Kuehne + Nagel is celebrating its 125th anniversary by sending two 40-foot shipping containers in different directions around the world.
Speaking before the event in Hong Kong, Karl Gernandt, chairman of Kuehne + Nagel International, said that he was very happy with the company’s 2014 performance.
“We’ve filed an all-time-high result for 2014, which is the result of a lot of initiatives,” said Gernandt. “Even with the softening of the Euro environment and the Russia-Ukraine crisis, which for a company like ours is serious because national trade in those areas stopped dramatically, we were able to make use of positive developments in the US, the Arabic region and Eastern Europe. We’re always balancing out positive effects in the world with the negative impacts.”
In terms of sea freight, Kuehne + Nagel handled approximately 3.8 million TEUs, which was a 7% increase over 2013. In terms of air freight, the company posted a 5.3% increase in tonnage.
Gernandt said that trade between Europe and North America is improving, and that the same is also true for trans-Pacific trade, which has been “tremendously positive.”
“The perishable business is still a fast-growing area, as well as consumer electronics, which is a long-standing strength of Kuehne + Nagel and which is very relevant for this region,” he said. “Looking ahead in 2015, I think these drives will stay alive.”
US-based CH Robinson adopted a similarly positive attitude with regard to the past year.
“Although 2014 was rife with logistics and supply chain challenges, specifically the recent disruptions at the West Coast ports, CH Robinson’s overall performance was highly satisfactory,” said Stéphane Rambaud, president of global forwarding. “Our overall global forwarding operations’ net revenues grew by 11%, as did volumes in both global air and ocean transportation services.”
In 2014, CH Robinson shipped over 500,000 TEUs and carried 115,000 metric tonnes of airfreight. Rambaud said that 60% of all that was directly related to trade along the Transpacific Eastbound trade lane. “The company continues to focus on the importance of the Asia-Pacific region in global supply chains, despite discussions around nearshoring and protectionist economic trade policies that have led some to believe that importing into the US from Asia is becoming less attractive,” he said. “As Asian manufacturing operations continue to shift and move toward inland China and parts of Southeast Asia, CH Robinson’s robust network in these regions is well equipped to provide customers with superior service despite these regional changes.”
For Hong Kong-based Kerry Logistics, 2014 was a year of consolidation and integration.
“We expanded operating scale, strengthened service capabilities and extended network coverage through organic growth, investments and acquisitions,” said a senior executive. “Both core operating profit and core net profit achieved a double-digit percentage growth, and margins in all segments improved.”
The majority of Kerry’s revenue came from mainland China and delivered a 3% growth despite signs of economic slowdown in the second half of 2014, according to the executive. South and Southeast Asia experienced the most growth, with a rate of 15%.
The restructuring of the country has meant that coastal China is becoming more expensive.
“This had led to an outflow of manufacturing to inland provinces on the one hand, and to Southeast Asia and beyond on the other,” said the Kerry executive. “The integration of China’s economy with its neighbours is a major trend which can be seen in increased intra-Asian trade and growing cross-border logistics. The combined economy of China and its neighbours is becoming the central growth pole in the world.”
Another trend which has been observed is that Southeast Asia is experiencing a second wave of growth.
“The intra-ASEAN trade is increasingly driven by free movement of goods under the AEC to be established in December 2015, and the booming e-commerce market arising from increasing manufacturing activities in Asia,” the executive said.
Dachser has been feeling the effects of this growth too.
“The logistics industry is very dynamic and it evolves continuously, although from outside this may not be clearly seen,” said Edoardo Podestá, managing director for air and sea logistics in the Asia-Pacific. “In our region, we see continuous increased demand for sophisticated contract logistics services, IT solutions and, for sure, more demand for intra-Asia services.”
Apart from the shift of purchasing power toward Asia, Gernandt has noticed two other trends. The first is the issue of digitalization. “There’s a higher degree of integration of the value chain of the products and services we’re offering, so that we’re no longer just the ones organising the transport,” he said. “We have to try to understand the business cycle and the supply chain in general. This trend will continue and forces us to get a deeper knowledge of the verticals of the industry we’re serving.”
