A report from global investment bank Jefferies says that while European freight forwarders are benefiting from accelerating global trade, the resulting inflationary freight rates are putting “unprecedented” pressure on yields and increasing the performance divide.
Airfreight volumes rose by 10% year on year in 2017, while seafreight was up by 6% and road freight by 4% for the same period – and the outlook for 2018 remains positive, with the concomitant yield issue likely to persist as well.
Jefferies noted “estimated organic EBIT growth of 15% for DSV, 5% for Kuehne+Nagel, 3% for Deutsche Post DHL and a 10% lower EBIT for Panalpina, reflecting differences in customer/product mix, IT functionality and the quality of management, and likely leading to increased M&A in the sector”.
The firm said: “Our preference remains for diversified, well-managed freight forwarders, with strong IT functionality, best positioned to cope with expected ongoing yield pressure.”
As such, DSV (being less exposed to rising freight rates) remains Jefferies’ “top pick” among the forwarders.
Kuehne + Nagel has been upgraded to Hold. Downgraded are Deutsche Post DHL (to Hold) because of higher wage inflation in Germany and the expected continuation of yield pressures, and Panalpina (to Underperform) due to “takeover speculation after a deteriorating FY17E performance”.
Jefferies lists the key risk factors in its valuations as “macroeconomic risks, impacting freight markets, freight rate volatility, which may not be immediately passed on to customers, the ability to maintain competitive IT systems and increasing competition from suppliers, moving up the value chain”.