Kuehne + Nagel Air Logistics Demand Boosted by Red Sea Disruption — Update

By Dominic Chopping

Kuehne + Nagel benefited from improving demand for air logistics during the second quarter, when supply chains became more congested due to continued disruptions in the Red Sea.

The freight industry is contending with continuing headwinds as container operators are forced to send their vessels on longer, more expensive routes to avoid the Red Sea after Houthi rebels began attacking commercial vessels, while Russian airspace remains closed due to the war in Ukraine.

The Swiss logistics company said earnings were supported by cost savings, while a previously announced organizational reshuffle will lead to a significant increase in efficiencies and greater customer proximity.

"This will enable us to be more responsive and faster in the implementation of our strategy and to offer excellent, comprehensive logistics solutions," Chairman Joerg Wolle said.

The company has discontinued its regional structure, creating a new direct reporting line of its units to simplify responsibilities, allow quicker responses to rapidly changing market developments and allowing business decisions to be implemented faster.

Kuehne + Nagel has opened seven new sea logistics customer care locations so far this year to improve customer service in key markets, as well as opening new fulfillment centers in Italy and the U.S. to serve fashion customers, with a new e-commerce fulfillment center under development in United Arab Emirates.

It also introduced a new service for healthcare customers that rely on temperature-controlled seafreight containers and accelerated implementation of artificial intelligence-based solutions to drive efficiencies.

Earnings in the company's sea logistics business fell by 32% on year, but transported volumes jumped compared to the first quarter as North America trade routes had a pickup in volumes.

Earnings at its air logistics unit fell 17% on year, but Asia exports drove seasonal sequential growth.

In the first half overall, there was strong growth in demand for combined sea-air logistics services as some customers sought to shorten transit times due to the situation in the Red Sea, it said.

"We are well-positioned for anticipated higher demand in the second half of the year and we expect to realize further efficiency gains," Chief Executive Stefan Paul said.

The company reported a net profit of 288 million Swiss francs ($323.7 million) in the second quarter of 2024, down from CHF400 million in the same period a year earlier as turnover rose 1.2% to CHF6.05 billion.

Analysts polled by FactSet had expected net profit of CHF286 million on turnover of CHF6.1 billion.

The freight forwarder last year presented a plan to grow average annual earnings before interest and taxes by 17% to 19% in the period to 2026, from 2019 levels, while achieving a conversion rate--the ratio of EBIT to gross profit--of 25%-30%.

It reported a conversion rate of 18.3% in the second quarter, down from 23.2% in the second quarter of 2023.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

July 23, 2024 02:36 ET (06:36 GMT)

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