Kuehne+Nagel adopts new Amazon air cargo service for China e-commerce

October 30, 2024

Kuehne+Nagel is pleased with how Amazon’s new wholesale air cargo service is helping the world’s largest freight forwarder by volume ship e-commerce packages from China to the United States, says CEO Stefan Paul.

Switzerland-based Kuehne+Nagel is one of Amazon Air Cargo’s (NASDAQ: AMZN) first outside customers. FreightWaves reported earlier this month that Amazon has begun offering third-party shippers access to its dedicated fleet of cargo jets for freight transportation. The Amazon Air Cargo website lists Apex Logistics, a K+N subsidiary based in Hong Kong, as a customer.

Amazon’s private airline helps provide expedited delivery to Prime shoppers on the retailer’s website. It has sold excess cargo space to a limited number of logistics providers on a trial basis for several years. Now, Amazon Air is carrying general cargo alongside its own parcels after recently taking the concept to the full freight forwarding marketplace. The Amazon Air Cargo service is primarily available in the domestic U.S. market, where Amazon controls dozens of aircraft operated by partner airlines, as well as in Europe and India.

K+N is using Amazon as a provider of middle- and last-mile transportation, Paul said on last week’s earnings call. Apex Logistics consolidates shipments from Chinese e-commerce platforms and manufacturers and arranges transport to Hawaii on scheduled commercial flights or chartered aircraft. The shipments are transloaded at Honolulu airport to one of Amazon’s new Airbus A330 converted freighters.

Amazon has six of the widebody jets, four of which are currently in service. Hawaiian Airlines operates the A330s for Amazon on major trunk legs, including between Honolulu and Amazon’s West Coast hub at San Bernardino airport in California, according to Flightradar24. The other two planes are in hangar facilities for upgrades.

“I have to say we are absolutely satisfied with the service offered by Amazon Air,” K+N’s CEO said. “We inject in Honolulu our e-commerce business into the Amazon air fleet business, and we leverage them for a distribution within the U.S. marketplace. This is a perfect fit. On one hand, we utilize the return flights for Amazon out of Honolulu, and on the other side, we have a direct connection into the different hubs of Amazon Air in the U.S. marketplace. So overall, I would call it a win-win situation.”

Major transfer stations that the A330s fly to and from include JFK airport in New York and Amazon’s national hub at Cincinnati/Northern Kentucky International Airport, according to flight data.

Peak season has peaked

K+N attributed its return to profit growth in the third quarter to shippers pulling forward international orders to avoid delays associated with a feared U.S. dockworker strike and ocean rerouting away from the dangerous Red Sea. It also lowered expectations for the current quarter because the same frontloading behavior shortened the traditional busy period for freight shipping.

“We see a muted peak season this year in Q4, with most likely modest low-single-digit percentage volume growth on both a sequential and year-over-year basis” for air and ocean freight, in contrast with more bullish expectations at midyear, Paul said. Pre-buying has resulted in “the earlier-than-expected conclusion to the peak season,” he added.

The logistics chief allowed for the possibility of higher fourth-quarter volumes if shippers move goods earlier than normal ahead of the Lunar New Year holiday in China, which begins on Jan. 29, earlier than in recent years.

Management also said Red Sea rerouting was no longer causing businesses to divert shipments to faster air transport because inventory levels are stable, reducing fears of stockouts. Contributing to K+N’s lukewarm peak season forecast is lower demand in the German auto sector and other industries.

K+N is planning for global trade volumes in 2025 to grow in line with GDP, which the International Monetary Fund forecasts will grow 3.2%.

For the first time since the end of the pandemic, K+N’s pretax earnings and profit during the third quarter increased sequentially and year over year. A new cost regime, which includes the removal of regional offices, has begun to bear fruit and also positively contributed to the bottom line.

The 3PL’s revenue increased 18% y/y to $7.5 billion, while earnings before interest and taxes grew 2% to $525 million. But pretax earnings are down 23% year to date through September. Global freight shipper DSV also posted its first profit since 2022.

K+N’s air cargo business continued to benefit from tight capacity, though volume growth of 7% came in below the overall market rate of 12% on the strength of perishable goods and trans-Pacific shipping by Apex. Paul attributed the difference to lower exposure to e-commerce than that of competitors, with Apex the only part of the company handling e-commerce traffic out of China. Management said net revenue is expected to improve sequentially in the fourth quarter but remain below normal benchmarks because Apex e-commerce volumes and perishables are lower-yielding segments.

Air forwarding operating income of $138.4 million was marginally worse than in the second quarter but a full 10% less than in 2023 due to rising costs.

Ocean volumes in the quarter grew 2% to 3.2 million twenty-foot equivalent units compared to an estimated market growth of 3% to 5%. The disparity is the result of management’s decision last quarter to deselect a customer that accounted for about 140,000 TEUs of volume last year and stop serving two other large accounts in the fourth quarter of 2023 in an effort to improve revenue quality.

K+N said it was able to convert 42% of ocean gross profit into operating income, up 7.8% from the second quarter. Average yields fell as ocean market rates fell during the third quarter. Management said it expects yields to fully normalize in the fourth quarter as the market reaches overcapacity.

In August, K+N completed the acquisition of the Malaysian company City Zone Express, allowing it to offer less-than-truckload services from China to major logistics centers in Southeast Asia.

Last month, the logistics giant opened a highly automated distribution center for Adidas in northern Italy that can process up to half a million e-commerce and retail bulk shipments per day.

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