Kuehne + Nagel expects the buoyant demand for its sea and air freight forwarding services in the first quarter (Q1) of the year to be maintained in the foreseeable future, to a backdrop of continued uncertainty due to the COVID-19 pandemic and a rebound in economic activity and trade volumes.
Speaking at a conference call with analysts yesterday, CEO Detlef Trefzger noted that the Switzerland-headquartered freight group’s Sea Logistics division had turned in “a very strong operational performance (in Q1) with an increase in service intensity” in “an almost chaotic” market. The division posted significant growth in net turnover, gross profit and EBIT year over year while volume was also up (+2.0%).
KN’s Air Logistics division also turned in strong financial numbers while also recording its first volume growth (+16.4%) in two years.
“We do not expect the volume trend we have seen for both Sea and Air Logistics (in Q1) to change significantly in the next one or two quarters,” Trefzger said, emphasising the “high demand” for Asian-origin exports on the transpacific trade lane and to Europe.
“The transpacific is strong, and with the port congestion some of the volumes are automatically transferred to Air Logistics,” he noted. “So, consumption is driving volume growth in both sea and air freight.”
Consumption driving volume growth
Commenting on the current operating environment in sea freight, Trefzger observed: “We have equipment shortages, we have carrier capacity shortages, and we have a very low port productivity driven by the pandemic. All those parameters are staying intact and we believe that the market situation will remain unchanged for the next couple of months.”
But he raised the possibility of some downward movement in prices.
“If rates go back to a ‘normal’ level, and I'm not talking about the extremely low level we got used to four or five years ago, then we might see forestry products and other commodities – pulp and paper, recycling material, agricultural products – coming back to the network. But it really depends on the (level of) rates.”
Turning to Air Logistics, Trefzger highlighted the “robust” volume growth in Q1 “mainly driven by continuing tonnage strength in automotive, pharma and hi-tech” with “strong Asia exports on the transpacific trade lane and to Europe”. However, general cargo and especially perishables “underperformed,” he added.
No change on the air capacity side
“We don’t see any change on the capacity side for the next quarters to come and the market would very much need (an increase) in bellyhold (cargo capacity) in order to drive the overall rates down a bit. So, I think we’ll have to get used to the higher rates.
“Domestic China is the only market where you have, I wouldn't say a normal situation, but regular belly capacity again.”
Limited globalisation shift
As for the impact of the pandemic on supply chains, Trefzger said that while there had been “a lot of discussions around near shoring and less globalisation”, concrete action to date had been limited to some industries building up higher minimum stock levels and not relying on a single source or geography for supplies.
The COVID-19 lockdowns have also driven significant changes in consumption patterns, accelerating the shift from ‘bricks and mortar’ retail to e-commerce and offering logistics services providers scope to further develop a new business line in B2C fulfilment, Trefzger underlined.
“We’ve all got used to the very easy ‘click, buy and shipped’ process (for goods), and e-commerce is here to stay. Whether it’ll grow at the same speed as we have seen in the past 12 months only time will tell.
“Last year, at the same time, we saw a sharp rise in demand for essential goods and goods in areas like consumer electronics, home furnishings, DIY and gardening and so on. We now see signs of this consumption shifting to the service, entertainment and travel industries as a direct consequence of the growing number of people to be vaccinated against COVID-19.”
Trefzger concluded: “Kuehne + Nagel made a strong start to 2021 and although the year remains challenging and unpredictable, we have a positive outlook. We are committed to our proven strategy of providing reliable, high quality services to customers based on our logistics expertise, technology platforms and agility.”