Getting the balance right
Peter Ulber, Executive VP for sea and air logistics at Kuehne + Nagel International, on business strategy and why the Asia Pacific is increasingly important to its success
IFW: You have claimed that, in Asia, KN is the market leader in sea freight and in the top-three in air. How have you managed to secure such a strong position?
Ulber: Apart from excellent service, we have other advantages which have helped us grow. As a market leader, we have very large volumes to work with, and we always try to balance our trades. That makes us very attractive to air and ocean carriers.
We moved more than 2.5 million teu using ocean carriers last year. These volumes allow us to contract with a vast number of carriers and we can offer daily departures from most ports to most ports. And we can get our customers the best service and price, as we’re neutral.
The overall ocean market amounts to about 140 million teu a year. About 35% of that is forwarder-controlled and 65% still carrier-controlled. But every year the percentage shifts from carrier to forwarder, and the reason is the value-added services that forwarders can offer.
Last year did not help the carriers. They lost a lot of money, which makes it hard to invest. And shippers have more and more requirements, which is why we’re growing faster.
IFW: It was put to IFW recently that, in effect, large forwarders are “eating the carriers’ dinner”. Is there any truth in that?
Ulber: Forwarders don’t set the rates, carriers do. We are not the ones who let the market go up and down, and we didn’t place the ship orders. Carriers and logistics companies have completely different business models: one is asset-based, the other non-asset based. Not even 50% of our result on sea is about buying and selling on rates, the rest is order management and value-adding. KN’s big plus for shippers is that we can do the whole supply chain with complete visibility, not just the sea leg.
IFW: There have been reports that slow-steaming strategies employed by many container lines impact supply chains by increasing transit times and mean promised reliability improvements have not materialised. Does this make it more difficult for forwarders to meet service guarantees to customers?
Ulber: I think slow-steaming will stay around for as long as there is more capacity in the market than volume. Longer transit times and less reliability just increase demand for more visibility. Shippers need to know where their inventory is.
IFW: How would you describe the air freight market this year, compared with 2009?
Ulber: Volumes are increasing even faster than for sea freight, year-on-year – up over 30% in the first quarter.
IFW: KN’s first-quarter results saw global ocean volumes up 17% year-on-year, but ebitda fell 4.9%. How does that happen?
Ulber: When rates are falling, we’re more profitable. When they rise we are less so. The reason for this is the lag between the change in rates and the time it takes to pass the higher costs on to customers. It’s not unique to that first quarter, it’s a traditional trend.
IFW: How do you think global container volumes will hold up over the course of the year?
Ulber: We were positively surprised by the first quarter – it exceeded our expectations. We were expecting global container movements to grow by about 5% on last year. Some are saying it could be 10%, but at the moment we’re thinking about 7%. So at that rate of global growth, we would expect to outperform the market, as we have over the past 10 years. So we’d be looking for double-digit growth. In the first quarter the market was up 12-15% on the lows of the first quarter of 2009. We were up 17%.
IFW: How does Asia fit into those numbers?
Ulber: The Asia numbers are higher. Our growth to, from and within Asia has been, and will be, higher than 10%.
IFW: There is always a lot of focus on Asia-Europe and Asia-US trade lanes for both air and ocean, but intra-Asia volumes and growth prospects are immense. How important is this business to KN?
Ulber: Intra-Asia is becoming more and more important for air and sea. It’s growing at a very, very fast rate. We got involved in it quite early.
Long-term, I see it as one of our biggest activities globally. Already intra-Asia is the biggest ocean container trade, and it’s growing for us every year. At the moment, a lot of this traffic is managed by agents.
IFW: How would you explain your business in terms of footprint and market penetration across Asia?
Ulber: We are well represented across Asia, where we employ more than 5,500 people. The majority are in air and sea, but we have also entered contract logistics and now operate 450,000sq metres of warehouse capacity.
The next step is entering domestic markets by establishing national distribution networks in places like India and China.
Ulber: Apart from excellent service, we have other advantages which have helped us grow. As a market leader, we have very large volumes to work with, and we always try to balance our trades. That makes us very attractive to air and ocean carriers.
We moved more than 2.5 million teu using ocean carriers last year. These volumes allow us to contract with a vast number of carriers and we can offer daily departures from most ports to most ports. And we can get our customers the best service and price, as we’re neutral.
The overall ocean market amounts to about 140 million teu a year. About 35% of that is forwarder-controlled and 65% still carrier-controlled. But every year the percentage shifts from carrier to forwarder, and the reason is the value-added services that forwarders can offer.
Last year did not help the carriers. They lost a lot of money, which makes it hard to invest. And shippers have more and more requirements, which is why we’re growing faster.
IFW: It was put to IFW recently that, in effect, large forwarders are “eating the carriers’ dinner”. Is there any truth in that?
Ulber: Forwarders don’t set the rates, carriers do. We are not the ones who let the market go up and down, and we didn’t place the ship orders. Carriers and logistics companies have completely different business models: one is asset-based, the other non-asset based. Not even 50% of our result on sea is about buying and selling on rates, the rest is order management and value-adding. KN’s big plus for shippers is that we can do the whole supply chain with complete visibility, not just the sea leg.
IFW: There have been reports that slow-steaming strategies employed by many container lines impact supply chains by increasing transit times and mean promised reliability improvements have not materialised. Does this make it more difficult for forwarders to meet service guarantees to customers?
Ulber: I think slow-steaming will stay around for as long as there is more capacity in the market than volume. Longer transit times and less reliability just increase demand for more visibility. Shippers need to know where their inventory is.
IFW: How would you describe the air freight market this year, compared with 2009?
Ulber: Volumes are increasing even faster than for sea freight, year-on-year – up over 30% in the first quarter.
IFW: KN’s first-quarter results saw global ocean volumes up 17% year-on-year, but ebitda fell 4.9%. How does that happen?
Ulber: When rates are falling, we’re more profitable. When they rise we are less so. The reason for this is the lag between the change in rates and the time it takes to pass the higher costs on to customers. It’s not unique to that first quarter, it’s a traditional trend.
IFW: How do you think global container volumes will hold up over the course of the year?
Ulber: We were positively surprised by the first quarter – it exceeded our expectations. We were expecting global container movements to grow by about 5% on last year. Some are saying it could be 10%, but at the moment we’re thinking about 7%. So at that rate of global growth, we would expect to outperform the market, as we have over the past 10 years. So we’d be looking for double-digit growth. In the first quarter the market was up 12-15% on the lows of the first quarter of 2009. We were up 17%.
IFW: How does Asia fit into those numbers?
Ulber: The Asia numbers are higher. Our growth to, from and within Asia has been, and will be, higher than 10%.
IFW: There is always a lot of focus on Asia-Europe and Asia-US trade lanes for both air and ocean, but intra-Asia volumes and growth prospects are immense. How important is this business to KN?
Ulber: Intra-Asia is becoming more and more important for air and sea. It’s growing at a very, very fast rate. We got involved in it quite early.
Long-term, I see it as one of our biggest activities globally. Already intra-Asia is the biggest ocean container trade, and it’s growing for us every year. At the moment, a lot of this traffic is managed by agents.
IFW: How would you explain your business in terms of footprint and market penetration across Asia?
Ulber: We are well represented across Asia, where we employ more than 5,500 people. The majority are in air and sea, but we have also entered contract logistics and now operate 450,000sq metres of warehouse capacity.
The next step is entering domestic markets by establishing national distribution networks in places like India and China.
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