The second trend is the question of nearshoring. “This means that we won’t be talking about production in Asia for consumption in the US and Europe anymore, because some of the goods sold in the US will be produced in Latin and Central America, for example,” said Gernandt. “This will lead to a different situation in which we’re no longer playing the world, but playing each and every region on its own with a dense network. We have to prepare ourselves for that.”
Rambaud said that some consolidation might happen among logistics operators. “There is a definite renewed interest in merger and acquisition activity in our industry as large players continue to expand their networks and develop vertical growth activity,” he said. “Routes from Asia to Europe and Asia to the US will continue to be a focus point for global supply chains as carrier alliances and larger vessels continue to create a volatile environment.”
That strategy would appear to hold true for Kerry.
“Our growth in 2014 was mainly attributed to organic growth. In addition, a number of successful M&As will act as our growth drivers in 2015,” said the Kerry executive. “We will continue to seek acquisition projects, especially in the US and Europe, and will continue to unlock the values of the group’s assets and enhance returns.”
But Gernandt said that Kuehne + Nagel was not looking to expand in this manner. “Up to now, we’ve concentrated on internal growth – enlarging our FTE base, our internal capacity and we’ve tried to grow from within,” he said. “In term of external acquisitions, it’s always hard to identify the right targets and to be able to pay a fair price.”
He went on to say that the company would look for “specialist entities rather than full-fledged copies” of its own business model. “If we’re going to acquire, we would get on board with something which is superior to what we have, which is a certain knowledge in an industry or a region,” said Gernandt. “Right now though, we’re not very interested in such large-scale acquisitions.”
As for the year ahead, opinions differed but were mostly positive.
“We are optimistic about 2015. Trade is picking up after two sluggish years,” said Podestá. “With our strategy ‘GLOBAL’ for Dachser Air & Sea logistics, we continue to expect strong growth in our volumes. Through a targeted expansion in sales and by specific investments in verticals such as life sciences, we will be able to increase our volumes significantly.”
Kerry, with its heavy focus on China and Asia, hopes to take advantage of that, against the backdrop of weakening markets elsewhere.
“Although the global demand for logistics services is expected to remain flat in 2015 as a result of slowing growth across major economies, we see opportunities in the ASEAN and Greater China regions along with increasing intra-ASEAN trade,” said the Kerry executive. “This is propelled by the AEC as well as the ‘One Belt One Road’ strategy rolled out by the Chinese government, which will promote the construction of infrastructure and the expansion of transportation networks overseas.”
The executive added that, even though domestic wages in China are on the rise, causing operating costs to increase, the company provides “highly-customized and high-margin value-added logistics services” that enable it to achieve higher profits than traditional providers.
In any event, international trade is expected to grow at a much slower rate than prior to the global recession in 2008, which has obvious implications on logistics companies.
“It is estimated to grow between 4-6%, which will translate to different growth percentages in air and ocean volumes. Over-capacity in both air and ocean transportation modes will continue to keep pricing fairly depressed, which presents a challenge to the global freight forwarding industry,” said Rambaud. “Some of CH Robinson’s key initiatives are to continue to grow its air freight volumes and to strengthen imports into Asia in an effort to embrace China’s growing consumption patterns.”
After such an eventful year, Gernandt didn’t seem too concerned, and said that Kuehne + Nagel has three main objectives: to better understand the impact of politics on trade, to better understand the economic impact of the weakening of the Euro, and to accelerate the company’s relevance in Asia. “In general, I’m never pessimistic,” he said. “We’re problem solvers, and sometimes even times of crisis can present a serious amount of opportunities to a service provider like us. Overall, I feel that 2015 will be stable and even as good as the 2014 business cycle.”
By Jeffrey Lee
Staff Writer | Hong Kong
