Friday, November 9, 2012

Freight Forwarder Standards Up but Profits Down

Swiss Group Staff Cost Reductions to Aid Profitability
Shipping News Feature

BELGIUM – SWITZERLAND – Freight forwarder Panalpina’s operations at Brussels airport are the latest to obtain official Good Distribution Practice (GDP) certification which sets standards for the transportation and storage of medicinal products for human use, including levels of temperature and hygiene. This news came as Panalpina announced the precise details of a mixed set of third quarter results as anticipated last month with its air cargo performance impacting negatively on its figures despite a strong showing in its ocean freight and logistics divisions.

The firm provides supply chain services for the healthcare industry and the business accounts for around 5% of the company’s revenues. Panalpina’s newly GDP certified facility at Brussels airport has a dedicated area for storing pharmaceuticals in transit. Both Human and veterinary medicines can either be stored at between 2°C and 8°C or between 15°C and 25°C. The temperatures are constantly monitored and temperature sensitive cargo is handled by trained Panalpina personnel only.

The Belgian Federal Agency for Medicines and Health Products (FAMHP) audited Panalpina and issued the certificate. Panalpina’s operation at Amsterdam Schiphol Airport was already officially GDP certified in October 2011. The company’s operations at the Cargo Centre of Luxembourg’s Findel Airport were the first to obtain official GDP certification in June 2010. Next in line for certification is Panalpina’s US air freight hub in Huntsville, Alabama.

Panalpina’s recently published results shows that the company’s gross profit increased by 7%, year-on-year due to a solid performance in logistics and ocean freight but the firms air freight division showed a weak performance with an 8% decrease in volumes compared to the previous year, particularly painful for a company which tends to wet lease aircraft on long term contracts, which led the group to confirm that EBITDA came in at CHF 18 million. Speaking about the company’s recent financial announcement, CEO Monika Ribar said:

“There was light and shadow in the third quarter of 2012. On the one hand, Ocean Freight continued with historic record volumes and our investments into Logistics have clearly started to pay off as more and more customers entrust us with value-added logistics services. On the other hand, our performance in Air Freight was disappointing.”

The Group’s net forwarding revenue in the third quarter of 2012 went up by 10% year-on-year to CHF 1,721 million. Gross profit amounted to CHF 379 million in the third quarter, resulting in an increase of 7%. This was the highest quarterly gross profit in almost two years. Gross profit for the first nine months of 2012 came in at CHF 1,107 million, an increase of 1%.

Further market share gains in ocean freight led to the highest quarterly and year-to-date volumes ever in the Group’s history. For the first time, Panalpina forwarded more than one million TEUs in the first nine months of the year. Volumes in the third quarter were up by 5% compared to the previous year. Gross profit per TEU of ocean freight increased by 6% year-on-year and improved quarter-on-quarter as the carriers’ rate increases were passed on to customers in the third quarter. Gross profit in ocean freight reached CHF 122 million in Q3.

As reported earlier in October, Panalpina’s air freight division performed disappointingly in the third quarter. Volumes decreased by 8% compared to the previous year. Europe-related trade lanes were hit hardest and particularly customers in high-tech, telecom and chemicals shipped significantly less by air. In addition, the trend towards smaller shipments was accentuated. Gross profit per tonne of air freight increased by 4% year-on-year and remained stable quarter-on-quarter. Gross profit in air freight amounted to CHF 158 million in Q3.

Various new business wins led to a strong gross profit growth in the logistics division. Gross profit increased by 23% year-on-year in the third quarter and reached CHF 100 million. The gross profit margin in logistics exceeded 44% for the first time in the Group’s history.

Due to the weak air freight and a higher cost base, the third quarter EBITDA came in at CHF 18 million. The operating expenses were inflated by a one-off extraordinary charge of CHF 12.7 million for accrued salaries of staff leaving the company. The underlying EBITDA-to-gross profit margin fell to 8%. The Group’s consolidated profit amounted to CHF 4 million in Q3. For the first nine months of 2012, a loss of CHF 19 million resulted because of the provisions of CHF 59 million for the EU and Swiss antitrust fines made in the first quarter.

As stated previously Panalpina expects quarterly cost savings of CHF 6 to 8 million mainly due to a recent reduction in personnel expenses to take effect as of the fourth quarter. The company expects the air freight market to contract by 3-4% for the whole year. In ocean freight, a market growth of 2-3% is expected.