The logistics industry is in good health despite the dire warnings of recession from the world’s financial centres according to analysis from consultancy Transport Intelligence.
Despite turmoil in the market over the debt crisis in Europe and a downgrade in the US credit rating, there may be reasons to believe the logistics industry remains strong. Amongst the ten reassurances given by the company’s analysts for why global freight providers should “keep calm and carry on” is the indication that at the top end of the logistics industry healthy margins prevail. Kühne + Nagel, UPS and DHL have all seen margins improve in the first half of 2011.
Though overall turnover for Kühne + Nagel dropped from €9,453m ($13.6m) to €9,392 over that period compared to 2010, net earnings climbed to €270.5m from €243.6m in the same period despite considerable negative currency effects, an improvement 11% according to the company.
Meanwhile, UPS saw revenue increase to $13.2 billion from $12.2 billion a year ago and is ending the first half of 2011 with $2.3 billion in free cash flow.
DHL increased its turnover to €25.7 billion during the first six months of this year, up on revenues of revenues of €24.8 billion in the first half of 2010.
Stock prices of such companies have nevertheless dropped along with the markets. UPS saw its share price drop around 10% to $61 yesterday, before recovering to $64 a share. K + N dropped from €99 a share on August 1st to €86 at one point yesterday, while in the same time Panalpina dropped from €84 to €73.
The positive results in the first half have also been tempered with cautious economic outlooks from CEOs. In the automotive industry, sales forecasts have generally been set below 13m this year, although some carmakers, such as Chrysler and GM, still sees sales at or above 13m. However, Transport Intelligence maintained that the underlying global economy is not in such a bad shape. The stock price drops are less indicative of the company’s performance than of jittery investors.
Another reason for optimism comes from the improvement in the situation following the Japanese earthquake according to the analysis, which should lead to a jump in automotive production in particular.
“One of the major unexpected headwinds to hit the world's economy in 2011 was the Japanese tsunami,” said Transport Intelligence’s CEO, John Manners-Bell. “With production of high tech and automotive parts crippled, international volumes fell. Moreover, production in auto plants across the world was affected. In the second half of 2011 these supply chains will return to normal and this will have an ameliorative impact throughout the logistics sector, both up and downstream.”
Semi-conductor production, which was also affected by the earthquake, has also remained strong, with an increase of 3.7% in the first half of 2011 on last year, a good indicator of air cargo growth. This suggests that demand for products which use semiconductors, and the automotive industry is a good example of this, will be strong having an indirect benefit for logistics providers to the industry.
Falling oil prices and low interest rates which stimulate borrowing and capital investment, as well as a stabilisation in shipping rates are also contributory factors in maintaining improving margins according to Manners-Bell.
"There is no doubt that consumers' confidence will have been knocked by the chaos on the world's markets. However, these problems have been caused by a different set of circumstances from those which created the recession of 2009. These issues can be fixed by politicians and regulators and they do not mean that a downturn in the freight market is inevitable,” he said.
