Sea freight volumes dived in Q1, and the economic growth is threatened, but logistics companies Kuehne + Nagel and DSV still predict that bottlenecks and high freight rates will ensure strong earnings for the rest of 2022.
According to DSV’s CEO Jens Bjørn Andersen, it is difficult to say anything with certainty on the economic development in 2022. The war in Ukraine and Covid may alter things rapidly. | Photo: Lars /Foto: Lars /Ritzau Scanpix
DSV and Kuehne + Nagel expect that continued bottlenecks and high rates on the freight market will bring them more than unharmed through a 2022 that appears increasingly dark for the world economy as a consequence of the Covid-19 pandemic and Russia’s attack on Ukraine.
While Kuehne + Nagel forecasts global GDP growth of 3.5 percent this year, DSV expects world economy growth of 2-3 percent.
However, both groups admit that it’s difficult to say anything with certainty regarding the year’s economic development as war and Covid may suddenly turn things around.
We expect that the continued disruptions of global supply chains will support a high demand for our services
DSV
But this doesn’t affect the two companies’ optimism regarding company earnings this year. Thanks to continued bottlenecks and high demand for goods, not least in the US, the logistics and shipping sectors look set to benefit from sky-high freight rates for the rest of the year.
”Uncertainty related to the global economy has increased in recent months; however, we expect that the continued disruptions of global supply chains will support a high demand for our services,” writes DSV in its quarterly announcement.
Measured in volumes, however, the first-quarter development was mixed. While DSV’s air freight volumes only grew by 2 percent in Q1, volumes within sea freight dived by 7 percent when corrected for the growth added due to the acquisition of logistics firm GIL.
Lack of demand
According to DSV CEO Jens Bjørn Andersen, the decline is partly a consequence of lack of components for the industry, ”but we are also suffering a bit from the lack of demand [for goods, -ed.],” he said during an online conference for equity analysts Wednesday.
”We saw a relatively weak market in Q1 in terms of volumes,” the top exec continued.
“We are not growing faster [than the market, -ed.], but we are also not losing market shares.”
Despite a small improvement of the bottleneck situation on the freight market in the first quarter compared to the end of 2021, DSV’s management expects the problems on the market to increase again.
”The March 2022 Covid-19 lockdowns in China and the closure of Russian air space add to the challenges in the freight markets in the coming quarters,” reads the announcement.
We do not believe that we will see a big change in disruptions [of the market, -ed.] later in the year
Jens Bjørn andersen, ceo, dsv
Andersen doesn’t expect the bottlenecks on the market to change markedly throughout 2022.
”We do not believe that we will see a big change in disruptions [of the market, -ed.] later in the year,” he said during the conference.
However, the chief exec highlighted that the economic development is uncertain. Based on the first-quarter result, DSV now expects an operating result (EBIT) for the entire year of DKK 21-23bn (USD 3.1-3.4bn) after more than a doubling of the operating profit (EBIT) in the year’s first three months.
”We have had an absolutely superstar and stellar performance in all divisions,” stated Andersen.
Like DSV, Kuehne + Nagel appeared strongly from Q1, which presented a revenue growth of 68 percent compared to the same period last year with a net revenue of CHF 10.2bn. The operating profit (EBIT) was more than doubled and landed at CHF 1.1bn against CHF 431m in Q1 last year.
Financially, Kuehne + Nagel CEO Detlef Trefzger expects that 2022 will be ”in line with” last year if the company’s GDP growth expectations hold.
Like DSV, Trefzger predicts that the freight rates will stay at a high level due to supply chain bottlenecks. And when the bottlenecks are gone, shippers will still face ”markedly higher freight rates this decade” as a consequence of the need to invest in new infrastructure and the green transformation, said the top exec during an online conference Tuesday.
