Analysis: Kuehne + Nagel on a slow path to value destruction?
There could something fundamentally wrong in an industry where the market leader and other players ...
A foray by Kuehne + Nagel into the perishables market in the US has ruffled few, if any, feathers.
The multinational forwarder announced at the end of January that it had struck an agency agreement with Los Angeles-based Commodity Forwarders Inc (CFI), one of the leading perishables specialists in the US.
The deal goes some way towards closing a strategic gap for KN. Its global perishables network has lacked a presence in the US that would extend to the US-Asia tradelane. In 2012, the company established a first foothold in the North American perishables market when it signed an agreement with Perishables International Transportation to acquire the Vancouver-based forwarder’s book of business.
Growing the perishables business has been one of five key areas in KN’s drive launched four years ago to double turnover and the bottom line by the end of 2014. Since then it has made a number of strategic acquisitions in New Zealand, Africa and Latin America.
The firm’s management has not commented on speculation about plans to acquire a US-based perishables forwarder, but such a step would be in line with efforts by multinational logistics firms to establish a presence in the market.
“It is no secret that some of the big groups have tried to buy Able [Freight] and CFI,” said Neil Shah, chief commercial officer of Able Freight, CFI’s main rival in the US.
Perishables are attractive because this traffic has continued to grow year on year – even during the downturn of 2009 – and because perishables constitute steady and dense loads, Shah observed.
Taking over an existing player is an attractive route for a multinational forwarder to gain a foothold in this market, he added.
“Perishables are traditionally dominated by niche players, because the customer base is fragmented. There are many ‘mom and pop’ exporters and small brokers who trust these smaller specialists for their transportation,” he said.
According to Kuehne + Nagel, the agreement with CFI will allow the companies to jointly develop and offer state-of-the-art transport solutions to the perishables marketplace.
“The two companies have committed to work collaboratively, leveraging their respective market-leading capabilities, perishables expertise and advanced information systems, to deliver custom-tailored logistics solutions to and from the United States via all modes of transport,” the firm said in its announcement of the deal.
Chris Connell, president of CFI, described the alignment primarily as a handling agreement, under which his company would process and distribute inbound perishables traffic for its larger partner, as KN’s temperature-controlled infrastructure in the US is limited and chiefly geared to pharmaceuticals. On the outbound side, his company has sufficient leverage of its own with carriers for space, but there are areas where Kuehne + Nagel may play a role.
“It depends on customer needs. We work with a range of perishables specialists already, and these remain in place, but there will be markets where Kuehne + Nagel can add value,” he said.
He emphasised that the confidentiality of vendor and customer information would be maintained, adding that CFI’s management had no intention of being taken over in the long run.
“CFI is not for sale,” he said, and Mr Connell has no concerns about CFI’s ability to accommodate its larger partner’s volumes.
“We added about 40% to our cooler capacity in LA last year. We may need to tweak San Francisco a bit, but the rest of the network is okay. In Seattle we are going through an expansion now,” he said.
Mr Shah is unfazed by the alignment of his competitor, noting that the deal is not a takeover agreement and no equity is involved.
“I think they are going to test the waters to see what they can do together,” he said.
“Am I worried about it? Absolutely not. I don’t think it changes the dynamics of the marketplace. It could change the economics of the market, in terms of giving CFI more leverage to negotiate with airlines.”
In the late 1990s, Able loosely aligned itself with DHL Global Forwarding.
“There was no legal obligation, but it was a relationship-driven partnership, which helped Able to procure capacity and helped DHL pump volume through their system. Able was smaller at the time than today and did not have the leverage,” Mr Shah said.