Questions continue concerning the health of the freight forwarding market. Is it on the mend or does the “lackluster” global economy still have detrimental plans for the market?
Many freight forwarders are still reporting earnings results, and it seems the results may be mixed. Expeditors International of Washington reported its fourth quarter and year-ending earnings last week. While not impressive, the company did report positive year-over-year quarterly gains in revenue, net revenue and volumes. Meanwhile, Kuehne + Nagel’s quarterly air and ocean freight revenues were slightly down from same period for 2012 while gross profit for each was about the same compared to 2012. Volumes, however, proved most impressive with ocean up 5.2% and for air up 5.0%.
UTi Worldwide, which will not report its earnings until later in March, released a statement indicating that it had breached some debt covenants and would report a loss for the fourth quarter due to a weak air freight market. According to the company, liquidity and capital resources have decreased significantly over the last several quarters because of:
As such, the company successfully issued $350m of convertible senior notes due in 2019 as well as $175m of convertible preference shares to its largest shareholder, P2 Capital, which, as a result, now owns approximately 18.1% of the company.
To be fair, UTi’s situation is perhaps unique compared to other freight forwarders. It began its program towards integrating divisions and implementing a share services and a common set of operational processes just as the global economy began it downhill descent. Rather than abandon the plan, the company has persevered and is on track to complete its system implementations by August 31 of this year.
Will this “transformation” be enough to turn UTi around? It’s hard to tell. Other freight forwarders have also implemented cost containment programs as well as upgrades to IT systems. The competition remains tight and thanks to economic conditions this may be the time for industry consolidation.
Is the freight forwarding market on the mend? Perhaps. Air freight, which for years reigned as the major money maker for many freight forwarders, is showing signs of improvement. Because of the downturn in air freight, forwarders followed shippers as they turned towards ocean freight for less costly means of transportation. However, this market has its own issues as rates remain erratic and over capacity is a concern. Maybe the answer lies in improving economic conditions. According to the IMF, global GDP is estimated to grow 3.7% this year. If this economic forecast holds true, the freight forwarding market may indeed have a good 2014.
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