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Panalpina has blamed US-China trade tension and market uncertainty for lower first-half profits – and warned of rising charges for customers.
Publishing a Q&A with its heads of air and ocean freight, Lucas Kuehner and Peder Winther, the company notes depressed markets in both modes.
In air freight for the first half, Panalpina’s ebit was Sfr38.4m ($39m), from net forwarding revenues of Sfr1.5bn, down 28% and 2.5% year-on-year respectively. But Mr Kuehner said that the exceptionally strong first half in 2018 made for an unrealistic comparison.
“Compared with 2017, our unit profitability was better and ebit stable. The difference is that in 2017 the market got stronger with every quarter and rates increased accordingly.
“The market in 2019 is heading the opposite direction. Volumes have been going down, especially in the automotive sector, which has shifted into reverse gear. Decreasing air freight volumes translate into falling rates and this has put pressure on margins. In the current market environment, it is difficult to achieve last year’s performance.”
He added, however, that while the automotive and technology sectors have struggled, healthcare and perishables – a sector where Panalpina has been acquisitive, a move no doubt contributing to volumes – have seen growth.
The air freight peak season looks set to be weaker than in the previous two years, and Mr Kuehner predicted that “carriers will try to manage their capacity more tightly in an attempt to lift rates”.
In ocean freight, net forwarding revenues rose 5% to Sfr1.16bn, resulting in ebit of Sfr5.5m, against negative Sfr5.4m a year earlier.
Mr Winther said that the global market had fallen 2% in the first quarter, and stayed flat in the second, and that “the tensions between the US and China have cast a cloud over box shipping”.
Despite a 3% volume decrease in the first half, Panalpina saw gross profit per teu rise from Sfr296 to Sfr304 in the second quarter. He accounted for the rise in EBIT by “strong cost control and yield improvement”.
But strong inventory levels could lead to a weak peak, he said. “Because of the situation with the ongoing dispute between the US and China, companies in the US have stocked up ahead of time. The same happened in the UK with Brexit and elsewhere in the world.”
While there has been some doubt as to whether Panalpina would be able to gain additional customers during its takeover by DSV, both Mr Kuehner and Mr Winther did note new customer wins. In air freighted healthcare “In the past months, we have not only retained several larger customers, but also won new ones,” said Mr Kuehner.
“And just a few days ago, we were awarded with Panalpina’s – and possibly one of the industry’s – largest ever less-than-container-load (LTL) contracts,” added Mr Winther.
He also pointed to rising surcharges. Last week Panalpina announced that it was introducing a flat surcharge for all shipments going through the Strait of Hormuz, of $52 per teu for full container load shipments, and $3 per cu metre for LTL shipments. This is considerably higher – at least 24% in fact – than the shipping line surcharges, with Maersk and Hapag-LLoyd charging $42 for teu, MSC at $40, and CMA CGM charging $36.
But Mr Winther said Panalpina was just “passing on” the lines’ costs.
“For now, there is no substantial impact on cargo routes, but there is added cost. Now that shipping lines have added insurance-related surcharges for such shipments, we have to pass these costs on in order to stay competitive and keep up the high-quality service for our customers.”
He also pointed to the higher costs which will come as a result of the IMO 2020 low sulphur regulations.
“Carriers will pass on higher costs related to IMO 2020 to cargo owners, third-party logistics providers and end-consumers, and we now expect this to happen in the beginning of Q4.
“Having said that, it is always challenging to implement a new surcharge in a soft market, but we expect shipping lines to manage capacity with additional blank sailings. Besides higher costs, there is a considerable potential for supply chain disruptions due to delays in fuel supply, denied port calls, retrofitting or downtime of ships.”
He added that the company was “proactively supporting our customers to deal with increased costs and potential supply chain disruptions”, pointing to its “globally competitive bunker mechanism that increases visibility for customers and eases the transition towards new fuel types to comply with the low sulfur limit. Our experts will make sure to cut the best and fairest deals for our customers and to bring the cargo in time to where it needs to be – if needed by air freight.”
Mr Kuehner added that the uncertainty in the market, as well as supply chain complexity, meant that 3PLs needed to look more holistically at air and ocean freight, noting their “interdependencies”.