Forwarders more focused on airfreight will fare better this year than those with a higher exposure to ocean freight, an investment bank said today.
In a discussion on the outlook this year for DHL, Kuehne + Nagel, and DSV, Jefferies said its order of preference for investment would be DHL, DSV both ranked ‘buy’, and then K+N – ‘hold’.
“For ’25, we prefer air to sea, which is favourable for DHL,” Jefferies wrote in a research note.
It explained: “Although air will face the de minimis volume challenge, we are more positive [on] air than sea. This is due to the relative cost of air vs sea, which is closer to lows, and the supply dynamics in each mode. Lower relative rates should mean more resilient air rates, though changes to de minimis laws in the US is a risk.
“The potential saviour is that air freight supply can react faster than sea freight supply.
“The risk for rates in container shipping is also to the downside. The Red Sea opening would add >10% effective capacity and incremental supply from a large orderbook (4%-7% growth pa in ’25-27) and regulatory changes (US port fees) may extend the weak market into ’26/’27. This favours DHL.”
DHL has a “leading position in integrated air”, making it “well-positioned to benefit from more favourable market fundamentals”.
Jefferies added that DHL had built capacity in express ahead of demand, leading to cost inefficiencies and lower margins.
“Express has seen high levels of investment in recent years, with the addition of 22 new 777 freighters. This drove assets growth at a much faster rate than demand in ’21-24, and led to under-utilisation of the network.
“With asset growth slowing we expect this trend to reverse, which will drive strong positive operating leverage. Utilisation of assets appears to be down 15%-20% in ’22-24.”
But it added that DHL was bringing costs under control. Last week DHL confirmed it would cut 8,000 jobs in its Post & Parcel Germany division this year, part of its efficiency and cost-focused ‘Fit for Growth’ programme. This will include improving its cost base by more than €1bn.
Jefferies said: “Demand has yet to improve, but cost actions are bringing the network back into balance.”
It added that it expected industrial weakness in Europe to improve, and that as well as being confident in the express product, it also saw ecommerce as a strength.
“DHL is the top pick in transport,” it said, adding that any challenges looked cyclical, rather than structural.
The differentiator for DSV, of course, is the acquisition of DB Schenker, which Jefferies expects will see €600m in synergies, and a total contribution of Dkr12.6bn (€1.68bn) from the integration.
It said DSV’s integration with Agility and Panalpina “boosted ebit by +51% and +58% versus 2018”.
“It is likely more M&A will follow, though is likely to be smaller. Accompanying this has been an aggressive capital allocation framework, both issuing and repurchasing shares to fund acquisitions. This has been a highly successful strategy.”
But it did note that M&A would be “harder”, “with ever larger acquisitions needed to move the needle”.
Jefferies said Kuehne + Nagel’s valuation was in line with DSV, with the pair matched on an “organic growth basis”.
“KN is more likely to announce new acquisitions, however, to date these have been bolt-ons.”
Jefferies has issued a hold recommendation for K+N, in part because of its heavier exposure to ocean freight.
“Kuehne + Nagel has the largest exposure to sea; circa-50% of ’24 ebit (vs circa-40% for DSV and 10% for DHL). We expect rates in this market will come under pressure in ’25 with any resolution in the Red Sea opening up shipping capacity (circa-10% more capacity), impacting freight rates.
“We see the downside risk to rates as higher in sea than air. The primary risks in air are reduced ecommerce volumes from de minimis rule changes and shorter routes from any potential Russia/Ukraine ceasefire. We expect freight rate softness in sea will linger into ’26/’27, with significant new capacity coming online in containers (4%-7% fleet growth in ’25-28).”
It added however that K+N was looking to “grow margins through strategic pricing and/or cost savings”, in part through a better customer mix – it said in its annual results that some volumes in sea were being “deselected”. It also had few organic growth opportunities.
“Within the highly cash-generative forwarders, the rate outlook is likely flat to down, though DSV will deliver growth from synergies (circa-20% ’24-28) and trading in line with K+N. Our order of preference is DHL (Buy), DSV (Buy), and K+N (Hold).”
