In posting its results for 2022, Denmark’s DSV has reflected on another volatile year for the forwarding market. It predicted a continuing slowdown in volumes for the first half of 2023 and further consolidation in the coming years.
DSV posted strong results for 2022, with gross profit increasing by 33 percent and EBIT, before special items, up by 48 percent compared to 2021.
Gross profit amounted to DKK52.1 billion (USD7.7 billion) and operating profit before special items stood at DKK25.2 billion (USD3.7 billion). This was driven by a solid performance across all of DSV’s business areas – air and sea, solutions and road.
Towards the end of 2022, however, the performance of the three divisions was impacted by the general macroeconomic slowdown and the gradual normalisation of freight markets.
Jens Bjørn Andersen, group ceo, said: “Covid-19 had a lasting effect on our industry and global supply chains. Over the past two years, we have managed to adapt to the challenges it created, mitigate disruptions and offer our customers robust logistics solutions. Although today the world seems to have moved on from Covid-19, the pandemic made a significant impact on 2022 and still casts its shadows across our industry.
“Market volatility persists. At the start of 2022, capacity was tight, freight rates reached unprecedented highs, and then plummeted. In the second half of 2022, we have been in a period of economic slowdown and declining transport volumes across most markets.”
Several factors caused the current slump, he continued, including the normalisation of consumer behaviour, the ongoing energy crunch and inflationary levels not seen in decades.
“Not all geographies and industries have been affected the same,” said Andersen, pointing to the Middle East region and the healthcare and energy industries as examples of more resilient areas.
The volatile macroeconomic environment in 2022 was further fuelled by Russia’s invasion of Ukraine. “In response, we divested or closed down our operations in Russia and Belarus. In response to Ukraine’s humanitarian crisis, we have donated transport and logistics services, food and supplies, and in some instances, our staff have opened their homes to take in families fleeing the war,” added Andersen.
The general macroeconomic slowdown will persist during the coming year and is reflected in DSV’s outlook for 2023, which assumes that global economic growth will sit around 2-3 percent, with the lowest growth rates in advanced economies.
The forwarder said: “Normally, DSV would expect transport volumes to grow in line with the economy, but in the second half of 2022, volumes declined more than GDP due to reduction of inventory levels and normalisation of consumer behaviour after Covid-19. DSV expects this negative development in freight volumes to continue in the first part of 2023, but with a recovery in the second half of the year.”
Mergers and acquisitions
A particular highlight for DSV in 2022 was the successful integration of Agility Global Integrated Logistics (GIL). The acquisition was completed in August 2021, as HLPFI reported here, and the integration was finalised during Q3 of 2022. DSV estimates that GIL will contribute at least DKK 3 billion (USD443.4 million) annually to its combined EBIT before special items.
The forwarder added that its journey of successful acquisitions and integrations – including UTi Worldwide and Panalpina – has transformed it into a top three player in the industry, noting: “Our organisation and market position are already strong, but mergers and acquisitions (M&A) remains an important part of our strategy, and we will continue to monitor the market in search of value creation opportunities.”
It believes there is room for further consolidation in what it describes as a “fragmented transport and logistics industry”.
DSV explained: “We are one of the top three global freight forwarders, with a market
share of roughly 4 percent. Together, the top 20 forwarders have an estimated global market share of 30-40 percent. The rest of the market consists of a long tail of smaller regional and local freight forwarders. The mix of industry fragmentation and service standardisation creates a competitive pricing landscape.
“But because of our scale, global network, strong IT systems and logistics competences, big freight forwarders like DSV are in a good position to consolidate the market and gain market share. Our acquisition track record is a strong example of this, and we expect the consolidation trend to prevail in the coming years.”
In recent years, new competitors have also entered the industry, noticeably digital forwarders that typically offer a simple, standardised range of services focused on online price quoting and booking. DSV said these forwarders have a high level of digital capabilities but a lower level of logistics capabilities, “such as operational expertise, global networks, scale, warehouses and carrier relationships.”
Furthermore, some of the large ocean carriers now aim to provide door-to-door transport services, air and overland transport in addition to ocean transport.
“This has created scenarios where these carriers are both suppliers and competitors to freight forwarders,” said DSV.
“So far, the new players have not gained material market shares. Based on our strong logistics capabilities and our clear roadmap to further enhance our digital capabilities, we are confident that DSV will remain highly competitive.”