The larger you are, the harder it is to shove you aside.
This basic fact of physics can be seen in The Power 25, Air Cargo World’s list of the top 25 largest freight forwarders in airfreight, based on tonnage last year.
Many of the familiar brawny players – DHL Global Forwarding, Kuehne + Nagel, DB Schenker, Panalpina, Expeditors, etc. – are right where they should be, bunched up at the top of the mountain, wielding impressive revenue and tonnage totals.
Take a closer look, however, and you’ll see a few names from the lower half creeping up the slope – not necessarily unknowns, but ones that you may not have expected see leapfrogging a few notches ahead. Firms like Dimerco Express (No. 21), DSV (No. 16) and GEODIS (No. 18), all of which experienced significant growth in tonnages handled in 2014. Evan Armstrong, president of Wisconsin-based Armstrong & Associates, Inc., which calculated this list of the world’s top 25 forwarders, said that there is a theme running through the companies – large and small – who made moves up in the 2014 rankings.
“Generally, the biggest macro trend we see is that the ones with the integrated solutions seem to be the best cross-sell,” he said. “The forwarders that have their own warehouses – that are building up their footprints, that are acting most like the global integrators – are doing the best on the list.”
We welcomed a few other new names on the Power 25 chart, although they are hardly strangers in the business (FedEx Trade Networks & Supply Chain, Pilot Freight Services, Hitachi Transport System). There are also a few notable names not listed (C.H. Robinson, Pantos Logistics, Toll Holdings) – some because of lagging performance, while others have made a recent splash through acquisition that occurred in early 2015, and will certainly be on the “ones to watch” list for next year.
Size still matters
For all the agility of the smaller players in the market, there is no denying the power of size. In fact, the 10 largest players in the forwarding business currently control 35 percent of the global market.
Sitting atop the list, as usual, is DHL Supply Chain & Global Forwarding, with US$32.19 billion in gross revenue and an untouchable 4.05 million tonnes of airfreight handled in 2014 – about as much as the combined tonnage handled by its four nearest competitors. Kuehne + Nagel (No. 2) saw a 3 percent rise in revenues to $23.29 billion, compared to 2013, and enjoyed 5.3 percent growth in airfreight tonnage to 1.19 million last year, while DB Schenker Logistics (No. 3) had a more modest – but still impressive – 2.5 percent increase in tonnage to 1.11 million, compared to 2013. Expeditors International was No. 7 in 2014, but it continued its awe-inspiring run of vigorous growth, increasing its overall revenue by 8 percent to $6.57 billion and its airfreight handle by 7.7 percent to more than 823,000 tonnes.
Worldwide, the state of the industry is “very good,” Armstrong said. While he said some of that success came at the expense of seafreight during the West Coast port congestion crisis at peak season, “we’ve seen growth rebound strongly as the global economy recovers.”
The estimated global value of the third-party logistics business in 2014 is about US$723 billion, he said, $238 billion of which was attributable to international transportation management. This means that, from 2010 through 2014, the entire 3PL business has had a compound growth rate of 3.5 percent. More recently, the industry saw a 4.9 percent jump from 2012 to 2014.
Integrators make their moves
With integration the name of the game, it’s no surprise that the forwarding arms of two classic integrators, UPS and FedEx, made significant moves up the Power 25 chart. With a 2.4 percent growth in revenue to $5.76 billion and a 2.6 percent increase in air cargo to 912,500 tonnes, UPS Supply Chain Solutions jumped ahead two spots to secure No. 4 on the list.
One key to the success of UPS is the movement of heavy freight, said Steve Flowers, the president of UPS Global Freight Forwarding. He said that when UPS acquired San-Francisco-based Fritz Forwarding in 2001 and Menlo Logistics around the same time, these acquisitions were intended to fulfill its customer’s needs for shipping heavy freight. “These were other modes of transportation we didn’t have 10 years ago,” Flowers said. The acquisitions also gave UPS ground access and partnerships with other airlines it didn’t have before.
Alan Amling, UPS vice president of global logistics and distribution, said that “the size of UPS’s network – and all that it entails – continues to be a significant differentiator.” He said his customers fluctuate up and down with needed services. For example, many ocean freight customers had to upgrade to air during the West Coast port crisis.
UPS has also invested heavily in the healthcare sector in the past three years with temperature-controlled units for pharmaceuticals or medical equipment. “We serviced all the major electronics manufacturers,” Flowers said. “They need airfreight when it needs to be at market on a certain date.”
Not to be outdone by its chief rival, FedEx Trade Networks and FedEx Supply Chain, the forwarding arms of FedEx Corp., muscled their way onto the Power 25 list, debuting at No. 20, with 250,000 tonnes handled last year and 2014 gross revenues of $1.46 billion. In the last year, FedEx said it built out its freight forwarding capabilities for bulk shipments through FedEx Trade Networks air and ocean services, and now has expanded to 27 countries, with more than 70 offices outside the U.S.
