Freight move

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Following the disposal of its Logistics business to a private equity company, Dutch mail and express company TNT NV this month announced its decision to divest its Freight Management business unit. Many analysts were surprised that it had not been included in the earlier sale of its Logistics unit, and the decision was not unexpected.

TNT Freight Management originates from Wilson Logistics which was acquired by TNT in 2004. The business unit employs 2,300 people, operating from 126 offices in 28 countries with a significant presence in the Nordic region. It represents approximately ?800 million in annual revenues.

The obvious question surrounds the eventual buyer of the business. Freight forwarding is presently fashionable amongst the financial community due to its ‘asset light’ business model, the high volumes of international trade and the counter-cyclical nature of the sector. This could see another private equity company step in – also looking to groom the company for onward sale.

Levels of growth
However a trade sale should not be ruled out although many freight forwarders interested in increasing their scale would prefer to invest in a company with a stronger presence in Asia Pacific, where highest levels of growth are presently being experienced. Some analysts have put a price tag of ?400m on the unit.

At the same time TNT announced its 2006 third quarter results. Group revenues were up 9.0 per cent to ?2,938m through mostly organic growth. Profit from continuing operations was up 5.0 per cent to ?169 million including a 31.3 per cent increase in Express operating income. Express saw double digit revenue growth, with record volumes and a record third quarter margin of 8.8 per cent.

Also during the period Swiss based logistics group Kuehne + Nagel released its results for the first nine months of 2006. Turnover increased 31.8 per cent to ?8,362m. Its operating profit (EBITDA) improved 53.1 per cent to ?384m.

According to management, business performance was characterised by strong growth in sea and airfreight particularly in the third quarter, as well as business expansions in contract logistics and overland operations as a result of the integration of recent acquisitions.

Kuehne + Nagel is investing in the expansion of its overland operations and has over the past months gradually come closer to the goal of operating its own European network. Increased cooperation between the company’s national organisations across Europe and the successful integration of acquired firms contributed to a 21.0 per cent increase in turnover.

In contract logistics, K+N stated that the integration of the ACR Group was progressing to plan and generating ‘strong impulses’ for cross-selling activities. Due to this acquisition and a 12 per cent organic growth, turnover in this business unit was almost tripled. EBITDA margin rose from 4.5 to 4.9 per cent.

DHL meanwhile released a statement confirming that construction work at its European hub at Leipzig/Halle, which began at the start of 2006, is progressing well and is on schedule. The company believes that other companies and service providers will then create an additional 7,000 jobs in the region as the result of such a project. DHL is investing around ?300 million in the project and a total of 400 DHL employees are already working at the evolving hub, where structural work is almost finished. The hub will consist of a 48,000 square-metre distribution centre and an approximately 23,000 square-metre hangar.

Consolidation in the UK logistics market is continuing. Wincanton acquired Lane Group plc, a home delivery specialist. Wincanton’s existing home delivery customers such as B&Q and Comet will be added to by Lane’s customer base which includes brands and retailers Homebase, Magnet, Electrolux and Bosch.

Strong growth
According to the company, the home delivery market is a growing one, estimated to be worth ?55.3bn during 2005, driven by the growth in internet shopping and multi-channel retailing. It believes the sector is ripe for improvement as the demands on home delivery operations become increasingly complex and smaller companies find it difficult to respond.
Finally, the potential impact of the ‘global warming’ issue on the transport market has crept closer with the release of a report by the British Government on the economics of climate change and lower carbon emissions.

The report, by the former World Bank economist Sir Nicholas Stern, attempted to model the costs of the effects of global warming using the type of risk calculations found in financial markets. It has estimated that reducing carbon emission to the levels required to mitigate global warming will cost around one per cent of GDP per annum for a country such as the UK.

In particular discussion is focusing on transport. Internal government papers have suggested that ‘Value Added Tax’, running at 17.5 per cent, could be applied to aviation fuel and that tax rates on petrol and diesel – already running at 70 per cent – could be increased even further. The apparent objective of these tax rises is to suppress demand for transport but at the same time may well have a disastrous impact de-stabilising the market.

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