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Southeast Asia growth takes edge off slowing China, Kerry Logistics says

2016-03-24 15:18:43

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The net effect of China’s export slowdown on Kerry Logistics was being mitigated by customers shifting their manufacturing operations to Southeast Asia, said group managing director William Ma.
 
“We have held on to our customers, so instead of shipping their cargo out of Shanghai, some of them are now shipping out of places like Thailand,” he told reporters at the Hong Kong-listed group’s 2015 results press conference.
 
Kerry Logistics saw its net profit rise 9 percent to $136 million on the back of flat revenue growth for the year that reached $2.7 billion. The group’s business is split into integrated logistics and international freight forwarding with the logistics segment contributing 82 percent of the operating profit.
 
The integrated logistics business grew 13 percent in 2015 to record revenue of $210 million. Despite a slowing China, the greatest portion of Kerry Logistics’s revenue is still generated by the mainland, which represents 38 percent of turnover. Foreign currency depreciation was partly responsible for a 9 percent drop in China turnover during the year. 
 
International freight forwarding was up 7 percent to $47 million, but this segment is about to receive a massive boost when Kerry Logistics completes the acquisition of a top 10 U.S. non-vessel-operating common carrier in the first half.
 
Ma told JOC.com he could not disclose the name of the Southern California-based forwarder, but it would bring revenue of $700 million to the group. The forwarder specializes in the trans-Pacific trade and handled over 275,000 twenty-foot-equivalent units in 2014.
 
“We have been working on this for close to a decade, because the U.S. has been our weakest link for quite some time,” he said.
 
The acquisition will allow Kerry Logistics to complete its global network and improve its ability to secure worldwide contracts. Exiting management will remain in place for three years, providing the continuity required during the integration process.
 
Michael Beer of Citi Research said the acquisition, assuming a June 30 close, would add 9 percent to the company’s 2016 revenue and upwards of 20 percent in 2017.
 
“We also believe that the company’s core operation in Asia will notably benefit from the acquisition by providing a far more comprehensive network with cross-selling opportunities,” he said in a note to customers.
 
Kerry Logistics has been in acquisition mode for the past two years, and has entered new markets such as Oceania, Canada, Dubai, Indonesia, Myanmar and Chinese courier services through a combination of mergers and acquisitions and joint venture agreements. Additional express acquisition targets in Singapore, the Philippines, and Indonesia have been identified.
 
The group manages a logistics property portfolio of 45 million square feet, of which 24 million are owned. During 2015 it added a 592,000 square foot facility in Chengdu that began operations in the second half, with two facilities in Xi’an and Wuxi to be completed by 2017 that will add 480,000 square feet to the portfolio. In Shanghai, construction is underway at a 1.1 million square foot warehouse that will be Kerry Logistics’ largest facility on the mainland.
 
In Thailand, phase one of the Kerry Bangna Logistics center was completed and is a sorting center for Kerry Express and a fulfilment center for e-commerce customers. The phase four expansion of Kerry Siam Seaport has begun and should be finished by 2019 as it is developed into a cargo gateway for increasing trade with the Association of Southeast Asian Nations.
 
In other developments during 2015, Kerry Logistics’s strategic cooperation with China Railway Import and Export Company will allow the integration of the rail network with that of Southeast Asia. Cross-border trucking services under KART were extended further through China, Vietnam, Thailand, Malaysia and Singapore, and three new scheduled weekly shuttles were added to provide long-haul trucking and door-to-door delivery services. 
 
Source: JOC.