Double-digit airfreight growth for Panalpina but profits take a hit

Panalpina recorded a double-digit improvement in air cargo volumes last year but rate hikes in the second half of the year put pressure on profits.
The Switzerland-based freight forwarder saw 2016 revenues decrease by 11.3% year on year to SFr5.2bn ($5.1bn), while operating profits were down 30.1% to SFr82bn and net profits slipped by 40.7% to SFr52.3bn.
These declines came despite airfreight volumes increasing by 10% year on year to 921,400 tons compared with an estimated market growth of 1-2%. This was the company’s busiest year for airfreight since 2007.
Around 4% of the growth was organic, while 6% was down to its acquisition of perishables specialist forwarder AirFlo in late 2015.
The company saw fourth quarter airfreight demand improve by 14% on a year earlier as it benefitted from its busiest peak season since 2008.
Panalpina said profit margins had come under pressure as a result of quickly increasing rates in the second half of the year and also lower demand from the oil and gas sector.
It explained that it could not pass the higher capacity procurement costs onto customers in a timely fashion.
Chief executive Stefan Karlen said: “2016 represented a very challenging year. Much lower volumes from the oil and gas sector meant that we had to restructure that part of our business during the first half-year.
“In the second half, the Hanjin collapse and the very busy airfreight peak season led to tight capacities and soaring rates which put strong pressure on our margins. While we continued to perform well on volumes, pressure on yields impacted our profits.”
It said the busy airfreight peak had extended into the first quarter of 2017, partly because Chinese New Year was close to the end of the year and therefore no January slump. The rate level has eased but it is still on the higher end.
Overall, the company is expecting airfreight demand to increase by 2% this year and it expects to outgrow the market.
This will be done through organic growth and possible "bolt-on" acquisitions and it will not buy extra traffic by undercutting the market.
The airfreight business saw gross profit per ton for the year decrease 7.5% to SFr646, resulting in a total gross profit of SFr595.2m.
On an operating profit level, airfreight achieved adjusted earnings before interest and tax SFr93.5m, compared with SFr88.5m the year before.
To try and improve margins next year the company will work on yield management.
Said Karlen: “The unusually strong air freight peak season, and the temporary capacity constraints in the ocean freight market in 2016, mean that we have to concentrate even more on improving our yield management, especially when it comes to our ocean freight operating model.
“Yields have continued to remain under pressure in January and February and we expect the first quarter to come in below the previous year.
“Despite 2017 being a year of great political and macroeconomic uncertainties, we are keeping to our long-term goals and are confident that we can maintain stable costs to position the business for volume growth.”
Kuehne+Nagel yesterday reported a 4.3% improvement in airfreight demand to 1.3m tons, while revenues for the mode declined 2% to SFr3.9bn and EBIT increased 12.4% on last year to SFr298m.