The business of freight forwarding has become unpredictable over the past several years. A whole series of factors, from instability in the Red Sea to consolidation in the container shipping market, has buffeted the sector. Even though the crisis of 2020-2022 is long-gone, there are still underlying changes in the structures of markets that are threatening the growth of freight forwarders in both inter-continental sea and air. The recent results of Kuehne and Nagel suggest this.
In its full year results released last week, the Swiss-based forwarder saw ‘net-turnover’ rise by 4% year-on-year to CHF24.802bn but EBIT (Earnings Before Interest and Tax) fall by 13% to CHF1.654bn, with pre-tax ‘earnings’ down 16%.
At the core, ‘Sea Logistics’ forwarding business both gross profit and EBIT fell, by 11% and 16% respectively, even as the volume of containers handled edged upwards by 3%. This reflects the continuing trend in the sea-freight forwarding market of container shipping sustaining high freight-rates at the expense of the forwarders. Essentially power in the market has shifted towards the shipping lines, with forwarders apparently having less bargaining power. The fourth quarter of 2024 might suggest some relief in this situation, with Kuehne and Nagel experiencing a sharp increase in EBIT of 41%, although revenue still grew faster at 44% and EBIT/TEU fell back on a quarter-on-quarter basis. There are clear signs over the past several weeks that sea container freight-rates are falling on major trades, possibly driven by the plentiful supply of ships, although the situation in the Red Sea is still far from normal.
The situation in air freight was also difficult. EBIT for the whole year fell by 14% year-on-year, even as turnover grew by 5%. It is a good question why this is, with parts of the airfreight market quite robust. Again, it may reflect changes in the structure of the market as shippers such as the Chinese e-retailers seek more direct relationships with aircraft operators, this having the knock-on effect of increasing airfreight rates and the bargaining power of those who control the aircraft.
The trends in air freight may be transitory. The Chinese e-retailers seem to be evolving their logistics systems and other sectors such as healthcare, but also perishables may have long-term strength. However, the situation in sea freight might be more of a long-term concern. Here the power of the shipping lines, particularly MSC, seems to grow steadily. Even in a market oversupplied with ships this may weaken the bargaining power of the forwarders.
Author: Thomas Cullen
Source: Ti Insight
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