News / Pressure on margins sees Panalpina profits take a hit in Q1

Panalpina

Margin pressures battered Panalpina’s first-quarter results: revenue and profit dropped, year-on-year, despite volume growth outpacing the market average.

The forwarder’s revenue for the three months to March fell 2.3% on 2016, down from CHF1.3bn ($1.3bn) to CHF1.2bn, leading to a steep 28.3% drop in net profit, from CHF17.3m to CHF12.4m.

“As expected, margins remained under pressure,” said chief executive Stefan Karlen. “However, they are slowly recovering since we saw an upturn in unit profitability in both air and ocean freight on the last quarter of 2016.”

Increased demand out of the Far East bolstered Panalpina’s volume growth. Freight carried by air increased 8% year-on-year, compared with average market growth of 6%. Altogether, it carried 233,000 tonnes in the period.

But with rates almost 10% below the same period last year, at CHF620 per tonne, profit growth remained flat – the declines in freight rates were largely mitigated by the increased activity.

The same could not be said for the ocean freight segment. Volume growth of 7%, almost double market average, took it up to 374,000 teu. However, this coincided with a 17% decline in profit per teu, down to CHF282.

Mr Karlen said restoring profitability to this segment remained one of the company’s “top priorities”.

Panalpina’s contract logistics profit also took a significant hit, dropping 16% year-on-year, blamed on its exit from “underperforming” sites.

One silver lining for the company was that, against the final quarter of 2016, results seemed to be heading upward.

“While the challenging market dynamics are expected to continue throughout 2017, we are well-positioned in the market and cautiously optimistic that we can keep up the strong volume growth in air and ocean freight, further gaining market share,” said Mr Karlen.

“In a market environment where rates are currently going up, instead of down as last year, we also expect to make progress in yield management,” he added.