Germany’s Transportation Companies Come Into Their Own

Germany’s transport sector is finally emerging from the under the shadow of the nation’s world beating export industries, from cars to machine tools, whose record profits stand out in a recession-mired Europe thanks to explosive sales growth in China and other emerging markets.

German transporters have leveraged a solid domestic cargo base to establish pan-European and global logistics networks on land, on sea and in the air at a time when their European rivals are retreating to the (illusory) comfort of their domestic markets.

Leading German transport firms have made gains in recent weeks as their competitors have stumbled. DHL was bolstered by the collapse of UPS’s $6.8 billion bid for TNT Express, leaving its major European rival facing an uncertain future, and Lufthansa Cargo can only benefit from the financial woes of Luxembourg’s Cargolux as Europe’s biggest all cargo carrier frantically seeks a buyer for the 35 percent stake junked by its erstwhile partner Qatar Airways.

Germany is set to wield more clout on the world’s shipping lanes, too, as Hapag-Lloyd and Hamburg Sud negotiate a “perfect fit” merger to create the world’s fourth-largest ocean carrier, with 250 ships with a combined 1.3 million 20-foot equivalent units capacity generating more than $13 billion in revenues.

German transport companies are set to emerge stronger from the current global downturn as they benefit from economies of scale built up in the past two decades of acquisitions and mergers. Lufthansa Cargo has consistently posted profits as it aligns capacity with shrinking demand, while its main European rival Air France-KLM’s cargo’s unit has sunk into the red and is rapidly downsizing its freighter operations. British Airways’ hopes its merger with Iberia would help narrow the cargo gap with Lufthansa have fizzled out as the Spanish airline’s freight traffic tumbles amid mounting losses despite its strong presence on potentially lucrative Europe-Latin America routes. In fact, Lufthansa is widening the gap, about to take delivery of the first of five 777 freighters with an option for five more to add to its current fleet of (fully depreciated) 18 MD-11s. It is perfectly positioned to benefit from an uptick in the market, particularly in Asia, thanks to Aerologic, its 50:50 joint venture with DHL Express. And it will start construction next year on a giant new logistics centre at its Frankfurt hub that will open in 2018.

Deutsche Post, DHL’s privatized parent, is pulling further ahead of its European peers — not just embattled TNT Express, but the UK’s Royal Mail and France’s La Poste, which are still hampered by state ownership and condemned to remain second-tier operators in a parcels sector that is posting double-digit growth as Europeans embrace on-line shopping.

Germany also heads Europe’s freight ocean and air forwarding and logistics sector thanks to DHL and Kuehne+Nagel, Swiss-based but controlled by German billionaire Klaus Michael Kuehne, who is also the second largest Hapag-Lloyd shareholder, with a 28 percent stake.

DB Schenker, the only pan-European rail freight operator with operations in key markets like the UK, Poland and the Netherlands, is set to expand across the continent as deregulation accelerates consolidation among state-owned  that can’t count on government funds to cover their mounting losses. And thanks to its $1.1 billion acquisition of Bax Global of the US back in 2006, it’s the only European railway with a major overseas presence, which is helping to transform it into a global logistics operator.

To be sure, Germany’s transport sector, like its rivals, is facing huge challenges amid a market downturn and the rise of cash-rich competitors in Asia and the Middle East. Last week, Moody’s downgraded Hamburg-based HSH Nordbank, saying the world’s biggest shipping bank was in a “fragile” situation. This week news emerged that Reederei Claus-Peter Offen, a leading owner of container ships, is being pressed by its banks to sell 14 vessels that aren’t covering their costs, sparking warnings that hundreds of other German-owned container ships face the same fate in the coming months. Meanwhile, Lufthansa says Dubai-based carrier Emirates is likely to overtake it as the world biggest cargo-carrying passenger airline sometime this year.

But these setbacks likely will turn out to be manageable blips as Germany’s transport firms bid to become world beaters alongside their more famous industrial peers.

Contact Bruce Barnard at brucebarnard47@hotmail.com

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