Zurich Stefan Paul started to make the state of emergency normal. When the manager became head of the Swiss logistics giant Kuehne + Nagel in August 2022, high rates in container shipping and air freight ensured record profits. Since then, the economic environment has cooled, and transport costs at sea and in the air are falling. Nevertheless, Kuehne + Nagel shareholders should not have to settle for less when it comes to profit margins.
“The focus must always be on returns,” said Paul on Wednesday at the presentation of the new corporate strategy for the next four years under his leadership. He emphasized: “We will not stop growing.” But the focus of his strategy is to secure the profit margins from 2021 and 2022.
The most important metric Paul has to be measured against is the ratio of gross profit to pre-tax profit (EBIT). This was almost 34 percent last year – more than every third franc on the income side remained as a profit. In 2021 it was 30 percent.
Paul wants to maintain this level: he has set a profit target of 25 to 30 percent by 2026. Vontobel analyst Michael Foeth praises the fact that this ambitious goal clearly exceeds market expectations. “This results in great upside potential for the valuation.” The share was listed on Wednesday at times up nine percent.
For comparison: Before the pandemic, the target for the ratio of gross profit to EBIT was 16 percent. “These were outstanding years,” said Paul, referring to two record annual results for Kuehne + Nagel. In order to achieve the goals he has set himself, he wants to help the logistics group become more efficient with new digital solutions and open up new markets – a strategy that was already successful in Paul’s previous job.
Successes as a restorer
That Paul would rise to CEO was not a matter of course. He previously headed the trucking division, known internally as “land transport”. With a recent turnover of four billion francs, this is the smallest division in the group. The air and sea freight divisions each contribute three to four times as much to the group turnover and also make up the majority of the profit. Kuehne + Nagel is the global number one in both business segments. When it comes to truck logistics, the group is particularly strong in Europe – worldwide it ranks fifth.
Paul’s record as a reorganizer of the land transport division impressed the decision-makers around the major shareholder Klaus-Michael Kühne.
(Photo: Kuehne+Nagel)
But Paul’s record as a reorganizer of the land transport division impressed the decision-makers around the major shareholder Klaus-Michael Kühne and his confidant, the head of the board of directors, Jörg Wolle. For a long time, the low-margin truck transports were considered the problem child of the group. But under Paul’s leadership, the division was in the black and gradually increased its profitability. In the past five years, the division’s profits have grown by 55 percent, confirms CFO Markus Blanka-Graff. “This is an achievement that’s something to be proud of,” he says, looking at the balance sheet of the new CEO.
Paul also brought the most important quality for the top job at Kuehne + Nagel: stable smell. He began his career in the company in 1990. He worked for the group for a total of 17 years, interrupted by ten years in various management positions at German competitor DHL. At Kuehne + Nagel, it is common practice to fill key positions on the Executive Board with managers who have been with the Group for many years.
In 2020, Paul took over global sales in addition to the truck department. He wants to extend his recipe for success as head of truck transport to the entire group. That means: don’t get involved in discount battles. “We don’t want to be the cheapest provider,” says Paul.
Instead, Kuehne + Nagel wants to score points with service quality and customer satisfaction. Digital solutions should also help here. As head of the truck division, Paul launched the cloud-based app “eTrucknow”, with which customers can track the whereabouts of their cargo in real time or optimize the utilization of their truck fleet. With similar cloud solutions, Paul also wants to increase the efficiency of the other parts of the business.
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However, Paul does not want to shake up the core business of Kuehne + Nagel. The company, based in the Swiss town of Schindellegi, works in a similar way to a stock exchange: it brings together suppliers and buyers of freight capacities. However, Kuehne + Nagel only has a small number of aircraft, ships and trucks on its own balance sheet. Paul emphasized that he would stick to this so-called asset-light model.
No experimentation with the business model
It is true that Kuehne + Nagel only took over the last two jumbo jets from Boeing production at the beginning of the year. But such deals remain an exception, assured the Kuehne + Nagel boss. The advantage of the business model: The typical logistics pig cycle, in which years with high profits are always followed by periods of loss with high overcapacities, affects the Swiss group far less.
No wonder, then, that the board of directors of the logistics group is not inclined to experiments: chief supervisor Wolle said in November 2021 when Paul was appointed as the successor to Detlef Trefzger, when selecting the group boss “in view of the very successful development, the focus is on ensuring the Continuity”. With the appointment of Paul “the strategic direction and specific company culture are secured”.
For this reason, top management always rejects speculation about major mergers. “We rely on complementary acquisitions that are of an easily digestible size,” CFO Blanka-Graff clarified. The holdings of major shareholder Kühne did not change that. Among other things, the billionaire holds larger blocks of shares in Lufthansa and the shipping company Hapag-Lloyd – both important customers of Kuehne + Nagel.
Instead, Paul wants to penetrate areas of business in which the group has been weak so far, but hopes for great growth. This includes logistics solutions for the construction and operation of wind turbines. In addition to complex transports for construction, the industry requires decentralized warehouses for the supply of spare parts.
Air freight and contract logistics should also benefit more from the expansion of the chip industry outside of Asia. “We deliberately choose markets that have a high barrier to entry,” says Paul. They promise less competition – and therefore high profit margins.
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