Forwarders count costs of coronavirus impact

3/7/2020

Kuehne +Nagel (K+N) expects the coronavirus to lead to a significant reduction in its China sea and air freight volumes in the first quarter of 2020 compared to the same period last year, with DHL also highlighting that the virus and its secondary effects would have a material effect on its first-quarter results.

CEO Detlef Trefzger told analysts at a conference call that the Switzerland-headquartered global freight forwarding and logistics group was likely to see a decrease of between 20% and 40% in TEUs for its China business and a 10%-20% fall in air freight tonnage as a result of the Covid-19 outbreak.

“I'm only talking China here, not the rest of the world,” he said, adding that a positive development of late has been that more and more of K+N’s customers are re-opening factories in China and getting back to work.

“We are seeing strong growth, week-over-week, in customers retrieving containers in port yards. These need to be filled now with goods produced at various manufacturing sites in China. So, the outlook is for our sea freight bookings to increase again amid a gradual normalising of the situation.

“So, in Q1, we’ll get a hit volume-wise. EBIT will be lower than Q1 the previous year. But we are still confident for the full year to be able to develop a strong momentum (in our China business) eventually. We have not calculated any revamp effect yet (in Chinese production), but we are preparing for stock rebuilding in Q2 and Q3 in certain industries and for certain customers.”

He revealed that the majority of K+N’s business in China is sea freight, followed by air freight.

While K+N is bracing itself for a 10%-20% dip in its China air shipments in Q1, Trefzger underlined that what had to be taken into account was that the market had already “showed negative growth” in Asia last year.

He said the immediate focus in China in the segment has been on putting a charter capacity programme in place to support disrupted supply chains. “With many airlines cancelling passenger services to China, there’s virtually no belly capacity at the moment. We have regular charters, daily, in and out of China, and it’s working quite well.”

He pointed to the prospect of a “capacity crunch” for air freight in China “as sea freight, with containers in transit for four to six weeks, will not be able to offer the lead times required to support some of the inventory ramp-ups. When will that happen? April, May, June? We don’t know and don’t want to speculate on it.”

Trefzger added that to date none of K+N’s 5,200 employees in China had contracted the virus, but the company “had a disruption with staff not being able to get back to work for a couple of weeks (after the Chinese New Year break).

“Today, our business continuity plans are active with the re-opening of the vast majority of our branches and 90% of staff are back on the job – 60% of them in the office and 30% working from home.”

Meanwhile, alongside its full-year financial results announcements on Friday, Deutsche Post DHL Group said it had seen a very good start to 2020 in January and was prepared for the usual effects around Chinese New Year in February when the coronavirus control measures of the Chinese government were introduced. Since then, it said the business of the group’s DHL Supply Chain and DHL eCommerce Solutions had “only been marginally impacted by the Corona crisis. In contrast, the group currently sees more significant effects for the DHL Express and DHL Global Forwarding divisions, where the business is particularly affected with regards to cross-border trade flows into and out of China.

“Groupwide, the negative impacts of the Corona crisis on group EBIT amount to around €60-70 million for the month of February, compared to the initial internal planning.” 

It said the implications for the group results for full-year 2020 “cannot be currently concretely assessed”, noting: “Should the macroeconomic situation normalise again, there could also be positive effects for logistics companies. In case of a longer duration or a worsening of the current situation over the coming months, the negative impacts for the group are likely to outweigh the positives. The concrete earnings impact can only be assessed after a normalisation of the situation.” 

CEO Frank Appel commented: “Deutsche Post DHL Group had a very good 2019 and a successful start to 2020 in January. Thanks to our broad geographic set-up and our comprehensive portfolio, we are more resilient than other companies. However, a worldwide crisis like the Coronavirus does not leave us unaffected. It is currently hard to judge how strong the impact on our business will be. That is why our guidance is as of now excluding any impact of this.”