DHL CEO: ‘Weak Global Trade’ Responsible for Slow Start to 2024
DHL Group gave a soft outlook for the first half of 2024, with the German logistics giant saying it does not foresee a broad economic upturn in the six months based on what CEO Tobias Meyer called a “weak global economy and, above all, weak global trade.”
The weak macroeconomic demand environment, particularly in Europe, put a damper on DHL’s 2024 outlook and fourth-quarter performance. To close the year, the carrier saw revenue decline 10.2 percent to 21.3 billion euros ($23.3 billion) on a net profit decline of 14.6 percent to 1.6 billion euros ($1.8 billion).
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Meyer was more positive on the state of the Red Sea, since the overall supply-demand balance in ocean freight was “more relaxed” than during the pandemic.
“It doesn’t look like the Red Sea incident—even if it continues to be there—is going to change that,” Meyer said. “There’s tonnage still coming into the market.”
Meyer also agreed with an analyst’s assertion that the impact on air freight was minimal so far, noting that the “limited overspill into air freight is indeed interesting. We do see some discussions around that with some customers, but it’s just not across the spectrum of customers. Also, the demand in Europe is not as strong—that’s our conclusion.”
Ironically, air cargo demand across the board in January had its largest annual increase since summer 2021, according to International Air Transport Association (IATA) data. But that demand appeared to be heavily buoyed by the shifting dates of Lunar New Year, which started earlier last year—meaning fewer cargo flights out of China.
Beyond the Red Sea, Meyer said DHL was continually monitoring the Panama Canal backlogs, saying that if two or three of these global disruptions accumulate, that the amount of goods that could shift to air freight “might drastically change.”
A major chunk of DHL’s wider revenue hit came from its global freight forwarding division, which saw sales decline 32.9 percent to 4.6 billion euros ($5 billion). The unit faced headwinds from volumes and freight rates that were both lower from the year prior.
The company’s revenues at its DHL Express division tanked 6.7 percent to 6.6 billion euros ($7.1 billion), reflected in the lower B2B volumes moved when compared to previous years.
For the quarter, DHL saw 7.6 percent growth in its e-commerce division, which was the firm’s best performing unit. The DHL Supply Chain segment had flat revenue growth.
DHL cautioned that its earnings before interest and tax (EBIT) is likely to remain flat to the company’s 6.3 billion euros ($6.9 billion) it generated last year, with the company forecasting between 6.0 billion euros ($6.5 billion) and 6.6 billion euros ($7.2 billion) in 2024.
The guidance range reflects DHL’s expectation that first half EBIT will decline, balanced out by a projected growth in the second half if macroeconomic conditions improve.
“Europe is showing weakness in Q4 and into Q1. That for us is a relevant market, and that is something that clearly affected our views,” Meyer said during the call. “We do see the second half of the year growing due to the comparables, and also the economic forecast…For our business, for global trade, the trough has been exceptionally long, so we do expect that there is some progression.”
Free cash flow for all of 2024 is projected at around 2.75 billion euros ($3 billion), with the company setting aside an overall budget of 250 million euros ($273 million) for M&A expenses throughout the year.
The company had been tied to a potential acquisition of another logistics giant, DB Schenker, which German rail operator Deutsche Bahn put up for sale in December.
But DHL will not pursue the Schenker deal, Meyer said in the earnings call, noting that the “economies of scale are very limited” when dealing with a company of Schenker’s size, especially if they offer a similar freight forwarding business. DB Schenker generated 27.6 billion euros ($30 billion) in revenue in 2022, and another 10.1 billion euros ($11 billion) in the first half of 2023.
The CEO said DHL would need to see “very substantial upside” in a potential M&A deal, pointing to the company’s own last-mile delivery business as the type of business model that could scale efficiently.
“I’m sure the bride will find a husband,” Meyer said of DB Schenker. “But for us this was very clear that this just doesn’t stack up to the value generation we are looking for. The forwarding space is challenging as it is.”
DHL followed in the footsteps of fellow logistics services provider Kuehne + Nagel, which said it was not bidding on the company in its own earnings call Friday.
