Where will your operating margins be in 2020?

Although no CEO (that we are aware of) possesses a crystal ball capable of offering-up a precise number, most companies have at least a general target for where they would like profitability to be at a certain point in the future. Swiss forwarder Panalpina is one company, with such a target.  In an interview given to Finanz und Wirtschaft, Panalpina’s CEO Stefan Karlen said he would like to lift operating margins to 25% for air freight, and 20% for ocean freight by 2020. Margins vary from company to company, but such goals are ambitious, and would represent a significant improvement for the operating margins which are likely to be around 15% for air freight and 5% for air freight in 2016.

forwarder margins 4The chart at right shows how three of the world’s leading forwarders stacked-up against each other in terms of air and ocean freight operating margins at the end of fiscal year 2015. Of course, most forwarders can only dream of operational margins on-par with those of Kuehne + Nagel and Expeditors. The air and ocean freight divisions at K+N and Expeditors are already well above Panalpina’s 25% target for both air and sea divisions.

Achieving such targets will require Panalpina to either reduce its operating costs, or boost volumes disproportionately to costs. Panalpina’s Karlen did not reveal a comprehensive list of initiatives the company would undertake to improve margins, but said that a new IT platform would soon enable Panalpina to acquire and integrate larger forwarders – beyond the smaller acquisitions it has recently pursued.

Consolidation will not stop with forwarders. Karlen said the industry is likely to see a continuation of a trend that began in 2016 which saw the collapse of Korea’s Hanjin and new alliances formed by container lines in Asia and Europe. This activity, Karlen said, will cause upward pressure on ocean rates. Earlier this week, freight market analyst Drewry said that ocean container freight rates on most East-West and North-South sea routes were up by an average of 3% in December and are expected to remain higher in 2017.

And now for a video of one of Panalpina’s 747-8Fs (ACMI-leased from Atlas Air) taking-off from Guadalajara (GDL) International Airport:

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