News / Contract logistics a better investment than freight forwarding, say banks

Contract logistics is a better bet than freight forwarding, if investment banks are to be believed. 

UBS this week published a note on ID Logistics, the French pure play contract logistics company, and said it “liked” the opportunity, recommending a buy. But Jefferies has “fairly significantly” downgraded its forecasts for Kuehne + Nagel. 

UBS explained: “We see the following reasons to like ID Logistics: 1) a solid track record of revenue growth and we expect the business to deliver mid to high single-digit organic sales growth in the medium term; 2) the company is a pure player in contract logistics – a market that is more resilient to GDP volatility and growing faster than other logistics – and we expect the market growth to continue to be supported by outsourcing trends; 3) we expect free cashflow generation to increase in the coming years, as revenue growth normalises; and 4) we see potential upside from M&A.” 

Noting a “highly fragmented” market, it said ID’s international business would be a “strong driver for growth”. And it explained: “While there are potential short-term risks caused by an indirect impact from US tariffs, contract logistics is more resilient to GDP volatility vs other logistics, and ID Logistics’ market share in the US remains small (circa 1%), likely limiting the risks in our opinion. So far, the company has not seen any changes in terms of consumption, and tenders are not being stopped.” 

UBS noted that “the contract logistics market is estimated to be worth c€275bn in 2024, and is expected to grow at 4%-5% annually. In 2023, the APAC region held the largest market share of the market, at 38%, followed by Europe, at 30%, and North America, at 26%.” 

UBS was far more confident about ID’s market position than Jefferies was about Kuehne + Nagel, where “yields are under pressure”. 

“The key investor debate since initiating has been how much of the Covid jump in yields is sustainable. We don’t yet have the answer, with yields expected to post a sharp decline in Q3,” said Jefferies, recommending a hold on K+N.  

“Yields appear to be holding up better at DSV, which may be the result of shedding lower yield volumes through the merger with Schenker. We cut Ebit by 12%-14% to reflect lower yields across the forecast period.” 

It forecast that K+N’s air volumes would fare well in the third quarter, up 9% year on year, despite a “tough comparison” of a 7% rise in Q3 24. Quarter on quarter, it reckoned K+N would see a 2% rise this quarter. However, it warned: “We expect yields to remain under pressure, with air rates down c20% YoY. We forecast air yields will be down 14% YoY, and down 8% vs Q2. While air freight markets are seeing overcapacity due to de minimis changes, we expect a supply side response will be faster in air than sea.” 

K+N would likely face “more muted volume growth in sea”, it added. 

“We forecast sea volumes of +1% YoY and +1% vs Q3. Excluding the loss of one low-yielding customer (c20k-25k per quarter), volume growth would be closer to c3%. In terms of rates and yields, we see average rates down 6% and forecast yields -13% YoY and -8% vs 2Q.  

“Spot rates in sea freight are close to break-even for shippers; however, the supply side equation in sea freight is often slower to respond. This is due to long lead times, limited scrappage capacity, and a high level of new supply already committed to enter the market.” 

It was even less optimistic for road: “While there was some optimism that road was stabilising at DSV, we don’t expect this to be evident yet for K+N.” 

The bank said it had made “fairly significant changes to our forecasts”, reducing expected 2025-2027 Ebit by 12% to 14%, to Sfr1.37bn, Sfr1.48bn and Sfr1.58m respectively. K+N has forecasted a higher 2025 ebit of between Sfr1.45 and 1.65bn this year, guidance which was lowered in July. It does not have guidance for 2026.