Consultant Insight: Forwarders see air revenue gains amid pandemic

[caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] The first half of this year was an unusual one for freight forwarders as the focus for many continues to be on the COVID-19 pandemic. Timing for pandemic-related items was critical and resulted in a major shift favoring air cargo. However, available space on airplanes was severely limited as many passenger airlines were grounded. Forwarders stepped up to secure capacity and collaborate with shippers on alternative transportation solutions. The second-quarter financial results for many were certainly not record-breaking, but rather proved the value of forwarders. While the value of forwarders was on display, for many shippers, it came at a cost as forwarders benefited from higher airfreight rates. For example, DHL Global Forwarding reported second-quarter air revenue up 57% and gross profit up 42.4% while air volumes declined 13.7% year over year for the quarter. Meanwhile, Kuehne+Nagel’s air volumes declined 22% while net revenue increased 15%; the EBIT increased 17% but gross profit slipped 2% for the second quarter. Expeditors International of Washington CEO Jeffrey S. Musser summed up the quarter: “While volumes for all of our products were down, as we would have expected during such unprecedented conditions, our airfreight revenue was much greater than anticipated.” Second-quarter total air volume declined 10% with volumes out of North Asia, increasing 14% due to demand for goods related to remote work and the effort to combat the pandemic. Airfreight revenue jumped almost 94% for the Seattle-based forwarder. C.H. Robinson, the largest U.S. freight broker, struggled in its brokerage division, but its forwarding division shone during second quarter as total revenues increased 19.5% and net revenues increased 14.8%. The increase was attributed to higher pricing in air due to reduced air cargo capacity, increased charter flights and larger shipment sizes. Net revenues in air increased 104.4%, driven by higher pricing, partially offset by a 35.5% decline in shipments. DSV reported strong revenue and profit gains as well as double-digit growth in volumes. However, year-over-year gains were primarily due to the acquisition of Panalpina. “COVID-19 has created an extraordinary market situation in airfreight and here we have been able to help our customers and have benefitted from the legacy Panalpina freighter network,” Group CEO Jens Bjorn Andersen noted in the company’s financial statement. Indeed, DSV expanded its airfreight charter network through its Panalpina operations and partnerships with air cargo carriers despite rumors of DSV Panalpina ending its wet-leased 747-8F freighter contract with Atlas Air in July. FedEx and UPS also reported strong gains in air cargo, especially for the trans-Pacific and trans-Atlantic trade lanes, in their respective recent earnings announcements. In fact, according to a previous Air Cargo World article , during its quarter ending May 30, FedEx added extra capacity in the short-term and believes it is “well-positioned to profitably gain share from the freight forwarders.” While airfreight was the focus, ocean freight financial results and volumes declined for most, if not all, forwarders. However, according to the China State Railway Group, the number of China-Europe freight trains increased by 36% year over year during the first half of this year, with a total of 5,122 trains. Disruptions to air and ocean transportation as a result of COVID-19 presented an opportunity to increase rail freight's market presence. Most forwarders have yet to restore outlooks for the remainder of 2020. However, DSV has done so and expects a positive outlook. “The uncertainty remains higher than normal, but based on a strong first half of 2020, we are now able to reinstate guidance for the full year,” said Andersen. “We now expect EBIT before special items on level with the guidance we gave to the market before this crisis started.” Although Expeditors did not provide an outlook, it did sum up its strategy for the rest of the year: “Given the unpredictability, we will keep costs in check and focus on increasing operational efficiencies and gaining profitable market share.”

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