While announcing a healthy 12 per cent rise in net profit for the full-year 2018, year-on-year, Kerry Logistics warns that trade friction between the US and China will continue disrupting existing global supply chains for “years to come”.
Commenting on the Group’s performance in 2018, achieving double-digit growth “despite the uncertainties”, George Yeo, chairman of Kerry Logistics, underscores three major trends affecting global logistics.
First, China’s market will continue to grow and become the biggest in the world and Kerry aims to selectively “broaden and deepen its reach in China”. Secondly, Yeo says that “strategic rivalry between China and the US will continue for years to come and disrupt existing global supply chains.” And in order to serve its customers well, Yeo says Kerry Logistics must be able to offer a range of network solutions to them.
“Third, technology is steadily disrupting all aspects of the logistics industry,” which means Kerry will focus on the use of information technology, blockchain and AI wherever practical in warehouse, fleet, freight, contract, and e-commerce management,” Yeo says, adding: “We will stay nimble and agile even as our network grows in response to changing threats and opportunities in Asia and the world.”
Meanwhile, the Hong Kong-based company says core net profit rose 12 per cent year-on-year, reaching HKD 1.3 billion on the back of a 24 per cent jump in revenues y-o-y, to HKD 38.1 billion in 2018. This was largely a result of growth in Southeast Asia and customers exporting ahead of the China-US trade war, Kerry says. Core operating profit increased 11 per cent to HKD2.4 billion.
William Ma, group managing director of Kerry Logistics, notes that global economic growth moderated in 2018 and the US-instigated trade tension, in particular with Mainland China, “reverberated far and wide, casting uncertainties over the global trade landscape.”
In contrast, he says, the economic growth in emerging Asia, specifically in the Southeast Asian countries, continued its strong momentum. Kerry notes it is well-positioned to capitalise on the robust growth in the region with its extensive regional network.
Increasing demand in intra-Asia trade and e-commerce business accelerated the Group’s Integrated Logistics businesses, Ma says. “We recorded a double-digit increase in turnover, core operating profit, and core net profit in 2018, achieving positive growth for the ninth consecutive year.”
The buoyant results were fuelled by what Kerry says is the increased earnings from the Hong Kong logistics operations and the “outstanding performances” of Kerry Express Thailand, as well as Kerry Siam Seaport in Thailand.
Integrated Logistics (IL)
Overall the Integrated Logistics (IL) division registered a 14 per cent rise in segment profit in 2018, generating 79 per cent of the Group’s total segment profit. The IL business is set to remain the main earnings driver in 2019, Kerry says.
In Hong Kong, underpinned by what it says is the Group’s leading market position in addition to its strategy to strengthen its expertise and penetration in target verticals, the segment profit of the logistics operations climbed by 37 per cent in 2018. Together with the moderate growth of the warehousing business, the Group’s Hong Kong business accounted for 41 per cent of segment profit for the IL division.
In Mainland China, the segment profit of the IL business recorded a 12 per cent drop in 2018, at the hands of the China-US trade dispute which Kerry notes had significant impact on Chinese export trade in 2018 2H. Customers slowed down their investment and expansion plans which were set out in 2018 1H, resulting in lower-than-expected growth.
In Thailand, supported by the strong performance of the Group’s business in Thailand through Kerry Express Thailand and Kerry Siam Seaport, the IL segment profit experienced a 37 per cent increase in 2018. The strategic partnership Kerry Express Thailand established in July 2018 with VGI Global Media Public Company Limited, the subsidiary of BTS PLC, enabled it to use BTS Skytrain exclusively to extend its express delivery services and boost same-day delivery service in Bangkok.
International Freight Forwarding (IFF)
The Group’s IFF division attained steady volume growth in 2018 2H as customers front loaded their shipments in advance of the trade tariffs being enforced. The IFF division recorded a 7.0 per cent profit growth and contributed 21 per cent to the Group’s total segment profit in 2018.
In October 2018, the Group consolidated its industrial project logistics services under the Kerry Project Logistics brand to capitalise on the growth potential in the global industrial project logistics market unleashed by China’s Belt and Road Initiative.
In the same month, the Group debuted its rail and road multimodal freight service from Lanzhou, China to Islamabad, Pakistan to expand its freight capability from China to South Asia. The new subsidiary of the Group, Kerry Freight Pakistan (Private) Limited, formed in July 2018 gave the Group a direct presence in one of the markets with the highest growth potential in the region.
Asset Portfolio The Group currently manages 5.57 million sqm of land and logistics facilities worldwide. In Myanmar, Phase one of the inland port in Mandalay and the inland port in Yangon were completed in 2018. In Taiwan, due to a fire accident in February 2019, construction of the 40,000 sqm logistics centre in Guanyin is expected to complete in 2019 Q4.
In Mainland China, the logistics centre in Changsha was completed in 2018, while the one in Wuhan is expected to complete in 2019 Q2. In Thailand, a new fully automated parcel sorting system was installed in Phase two of the Kerry Bangna Logistics Centre in 2018, boosting Kerry Express Thailand’s daily delivery capacity to over one million parcels. Phase three of the centre began construction in 2018 Q4.
Kerry notes that the sound performance of its Hong Kong, Taiwan, and Thailand businesses reinforces the Group’s strategy in deepening its capabilities in local markets across various verticals, in particular fashion, F&B, as well as pharmaceuticals and express.
The fast-changing logistics landscape in Mainland China called for innovation and flexibility in order to capture and serve new and emerging business models and brands, Kerry says. The Group is making significant efforts in boosting performance through speeding up response time to customers’ evolving needs and tapping into the expanding import sector.
“Stronger growth is anticipated to persist in Asia, particularly in Southeast Asia and India, owing to increasing domestic consumption and rising investment.” The Group says it will leverage its established network in Asia to take advantage of the booming intra-Asia trade, with its business growth in Asia, “expected to maintain in 2019”.