquisitions during the first quarter include JAS Worldwide acquiring Tigers in January, an acquisition that will provide a broader reach into Europe and Asia-Pacific markets and the impressive e-commerce logistics capabilities that Tigers has built. In February, Kuehne+Nagel expanded its trans-Pacific capabilities through the acquisition of Apex International Corp . And that same month, SF Express acquired Kerry Logistics Network , expanding its reach further into the Southeast Asian logistics market, including ocean cargo services. The outlook for freight forwarding services should remain strong through the end of this year.

Consultant Insight: Forwarders benefit from tight capacity, high demand during Q1

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