Shifting in the lower ranks
Also in the lower tier of the Power 25, many other forwarders with ambitions of growing into full-scale integrators are also jockeying for position. For example, Taiwan-based Dimerco Express is one of the leading forwarders on the list, not in revenue, but in freight growth, Armstrong said. The $560 million in gross revenues for 2014 was relatively small, compared to most of the other billion-dollar companies on the list. But the revenue figure represents a remarkable 16.4 percent increase over 2013.
Currently listed No. 21 overall, Dimerco, specializing in high-tech customers, such as ACC TECH and Foxconn, earns about 80 percent of its revenue comes from Asia and about 18 percent from North America. “Their success is tied to high-tech trends,” Armstrong said. “Even at the slower growth rates we’ve seen in China, manufacturing activity there is still fast for the rest of the world.”
Andy Hsu, vice president of Dimerco Express Group, said the company’s various integrated, intermodal logistics and warehousing services will help connect mainland China to the rest of the world more cost-effectively than any single mode of transport. Dimerco has 139 offices in 17 countries, including 70 offices in China, which contribute to more than 70 percent of the firm’s airfreight revenues in 2014.
Hsu said he expects to see continuous demand for LED panels, cell phones, solar panels and wearable consumer electronics for the next few years in China, noting that “the product life cycle of most electronics become shorter and shorter nowadays.”
Besides Southeast Asia, Hsu said South and Central Asia and Eastern Europe markets are “growing sharply.” Regarding the recent problems stemming from the West Coast port crisis, Hsu said Dimerco’s ties to the railroads had provided an alternative solution by developing “modern-day silk roads.” Utilizing bonded rail transportation between China (Suzhou/Chongqing/Man-Zhou-Li) and Central Europe (Warsaw/Duiburg), he said Dimerco can ship goods securely and with temperature control via rail that is 70 percent cheaper than airfreight and arrives 20 days faster than seafreight.
From Denmark, DSV A/S, is another fast riser that is expanding globally. “It used to be a Eurocentric firm, but has recently branched out, especially with contract logistics, warehousing and other integrated solutions,” Armstrong said. Some of its clients include automotive and high-tech firms, such as HP, Hitachi, Philips, Porsche, Pirelli and Volvo. Currently ranked No. 16, DSV had a 10.9 percent increase in 2014 in airfreight to 288,000 tonnes. Besides the obvious Asian and U.S. markets, DSV is looking to expand in South Africa and South America. DSV had acquired several smaller companies in 2012 and 2013, and also opened new offices in the U.S., Mexico, Brazil, Peru and Colombia. Last year, the company completed its integration of the Swift Freight Group in South Africa.
“Following several years of low growth rates, the global airfreight market picked up speed with an estimated growth rate of 3 to 5 percent in 2014,” said Jørgen Møller, managing director of DSV’s Air and Sea Division. Jens Bjørn Andersen, DSV’s CEO, said the freight volume growth rate for 2014 was considerably above the average market growth rate, which led to an increase in operating profit by more than 11 percent.
Kintetsu World Express (KWE), ranked No. 5, saw its airfreight tonnage fall by 5.6 percent in 2014, but it recently announced that it was purchasing forwarder APL Logistics from Neptune Orient Lines for $1.2 billion. While Armstrong said the merger wouldn’t add many airfreight tonnes to KWE’s total, it would significantly expand the company’s 543,000 twenty-foot equivalent units (TEUs) of oceanfreight by 133,000 TEUs. Kintetsu also has a good warehousing operation in the U.S. and can supply lead logistics for high-tech firms like Lenovo, as well as companies in the automotive sector.
KWE, a wholly-owned subsidiary of Kintetsu Railway, has developed its logistics network to support consumer electronics from Japan – a market that is “somewhat limited” now, said Tom Smith, Kintetsu’s senior executive officer, administration and procurement. Many Japanese companies have moved their manufacturing overseas after the 2011 earthquake and tsunami, he said. “Electronics is still an important vertical market for us, but it’s stagnant, so we are utilizing our existing network to promote automobile manufacturing, aerospace and healthcare business,” Smith said.
APL’s core business is different than KWE’s, with strength in finished automobiles, retail and industrials, which Smith said will bring a great deal of synergy to the company. APL is Singapore-based but Smith said its largest customer base is in the U.S., while KWE’s is Japan. Although he considers APL to be a full-range logistics service, it is APL’s strong intermodal network, trucking, contract logistics and buyer’s consolidation services that will have the most impact. With this acquisition, Smith said he expects KWE will become a truly global, well diversified logistics leader.
India on the horizon
As for the rest of 2015 and 2016, the analysts at Armstrong & Associates are fairly positive that the gains of 2014 will continue in most regions. “We expect the 2014 to 2016 rate of growth to be 5.6 percent,” said Evan Armstrong. “We’re seeing better growth in India and China and North America. Europe and South America, however, continue to have slow growth.”
Kintetsu’s Smith agreed with Armstrong that India is a key market of the future. KWE has created a joint venture with Gati, which Smith calls “the FedEx of India,” to form Gati-Kintetsu Express. Gati has 4,000 trucks in India. KWE has bincreasing its focus on Asia, while expanding its network with cross-border trucking services, while expanding into new markets such as Mexico, Brazil, Bangladesh, Cambodia, Myanmar and Turkey.
