DSV and TNT report contrasting results in tough markets

DSV, the Danish based forwarder, road carrier and contract logistics provider, described the demand environment in Europe as being characterised as “low growth and tough market conditions” in its Q3 results announcement. Revenue in its road freight business was higher due to acquisitions but underlying sales were down by 0.2% for the first nine months of the year, although year-on-year the quarter saw an underlying increase of 3%.

Despite lower rates, DSV is gaining market-share with lower costs increasing Earnings Before Interest and Tax by 9.3% year-on-year for Q3 and by 1.8% for the year-to-date.

DSV’s air and sea freight business also saw rates falling, with higher volumes but lower revenue. Gross margin fell only slightly but EBIT was depressed by the cost of acquisitions leading to an underlying fall of 5.5%. Actual volumes for sea freight measured in twenty foot equivalent units (TEU) were quite respectable at an increase of 8% for Q3 year-on-year but air freight fell by 1% whilst project cargoes have also suffered. The contract logistics business saw revenue and profits edge-up over the quarter.

Overall top line revenue for DSV as a whole was up a couple of per cent whilst EBIT was flat, however the underlying position deteriorated with profit margins down by a fraction of a percent.

It is interesting to compare DSV’s performance with that of TNT Express. Whilst there are significant differences, the road freight exposure of the two businesses is not so very different with both experiencing some moderate volume increases in certain markets yet also falling margins due to fierce competition. For the past quarter TNT Express’ main European Express business saw revenues down slightly but underlying operating profits falling by 25%.

The big difference in TNT’s profitability appears that it is still struggling to adapt to changing market conditions with remaining problems with unprofitable customers and the loss of a contract with a fashion retailer in Britain. The concern, however, is that as TNT divests itself of its businesses in South America and China it will have to rely even more on the tough market of Europe for growth. With its deeper portfolio of businesses and wider geographical exposure, DSV may find this a less demanding prospect.