TRANSFORMING KUEHNE & NAGEL

TRANSFORMING KUEHNE & NAGEL

What do you know about Kuehne & Nagel? I admit that my understanding was quite limited. PIERS statistics showed that their NVO operation, Blue Anchor Line, ranked No. 1 among its peers on U.S. exports and fourth on imported TEUs last year. I also knew that they operated globally as a freight forwarder handling both air and ocean cargoes. It was an eye opener for me to read in their third-quarter results that Kuehne & Nagel's gross profit (net revenue) of $582 million is up 16% this year, with an even better net income gain of 24%. North, Central and South America account for about a fourth of that business, and this region is growing at almost twice the company's overall pace. 'We are a formidable company in the U.S., but it's true that we have sold ourselves somewhat short to the media,' said Rolf Altorfer, president of Kuehne & Nagel USA. Rolf assumed the top job in the Americas this year after spending 23 years with Panalpina, including 10 in the U.S. He viewed the move as ideal, arriving soon after a change in the Switzerland-based top management and the retirement of his local predecessor. In July 1999, Klaus-Michael Kuehne assumed the title of executive chairman and handed over the CEO job to Klaus Herms, a long-time executive with the company. 'Our reputation was that we were too authoritarian,' Rolf explained. 'Klaus is from the front lines and everyone is comfortable with his openness. Our growth is robust and Klaus advocates more spending and acquisitions to keep the trend going.' In the third-quarter press release, Herms defined Kuehne & Nagel's strategic focus and said, 'The transformation from a traditional forwarder to a global service provider is preceding swiftly.' Rolf is wasting no time in transforming Kuehne & Nagel's Western Hemisphere operations. Before year-end, Blue Anchor Line's less-than-containerload consolidation service will be separated, with its own organization structure. 'We will market our LCL business differently,' he said. 'To fit our logistics plans, we will set a new policy on partnering with carriers and, as a result, not necessarily be working with the same ones as now.' The shift in emphasis from forwarding to logistics is not as black and white. Rolf points out, 'As an international freight forwarder, we are already providing supply-chain management products.' He added, 'To insure that we have a second strong logistics leg we plan to acquire a true 3PL.' A deal is apparently imminent for a U.S.-based logistics firm. An announcement is expected by next month. Even sooner, Kuehne & Nagel USA will publicize its first joint venture in contract logistics. A logistics company in the Southeast will partner to open a vendor-managed inventory operation concentrating in electronic components for the automotive and high-tech industries. The vendor-managed inventory operation will serve suppliers and manufacturers in Canada, the U.S. and Mexico. 'This VMI will have the added value of our forwarding know-how and our partner's strength in managing the inventory hub operation,' Rolf explained. In the U.S., Kuehne & Nagel's business is split roughly 60-40 between imports and exports. The same ratio applies to the air freight and ocean cargo mix to and from the U.S. Globally, however, the company handles nearly twice as much by sea as by air. 'There is still a stigma that we are an ocean freight business,' Rolf said. 'Worldwide we move over 900,000 containers and are gaining. Our air freight performance is equally as strong, including a growing domestic air cargo market in the U.S.' This week, Kuehne & Nagel launched a twice-weekly 'Houston Express' air freight service to Luanda, Angola, to serve the oil business. A joint air service with Schenker between Atlanta and Frankfurt has increased its frequency to build upon Kuehne & Nagel's rail access to burgeoning manufacturing centers in eastern Europe. The challenges grow with each step Kuehne & Nagel takes into logistics. Rolf is not worried about encroachment by integrated carriers on K&N's air freight business, but he's watching their growth. In his opinion, ocean freight rates are still too low and he acknowledges that the Pacific competition is tough. He concedes that the Internet is a bit frightening in the way it will eventually affect transportation contracts, but Kuehne & Nagel is keeping pace in that area. The company has introduced its own web e-commerce offering, has spoken to competitors about a joint forwarders' website, and has signed on with some business-to-business dot-coms, such as Texbid. Rolf steadfastly believes that forwarders provide shippers with the best leverage in transportation logistics, by any mode. It sounds like the transformation has only just begun. Bill Ralph is president and publisher of The Journal of Commerce Group. He may be reached at bralph

oc.com.