Demand for airfreight depresses margins at DHL Global Forwarding

Business is booming, but contracted rates are lagging, according to the latest second-quarter numbers at DHL’s forwarding arm.

Sustained – and unexpected – demand for airfreight squeezed Q2 2017 profits at DHL Global Forwarding division, as shipping costs moved closer to rates that were locked in well in advance. However, across DHL’s  International Parcel, eCommerce and Global Express divisions, gains pushed operating profits up by 11.8 percent to €841 million for the quarter.

Deutsche Post DHL Group CEO Frank Appel said that, despite the margin pressure, the results put the company on track to achieve its EBIT targets for full-year 2017. “All of our divisions, thanks to their focus on fast-growing markets such as global e-commerce, are optimally positioned for long-term growth,” Appel said.

DHL Global Forwarding explained that it could not “immediately pass on the higher freight rates that have accompanied the market growth to customers in the form of higher prices.” That played out in Q2 airfreight volumes, which rose 11.4 percent to 990,000 tonnes, while air freight revenue rose at about half that rate – 5.7 percent, to €1.13 billion.

Airfreight rates in Asia were “nearly unchanged,” the company said, noting that they were comparable to peak-season rates from Q4 2016. As a result, DHL Global Forwarding said, revenue from the first half of 2017 only rose by 6.3 percent, while airfreight’s gross profits fell by 6.3 percent.

The latest results from one of the world’s largest forwarding operations reinforce reports of a high-volume, lower-margin early lead up to the 2017 peak season, which caught many forwarders unawares.

Panalpina posted a similar profit decline, for similar reasons. The Swiss forwarder saw airfreight volumes increased 7 percent in the first six months of 2017, while gross profit per ton decreased 10 percent.

And while DHL can be expected to pass those rates along to newer customers in the near future, there is evidence that that is already happening, at least at Panalpina, which advised shippers to book early to avoid high rates.

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