A call from one concerned reader regarding the portrayal in print of his company’s earnings isn’t necessarily surprising after a long year of steep declines in profit across the shipping industry, but the most recent call did come with a twist. It wasn’t that the profit report was negative but that it was so, well, positive when held up against the reports from others in the industry.
It’s one sign that a year in which supply and demand — that is, capacity and cargo — have been racing in wildly different directions has put enormous pressure on the relationships between capacity owners, non-asset-based operators, shippers, intermediaries and others that have a place in the supply chain.
There’s usually a kind of delicate balance among the operators in supply chains, but there are growing signs from public companies worldwide that equilibrium took a serious hit in recent months.
For instance, several logistics companies that long have proved resilient to declining demand saw some financial fraying around the edges in recent reports as carriers showed greater capacity and pricing discipline just as seasonal shipping demand picked up. The result has been a greater battle for space on oceangoing ships and aircraft even as many non-asset-based players face greater difficulty in passing “rate restoration” price increases along to customers.
“Market conditions required that we absorb these increases for several weeks as we worked with customers to raise rates in a commercially acceptable manner,” Peter J. Rose, chairman and CEO of Expeditors International of Washington, said in announcing uncharacteristically slim margins at the forwarder.
Air freight yields out of Asia, usually a lucrative market, were in the single digits in September, Rose said, and ocean yields also were hit hard.
Other forwarders saw similar results. Panalpina said air freight volume grew 10 percent from the second quarter to the third, and ocean freight expanded 13 percent on a sequential basis. But gross profit, or the net revenue left after direct transportation costs, fell 4 percent.
Kuehne + Nagel’s net profit fell 10 percent in the third quarter, in part because the Swiss company has been willing to lower prices, analysts say, to increase market share, even if that share comes at lower margins.
The results are a direct reflection of the 14 percent cut in July capacity on major east-west ocean container line services reported by Drewry Shipping Consultants and the grounding of more than 200 freighters over the past year reported by the International Air Transport Association.
Those big logistics operators have shown they can absorb the hits to their margins — Expeditors and Kuehne + Nagel both reported strong, though diminished, profits — and it looks like all sides want market equilibrium to return.
That was evident in the deal announced last week between Pacer International and Union Pacific Railroad, an agreement on rates and service for intermodal operations. Both sides say it provides for a stable relationship in coming years — the kind of stability, they say, that comes along with balance.