Kuehne + Nagel’s acquisition of international groupage specialist RH Freight in March last year caught many in the industry – including Motor Transport it has to be said - by surprise. But it was all part of the Swiss-owned global logistics business’ long term strategy, as Glenn Lindfield, KN’s senior vice president for contract logistics in North West Europe, tells Steve Hobson
Unlike some other logistics firms who spend big money promoting their brands, family-owned Swiss logistics giant Kuehne + Nagel prefers to remain in the background.
Glenn Lindfield, KN’s senior vice president for contract logistics in North West Europe, says it would rather sit behind its customers’ brands than promote itself. “We are modest people,” he says.
Modest maybe, unambitious certainly not.
“We see ourselves as a full service provider and the business in the UK is a good example of where we want to be – in a leading position in all the products that we sell in all the territories where we operate,” says Lindfield. “We picked up a significant amount of new business in the last 18 months in a struggling economy. KN is a robust and successful business - we make a reasonable margin on a huge turnover.”
That is no understatement – in the first nine months of 2011, KN made EBITDA of 728m Swiss francs (£500m) on turnover of 14.6bn Swiss francs (£10bn). Today (March 5) it announces its full year 2011 figures which are expected to show a continuation of this strong performance – see commercialmotor.com for details.
“What separates KN [from the competition] is that we have long term strategy, we are prepared to stick with it and we won’t be distracted from our long term goals to remain major players in seafreight, airfreight, European overland transport and contract logistics,” says Lindfield.
Until 2005, KN was best known in the UK for its international air and sea freight business, but all that changed when it snapped up contract logistics firm ACR, formerly known as Hays Logistics, in 2005. The move into UK domestic logistics by an international operator mirrored DHL’s acquisition of Exel, also in 2005, and more recently by Norbert Dentressangle with its purchases of Salvesen and TDG.
Lindfield believes however that KN has more to offer its UK logistics customers than its international or domestic rivals.
“We think our global coverage is a huge USP and what sets us apart is full service provision across the globe,” he says. “We are in 100 countries now, and in contract logistics in 65. Globally the number two in contract logistics is CEVA and we are just behind them. There is quite a gap between CEVA and DHL and a small gap between us and CEVA. we plan to retain our position as the most profitable of the main global players in contract logistics.”
KN’s latest purchase, European groupage operator RH Freight, in March last year was another piece in KN’s strategic jigsaw.
“In European overland we want to develop our position and become top 4 by 2014.,” says Lindfield. “It would have taken us a considerable time to build up a business that size in the UK. It is about being a full service provider, having strong positions in all the territories where we operate and growing with our existing customers.”
KN is convinced that the way to grow with existing customers in stagnant economies like the UK is to offer more specialist services to complement the core contract logistics offer. In the UK, contract logistics accounts for over a third of KN’s turnover, and Lindfield believes these customers are looking for a wider range of services from their logistics partner.
“Full service provision is really important to us, to gain a genuine edge by being able to offer our customers a fully integrated end to end supply chain,” says Lindfield. “We believe that is important and will get more important as the world gets smaller and there is further consolidation across all industries. There will be more global players who will want to work with fewer, global suppliers. We are prepared to invest for the long term in that portfolio of products that our customers will benefit from.
“Every year, our UK customers are buying more and more products from us. There are also global players who are starting to buy service centrally. Airbus for example wanted one supplier for 11 warehouses across Europe and we won that business. The local player in the UK was probably doing a good job but Airbus saw the advantage of standardising processes and IT, and of working with one player across 11 countries to integrate and flex the operation more easily.”
Lindfield also sees opportunities to move into markets KN is not strong in at present.
“In contract logistics in the UK, we believe we are number one in telecoms, we have a reasonable presence in aviation and automotive, and we see food service as an opportunity because despite the economy being depressed people are still eating out and there has been an explosion of coffee shops,” he argues. “We have moved into food service very successfully. It has all the ingredients we wanted – it’s complex, time critical, important to get it right first time, and there is lots of specialised activity.”
KN’s big win in this sector so far has been Whitbread, , where it is already making over 11,000 deliveries a week to its restaurants and Costa Coffee outlets. “We are proud of the way we have been able to support the development of the Whitbread brands, including Costa Coffee ,” says Lindfield. “That sector may provide us with further opportunities.”
While KN still operates RDCs for major retailers, Lindfield believes retailers are looking for 3 PL’s to support them in other areas too.
“More traditional logistics operations in the UK has become commoditised so what can we do to counter that?” he says. “We have product offerings there that others haven’t got and there are certain things we can do in today’s economy to help our customers. For example, changing our property portfolio to create large scale sites like this one at Wellingborough (see box) or campus sites where we have five warehouses so that customers can share infrastructure costs and we can provide flexibility of labour – we see that as the future.”
Another value added service KN is adding to its portfolio is reverse logistics and dispositioning – the art of asset recovery that could include repair, refurbishment and resale.
“Reverse is the easy part; dispositioning is the issue. Creating maximum value for retailers out of returned products is the real trick,” says Lindfield. “We have a number of channels to disposition products. That is what retail customers are looking for from 3PLs – how can we help them with the things they are struggling with.
“We are looking at channels a returned product can go through – is it for repair or can it be resold as new. We have a web front end where people can buy returned products that have been through our system and we manage the cash transaction.”
Lindfield also sees internet shopping as another major opportunity, largely because so many traditional retailers are still struggling to get to grips with it.
“Multi-channel retailing is a challenge for everybody – retailers and 3PLs,” says Lindfield. “We are looking at whether to invest more in multi-channel retailing – it is an area we see as quite important to our future growth. We intend to do more warehousing fulfilment – we do some at the moment and will look at potential opportunities in that area.”
That doesn’t mean KN will be getting into B2C last mile home deliveries though.
“We don’t see ourselves getting involved in parcel distribution,” Lindfield insists. “We would like to run more fulfilment centres because we see that as an area of growth. We don’t see parcel distribution as an area for KN in the short term.”
So if KN isn’t going into parcels, where might it be looking to buy?
“Our approach to acquisitions is that we buy successful companies that add something new to what we already have,” says Lindfield. “We are not big consolidation players – we don’t buy companies on the back of cost savings or synergy benefits. We don’t buy businesses in dire need of turnaround. We tend to buy successful businesses that we believe will be even more successful under the KN banner.”
Box – Going the extra mile for Virgin
The meeting with Lindfield took place at KN’s 500,000sq ft Wellingborough shared user DC, which was built as a speculative development with no anchor customer.“KN saw large sites as the future,” he says. “We envisaged that customers wanted a flexible service. We signed it off just as the crisis hit in 2008, but it is bursting at seams now and has been a great success story.”
Wellingborough is home to an innovative value added operation for Virgin Media, which installs cable TV and telephone systems in homes across the UK. KN was able to consolidate seven warehouses into one, saving Virgin £28m over the three year term of the contract and cutting stock losses from £3m to just £50,000.
Wellingborough holds all the equipment the Virgin field service engineers need for a home installation. As orders are received from Virgin, KN despatches the kits via UPS and Yodel direct to the consumer’s home address ready for the engineer to install.
KN also operates 52 field stores around the UK where Virgin field service engineers can collect two to three days of consumable items to keep their vans stocked.
As well as home installations, Wellingborough also stores and despatches all the products and equipment needed to install a new cable network.
