Kuehne + Nagel Shares Slip After Disappointing Quarter for Sea Logistics

Kuehne + Nagel International AG (KHNGF), a leading global logistics provider, has seen its shares slip following a disappointing quarter for its Sea Logistics segment. The company's net turnover in the first quarter of 2024 amounted to CHF 5.5 billion, with an EBIT of CHF 376 million and earnings before minorities of CHF 278 million. These results were lower overall and impacted by negative exchange rate effects of 3% relative to the prior year.

The Sea Logistics segment, which contributed significantly to the Group's result, faced several challenges during the quarter. Net turnover for Sea Logistics decreased by 28% compared to the previous year, with gross profit and EBIT also declining by 27% and 43%, respectively. The conversion rate, which describes the ratio of EBIT to gross profit for the group, stood at 18% in the first quarter of 2024, significantly higher than the pre-Covid value of 12% in the first quarter of 2019. However, the figures are still below the corresponding pre-pandemic levels.

Stefan Paul, CEO of Kuehne + Nagel International AG, attributed the disappointing performance to a challenging environment and the company's focus on efficiency and streamlined structures. He also mentioned the acquisition of City Zone Express, a Penang, Malaysia-based Road Logistics service provider, which is expected to strengthen the company's offerings in cross-border transportation in Asia.

The Red Sea crisis and vessel diversions around Africa have also impacted Kuehne + Nagel's sea freight operations. The crisis has led to ship diversions, which increases travel times and affects the prices of consumer goods, ultimately impacting consumer sentiment and demand. The situation has also impacted the global on-time performance, with the year starting at a record-low rate of 47.1%. Although it rebounded to 51.2% in March, it remains considerably below 2023 levels.

The slow recovery of the Panama Canal has also affected Kuehne + Nagel's sea freight operations. The improved weather conditions called for an increase in the number of vessels allowed to transit through its locks. However, the recovery is still in its early stages, with the number of transits through the neopanamax locks being 18%-20% lower than in the same month in 2022 and 2023, and Panamax locks experiencing a 36% decrease in transits.

In conclusion, Kuehne + Nagel's disappointing quarter for Sea Logistics has led to a slip in its shares. The company's focus on efficiency and streamlined structures, as well as its strategic acquisition of City Zone Express, may help mitigate these challenges and improve future performance. However, the current geopolitical landscape, particularly the Red Sea crisis and the situation in the Panama Canal, continues to pose significant risks to the company's sea freight operations and overall financial performance.