Freight forwarder Panalpina expects continuing airfreight margin pressure

Freight forwarder Panalpina will concentrate on controlling costs after its airfreight business faced continued margin pressure on higher airfreight demand.
The Switzerland-headquartered logistics giant saw second-quarter airfreight revenues increase by 10% year on year to Sfr700m on the back of a 6.6% improvement in tons carried to 240,000 and rising freight rates.
Panalpina estimates the overall market grew by 8% compared with last year.
However, margins continued to come under pressure during the period, with gross profit per ton down 10.9% on last year and earnings before interest and tax (ebit)/gross profit falling to 13.3% from 15% a year ago, when the air division’s share of one-off restructuring costs of Sfr26m are taken out of last year’s figures.
The company said high demand for airfreight capacity pushed up rates which put margins under continued pressure. Typically forwarders see margins tighten when rates increase because of the lag in passing costs through to customers. The reverse is true when prices start to slide.
It said it expects this trend to continue because of anticipations of a strong peak season. However, the fact it operates its own air charter network, which it is adding capacity to, should help mitigate any capacity shortages in the market and level of the effect of any rate spikes.
In the second quarter its charter network achieved a utilisation rate of 95%, Panalpina said.
It was also negotiating to secure extra space with its carrier customers.
On the company’s below market volume growth in airfreight, it said it was not its strategy to pump volumes at any price and would adopt a cautious approach to new volumes. Also, capacity is not always available at a reasonable price, it added.
It was also currently holding talks with customers as they understand that capacity will be an issue during the peak.
Panalpina chief executive Stefan Karlen said: “We expect ocean carriers and airlines to be much more disciplined than in previous years in managing transport capacity and sustaining freight rates.
“While we are confident that we can improve unit profitability in ocean freight in the second half of the year, unit profitability in airfreight will remain under pressure.
“We will therefore concentrate on what we can influence directly: controlling cost very effectively and pushing ahead with our operations transformation programme.”
Overall, the company registered a half-year revenue improvement of 1.4% year on year to Sfr2.6bn, ebit was up 21% and net profit increased to Sfr18m from Sfr5m. Ebit also improved as the year progressed.
“Thanks to strict cost management we improved ebit quarter-on-quarter in the first half-year of 2017 and restored profitability in ocean freight in the second quarter,” said Karlen.
“With the successful implementation of our new IT system in the key market Germany, we also gained further momentum in our operations transformation programme.”
However, when looking at adjusted ebit performance, with last year’s one-off restructuring costs taken out of the 2016 results, the company actually registered a 31% decline to Sfr42m.
On Tuesday, Kuhne+Nagel also reported continuing margin pressure in its half-year performance, but saw its airfreight volumes increase by 18% during the second quarter.
It also announced the acquisition of two perishables logistics firms.
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