Solid China growth gets Kerry Logistics' year 'off to a good start'

Solid China growth gets Kerry Logistics' year 'off to a good start'

Kerry Logistics chairman George Yeo and group managing director and executive director William Ma announce the company’s results.

Kerry Logistics reported an 8 percent increase in net profit for the first half as its integrated logistics segment showed solid growth in China and across ASEAN.

Core net profit of the Hong Kong-listed company reached $63 million, with profit for the integrated logistics unit growing 14 percent, and the international freight forwarding division reporting 8 percent growth in the first six months of the year.

William Ma, group managing director and executive director of Kerry Logistics, said 2014 has been a year of growth and consolidation and “we are off to a good start.”

“Despite flat global growth in demand in products, we have maintained strong growth with improved segment profit and margin,” he told reporters in Hong Kong.

Kerry Logistics, listed in December last year, markets itself as “Asia specialist, China focus, global network,” but concerns have been raised about the company’s reliance on China business. Of the logistics segment, almost 30 percent of the profit is achieved in China. 

However, managing director for China Eduardo Erni said this was a strength and a focus of the company, saying he expected the mainland logistics business to continue to achieve growth “in the teens.”

“The market has been stagnant, but we provide logistics services for high end products and it is a growing area,” he said.

Expanding network coverage in China drove the first half numbers as the company added higher margin value-added services and won new business. 

Kerry Logistics chairman George Yeo said flat global demand was likely to extend into 2015, but he expected the company to maintain its upward trend, buoyed by the rising consumption of Asia’s middle class.

Revenue at the integrated logistics segment was $626 million, up 10 percent year-over-year. Of that, $576 million was from logistics operations and the rest was from warehouse business.

In the freight forwarding segment, the company saw a decline with its China profits falling by 9 percent, but strong growth in its restructured Europe business and in Hong Kong where the bulk of its forwarding profit comes from.

The forwarding business generated revenue of $763 million in the first half as its network continued to expand in Europe and the Americas.

The company also bought out all the interests in Kerry Asia Road Network (KART) in Malaysia and Thailand that it never owned, further integrating the trucking business into the group. KART is a cross-border road transportation network connecting ASEAN countries with China that offers shippers a long haul trucking alternative to air and ocean. 

An advantage of serving high end customers is that they require quality warehouse facilities. Among Kerry Logistics customers are a wide range of industries requiring tailored supply chain solutions from specialised warehouses. 

The company manages 14 million square feet of logistics facilities in China. It completed the construction of two facilities in Zhengzhou and Kunshan this year and is planning to break ground on two others in Chengdu and Xian in the second half. 

Asked whether Kerry Logistics plans to expand its coverage of the e-commerce business in the mainland, Erni said the company had been involved in order fulfilment for several years.

“But we find the lucrative business is the distribution of e-commerce products from hub to hub. We have many full truckloads transporting products from city to city,” he said.

“Last mile delivery is not our focus. The competition is cut throat and foreign logistics providers are prohibited from operating pan-China distribution operations.”

Only 1.2 percent of China’s fragmented courier market is held by foreign companies. The vast majority of the business is handled by local and private companies.

“We are waiting for the market to evolve before we consider last mile distribution,” he said.

Contact Greg Knowler at gknowler@joc.com and follow him on Twitter: @greg_knowler.