Dimerco’s Hsu said he sees a promising future for the forwarding market in 2015, especially in China and its e-commerce boom. But he said he also will place more emphasis on new investment in South Asia, including setting up new office in Mumbai, India, and expanding operations in Vietnam, Indonesia and Cambodia.
That doesn’t mean Asia is the only region with opportunity, Hsu said. Because of the depreciation of the euro, Dimerco will focus on export shipments from Europe and set up a new office in Rotterdam. In that location, he will be able to cooperate more closely with Dimerco’s strategic partners in Germany, France, U.K., Italy, Czech Republic and United Arab Emirates.
The forwarding industry, Armstrong said, has evolved from a fragmented business to a more consolidated industry in the last few years. “Europe has a more mature market, so there may not be much more M&A activity there, but we’ve seen quite a bit of it in the U.S. and Asia,” he said. “There will probably be more mergers and acquisitions if the economy stays hot.”
SIDEBAR
Panalpina marches to its own beat
Based in Basel, Panalpina has roots in the Swiss Alps that stretch back to 1834. The company used to call itself “Alpina” because it connected Northern and Southern Europe across the mountains. Today, as a worldwide forwarder with 80 offices and 16,000 employees, Panalpina has a reputation of doing things a bit differently than the rest of the forwarding industry.
For starters, unlike most forwarders that rely on other companies to supply aircraft, it maintains what it calls its “Own Controlled Network,” consisting of two 747-8 freighters, ACMI-leased through Atlas Air and based out of Panalpina’s main hub in Huntsville, U.S. “In Huntsville we can be on the ramp in 10 minutes, and be offloading immediately, getting goods on the trucks,” said Sara Vermeulen-Anastasi, corporate head of marketing and communications with Panalpina.
Last year was a good one for the company, with growth driven mostly by the healthcare and automotive industries, especially in the trans-Pacific corridor, Vermeulen-Anastasi said. In 2014, Panalpina, ranked No. 6 on the Power 25 chart, handled 858,000 tonnes of freight, a 4 percent increase over 2013. The company uses a three-tier logistics point of view, which includes ground handling, customs brokerage and value-added services, such as bagging and tagging when dealing with fashion, or a cool, temperature-controlled environment for healthcare. Shipments can be split for final destination, and Panalpina offers electronic air waybills.
Later this year, Panalpina will celebrate the 25th anniversary of the Luxembourg to Huntsville route, called “Dixie.” All of its frequencies have names that pay homage to the route’s destination. For example, Huntsville to Viracopos (VCP) in Brazil is called “Brazil Wings.”
“It gives a bit of color to our routes,” Vermeulen-Anastasi said. Other routes include the recently added Luxembourg to Shanghai via Baku, the capital of Azerbaijan, operated by a Silk Way West 747-8 freighter. –Linda Ball
Three to watch for next year…
Kerry Logistics
Although Kerry dipped one notch to No. 17 on the list, Evan Armstrong, of Armstrong & Assocaites, cited the Hong Kong-based logistics form as a strong performer in 2014 that may make some big moves this year. “We worked with Kerry during their IPO in 2013,” he said. “They had set aside 51 percent of their proceeds from the IPO for future acquisitions.” Last year, Kerry’s revenues rose by 5.7 percent to $2.72 billion, while airfreight tonnage increased by 1.5 percent to 282,200 tonnes. With about 45 million square feet of warehouse space globally, Kerry has been making inroads into the mainland Chinese market.
Toll Holdings
Coming in at No. 25 last year, Toll Holdings missed the Power 25 cut this year. However the Aussie logistics provider may make a larger dent in the market next year if the planned US$5 billion takeover by Japan Post comes to fruition. Through various acquisitions, Toll has expanded freight forwarding services into Southeast Asia, China, the U.S. and Europe. According to Christopher Whitefield, Toll’s group manager, media and research, airfreight volumes at Toll fell slightly to 60,200 tonnes, but its gross profit margin rose slightly to 21 percent “through various yield initiatives.” Supply chain management improved significantly, with the implementation of new customers, including Family Dollar, Abercrombie & Fitch, ITW Proline, Homeworks WW and Gardman. However, global forwarding markets remained difficult, with capacity continuing to increase while modal shift toward seafreight continued. As for Japan Post’s influence, the company’s President Toru Takahashi said Toll’s expertise in forwarding and logistics will be “most important for Japan Post’s future expansion in Asia, Europe and North America.”
XPO Logistics/Norbert Dentressangle
Neither company cracked the Power 25 this year, but should all go well in the planned US$3.56 billion purchase of France’s Norbert Dentressangle logistics firm by U.S.-based XPO Logistics, we may see a new entry in the top 10. Revenues of the combined firms are expected to reach $8.5 billion, which would place it between DB Schenker and UPS Supply Chain Solutions in the No. 4 spot on this year’s rankings. If approved, the merger will give XPO access to 7,700 owned trucks, 3,200 trucks contracted through owner-operators and access to an additional 12,000 independent carriers. XPO plans to rebrand the fleet and entire operation under the name XPO Logistics. The company expects to have 52,350 employees at 863 locations in 27 countries. We expect to see a lot more about XPO in the next Power 25.