Kerry Logistics has enjoyed a bumper half year performance, with turnover up 27 per cent and core net profit up 22 per cent, driven by intra-Asian trade which benefited from the ongoing China-US trade dispute.
William Ma, Group managing director of Kerry Logistics, says: “Although the world economy experienced growth in 2018 1H, global demand has been flat. Nevertheless, the China-US trade dispute has caused manufacturing capacities to shift from Mainland China to other Asian countries, bringing about an increase in shipping volume and production activities in Asia. Southeast Asia, in particular, has enjoyed the fastest growth in the region.”
This enabled the group to leverage its expansive Asia network and diversified business portfolio, to achieve the double digit growth in turnover, core operating profit, and core net profit in the first half of 2018, Ma says.
Having benefitted from the booming intra-Asia trade and e-commerce business, Kerry says its Integrated Logistics division achieved a 25 per cent rise in segment profit in 2018 1H. The noticeable impact on Asia was evident by the 54 per cent growth of the segment profit for the Asian region.
The ongoing trade spat between Mainland China and the US is reshaping trade routes and global supply chains. While the trade volume between the two economies is expected to reduce in the near future, certain markets in Asia are likely to benefit conversely from the increased intra-Asia trade as customers look for alternative supply sources beyond Mainland China and the US. – George Yeo, chairman Kerry Logistics.
The logistics business in Hong Kong, Taiwan, and Asia as a whole is expected to remain a major earnings driver for the rest of the year, it adds. In Hong Kong, driven by stable growth in revenue from existing customers and new customer gains, the segment profit of the logistics business grew by 71 per cent in 2018 1H. The Group’s business in Taiwan saw a profit recovery in the first half, and the logistics segment profit is expected to pick up in 2018 2H.
In Thailand, the Group’s logistics segment profit recorded an 84 per cent growth riding on the flourishing e-commerce business. In July 2018, Kerry Express Thailand entered into a strategic partnership with VGI Global Media, the subsidiary of Bangkok Mass Transit System and becomes the only express logistics partner of VGI and Bangkok Mass Transit System.
In Mainland China, rising labour costs, subpar performance of certain customers in the electronics sector, and the China-US trade conflict continued to undermine the Group’s business, it says. Despite its decelerating pace of growth, the decline in its profit eased in 2018 1H.
Supported by stable trade activities, Kerry’s International Freight Forwarding division maintained growth in volume in 2018 1H, particularly in the North American and Indian Peninsula regions, resulting in a 6.0 per cent increase in segment profit. Nevertheless, both profit and profit margin contributed by the forwarding division have contracted as a result of the drop in performance in Mainland China.
In June 2018, the Group strengthened its project logistics capabilities through the acquisition of a majority stake in the Milan-based Saga Italia, which is specialised in project logistics, heavy lift services, and material management. In the same month, the Group deepened its rail and road freight capabilities by launching new cross-border rail and trucking services from Mainland China through Kazakhstan to Caucasus and Turkey, so as to capture the growing trades in new markets and Europe.
The Group also established new subsidiary Kerry Freight Pakistan (Private) Limited to extend its foothold in Pakistan and leverage its first mover advantage along the China-Pakistan Economic Corridor.
The group also sought to curb underperforming parts of its business, disposing of the Kerry Chengdu Logistics Centre, in Chengdu in May 2018.
“The ongoing trade spat between Mainland China and the US is reshaping trade routes and global supply chains,” says George Yeo, chairman of Kerry Logistics. “While the trade volume between the two economies is expected to reduce in the near future, certain markets in Asia are likely to benefit conversely from the increased intra-Asia trade as customers look for alternative supply sources beyond Mainland China and the US.
“Moreover, Asia has been experiencing the fastest trade volume growth for both imports and exports driven by rising domestic consumption and increased investment. We expect our Asian business to continue to grow and contribute to a major part of the Group’s profit in three to five years’ time.
“Leveraging our expanding global network and solid coverage particularly in South and Southeast Asia, we are optimistic to maintain growth in the remainder of the year through exploiting new business opportunities and promising prospects in Asia and new markets along the Belt and Road trade paths.”