Damco set for bright future

Within the freight forwarding sector Damco does not have the highest profile. This is not too surprising bearing in-mind the origins of the company.
 
 Damco as a brand was an asset that came with the purchase of P&O Nedlloyd by A.P.-Moller-Maersk in 2005 and was fused with Maersk Logistics. It remained overshadowed by the container shipping division of Maersk, until Maersk, prompted by its crisis of 2006/2007, thought to reassess its portfolio of businesses.
 
The two companies were re-organised in 2008 to make them wholly independent from the container shipping activities and management was tasked to build a coherent freight forwarding operation under the Damco brand.
 
This re-organisation appears to have been successful. 2011 results for the forwarder saw a modest 3.7% increase in revenue, but both EBIT and EBITDA were up by over a quarter compared to 2010. At around 4%, profit margins are respectable by the standards of the sector; although the ROIC of 25.8% illustrates the company’s light burden in terms of capital. The senior management of Damco are confident that they are out-performing even the leading players in the forwarding sector; which is not an unreasonable opinion.
 
Yet caution should be exercised, for direct comparisons between companies are difficult. In the case of Damco, its business differs to a degree from that of many other forwarders. For example, consolidation of sea freight cargoes (which Damco describes as ‚Supply Chain Management‘) is core to its business, with a volume in 2011 of roughly 1.8m TEU. Unsurprisingly, much of this business is based in China and has a particular focus on trans-Pacific volumes, with Damco managing 27% of consumer/retail containers moved compared to China-Europe traffic where Damco manages around 13%. In contrast, its NVOCC business saw a considerably lower throughput at 720,000 TEU.
 
This pattern of business reflects the historical pull on Damco by big retail clients. The shift towards the sourcing of consumer durables in southern China by the American supermarkets was transformative for Damco.
 
The operational imperatives of such big clients have moulded the nature of the Damco business. Pyers Tucker, Global Head of Strategy at Damco, comments that its business is driven by the "management of data". Unlike other forwarders, this is not so much focused on the purchasing and management of shipping capacity, but rather the management of supply chain process. "What we specialise in is the ability to handle industrial quantities of data" comments Tucker, who elaborates that this has led Damco to invest heavily in data service centres whose staff capture and process data on shipments enabling the forwarder’s customers to manage product-flow in real-time, creating a system Damco has branded ‚Dynamic Flow Control‘.
 
These centres are located in India, the Philippines with the largest being in China where Damco employs 1,200 people at its facility in Chengdu. The forwarder regards these centres as a unique capability that will differentiate its services.
 
However, it is large and medium sized clients, rather than small shippers, that this system is focused on. In part driven by systems such as ‚Dynamic Flow Control‘, its customer profile is likely to see a continuing shift to larger corporations beyond the big US retailers that have been its staple. The forwarder is targeting other ‚verticals‘ such as consumer electronics, consumer packaged goods, and even chemicals. There is nothing unusual in this for a big forwarder; however it is a departure for Damco. Indeed, Pyers Tucker says it is getting business in all of these sectors that has driven growth in 2011.
 
Yet it is emerging markets themselves that Damco sees as having real potential for further growth. Tucker comments that "Asia is our number one priority, particularly China and India". Damco has a strong presence in many of these markets and has a market profile that it is denied elsewhere. In India in particular, Damco has valuable exposure to emerging Indian multi-nationals. The company also believes that it has leading positions in markets such as Vietnam, Indonesia and Africa, although Pyers Tucker admits that South America is under-developed, whilst in the Middle-East the company still lacks scale; particularly outside the main location, Dubai.
 
If acquisitions will be made it is to reinforce strength and address weaknesses in Damco’s geographical presence and capability. Certainly, Damco has been expanding in such a manner recently, notably through the acquisition of China’s largest air forwarder NTS Logistics. The reason behind that purchase was two-fold, offering  greater capabilities in the airfreight sector, but also offering a lever to expand into new industry ‚verticals‘.
 
However this is not to say that Damco is likely to rely just on acquisitions for its growth. Rolf Habben-Jansen, the company’s CEO, has said in the past that "in freight forwarding, if you go above US$7bn-US$10bn in revenue you need to re-invent the business model", so transformative acquisitions "at this stage" are unlikely.
 
One does not have to be too credulous to expect Damco to take an increasing chunk of the forwarding market. The resources of the wider A.P. Moller-Maersk Group will enable the company to grow at a global level. It is likely that Damco’s focus on larger customers with sophisticated supply chain operations will also result in it capturing market-share; not so much from medium sized forwarders, but more from other big players. Indeed looking at the divergence of performance between the largest freight forwarders in the recent annual results this might already be happening.
 
What is surely unlikely to happen is for Maersk to sell Damco. Not only is Maersk a corporation attached to a broad portfolio of business, but Damco is a good fit for a company so committed to logistics in general and shipping in particular. What may happen is that Damco’s orphan status within the Danish giant may ease as its relative profitability compared to Maersk’s core shipping interests becomes more salient.

Quelle: eyefortransport

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