Freight forwarders led by Kuehne + Nagel International AG are prompting shipping firms including Maersk Line, the world’s biggest, to rethink their strategies after grabbing a chunk of the seaborne container market.
Kuehne + Nagel, the top sea-freight forwarder, and fellow- Swiss competitor Panalpina Welttransport Holding AG (PWTN) are joining Deutsche Post AG (DPW)’s DHL Global Forwarding and Deutsche Bahn AG’s DB Schenker unit in shifting focus from trade routes to target key industries such as pharmaceuticals, where shipments need close control throughout the journey.
The strategy has helped the cargo brokers, which act as middlemen between freight companies and manufacturers, to take a 35 percent share of boxed sea freight. That’s still far short of their near-domination of air markets, where forwarders handle 95 percent of cargoes, leaving “huge scope for expansion,” said Damian Brewer, an analyst at RBC Capital Markets in London.
“The shipping lines’ market share will drop below 50 percent in the next four to seven years,” Kuehne + Nagel Chief Financial Officer Gerard van Kesteren said in an interview at the company’s headquarters near Zurich. “They can’t fight it because they can’t offer the end-to-end solutions that global clients need.”
Kuehne + Nagel stock is down 3.6 percent this year, compared with a 15 percent decline in A.P. Moeller-Maersk A/S, of which Maersk Line is a unit. Panalpina, also based in Switzerland, has lost 7.9 percent in the period.
While shipping companies will still reap revenue from carrying containers, the rise of the forwarders will diminish their bargaining power over rates, said Janne Vincent Kjaer, an analyst at Jyske Bank A/S in Silkeborg, Denmark. It also means the shipping lines will have to better target the forwarders, which could soon hold sway over more than half their income.
“Freight forwarders are a large part of our business and it’s absolutely important that we produce solutions that are attractive to both forwarders and cargo owners,” Michael Blach, Maersk Line’s vice president for key client management, said in a June 20 telephone interview.
Maersk Line is responding by overhauling a business model that has barely changed in 35 years and swamps clients with paperwork, the Copenhagen-based company said.
The revamp will see Maersk seek to boost direct bookings with “one-click shipping,” imitating the web-based model, which discount airlines such as Ryanair Holdings Plc used to cut costs and strip traffic away from more established carriers reliant on travel agents, Chief Executive Officer Eivind Kolding said in a video posted June 7.
The system will also aim to boost reliability -- one in two containers shipped by sea currently arrives late -- and help cargo owners track consignments, Kolding said.
Still, Maersk and its peers can’t match the flexibility of top freight forwarders in meeting the needs of specialist industries such as drugs and technology, according to Kuehne + Nagel and Basel-based Panalpina, the fourth-largest forwarder.
“We have experts who can design the whole supply chain, an end-to-end solution for customers in specific industries,” which isn’t something most shippers can offer, Panalpina Chief Executive Officer Monika Ribar said in a May 24 interview.
Mirroring an industry trend, Panalpina adjusted its management structure last year to tailor products for “verticals,” or industries like pharmaceuticals, autos and technology, she said.
“Verticals are the future,” Kuehne + Nagel’s CFO said. “Take pharmaceuticals. You need highly temperature-controlled transportation. We have to prove to the customer that the temperature is not above or below strict limits.”
Kuehne + Nagel is also working on shipping electronic laptop computers by sea in a bid to boost its share of the high- tech market, van Kesteren said.
DHL is targeting the health care, technology, and energy sectors, said Thomas Nieszner, DHL’s European chief. The Deutsche Post unit is also offering customer-specific solutions in the automotive and retail industries.
“Our objective is to become the logistics partner of choice in selected target industry sectors,” Nieszner said in a written response to questions. “We see quite a shift from air to ocean and/or multi-modal transportation, which gives us great expansion opportunities.”
The integrated approach has led Kuehne + Nagel to make profit-sapping investments. The broker has added a European trucking network that barely breaks even and a contract logistics service that has a return on capital of less than 20 percent, compared with more than 100 percent for sea and air.
“It’s true that these investments are influencing our overall profit,” van Kesteren said. “But we have identified contract logistics and road freight as essential parts of the supply chain. It is because of these businesses that we can offer end-to-end solutions.”
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