On the surface, Middle Eastern logistics consolidator Aramex had a good full year in 2024 with revenues up 11% to AED 6,324m ($1.72bn). Net profit however grew 10% in the same period to AED 141.8m, leading to the margin falling by 0.03 basis points to 2.24%. This appears to be due to less profitable businesses growing quickly yet more profitable business lines growing less strongly.
Aramex’s board has recently recommended the sale of 100% of the company’s shares to Abu Dhabi sovereign wealth fund ADQ. In a statement seen by Reuters on 10 January, ADQ suggested that Aramex would be subject to a “strategic and operational transformation” after the acquisition, which has now been recommended by the Aramex board to shareholders at a company value AED 4.93bn (US $1.2bn). Such transformation may result in Aramex going after more profitable business in the short term, as UPS has done in the last year for example.
Less profitable interests booming
Two areas of Aramex’s business that did particularly well in the last year have been the relatively lower margin LCL freight forwarding and LTL trucking businesses. LCL freight forwarding saw a 789% y-o-y volume growth in Q4, 2024 and a still considerable 377% volume growth over the full year. LTL trucking saw a 24.4% y-o-y growth in volumes to 21.7m kg in the year.
Aramex CEO Othman Aljeda said that the company had seen a trend towards nearshoring of goods in the GCC and wider MENAT region, that had enabled the company to offer full end-to-end logistics to a number of clients. Aljeda said, “Aramex has a clear competitive advantage to cater to this trend thanks to its integrated solutions,” adding that for example, its warehouses in the relatively low margin Contract Logistics segment were “nearing full capacity.”
Nearshoring may have led to the fall in gross profit margin for International Express thanks to the growth in intra-regional cross border express. Such regional cross border transport may well have contributed to the segment seeing gross profit margin falling 2 basis points in the year to 32%. Offsetting this, Domestic Express reported a strong growth in volumes too, by 11% to 111.3m pieces and gross profit up 27% y-o-y to AED 313m.
Freight forwarding buffeted by global headwinds
The consolidator saw pressures from global competition in freight forwarding that resulted in a 4% decline in gross profit, led by strong volume growth in the less profitable LCL sea shipment and LTL trucking markets. All other forwarding volumes grew but more steadily – 3% y-o-y each in air freight and sea FCL shipments for example – but spot and contract rates have fallen there due to overcapacity in air and sea freight markets.
Margins need to grow?
UPS and FedEx had margins in their last financial years of 9% and 6% respectively, in the order of more than double that of Aramex, though admittedly these companies’ revenues are much greater than that of the Middle Eastern consolidator. Such margins seem to be what their probable new owner may wish for in the coming years. To achieve that may take the short term thinking that UPS leadership was able to do in turning around what was a shaky first two quarters of 2024 to a relatively successful full year in 2024. That may come from ADQ’s suggested “strategic and operational transformation”, but time will tell in this regard.
Author: Richard Shrubb
Source: Ti Insight
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