DSV's redundancy plan will affect businesses globally

DSV Panalpina will lay off 3,000 employees as part of a global cost saving plan due to the coronavirus outbreak. Sea freight has declined somewhat in the first quarter, but CFO Jens Lund predicts it will hit bottom in April or May, he tells ShippingWatch.

Photo: PR/DSV

Nations including the US, Germany and several Far Eastern countries will be affected by the layoffs announced by Danish logistics company DSV Panalpina on Thursday.

A total of 3,000 employees will be dismissed from the company as part of a global cost saving plan implemented as a consequence of the coronavirus outbreak. Only 2 percent of the layoffs apply to Denmark, where the company is headquartered.

The places most affected are those where the company has large businesses and more employees than in its home country, Chief Financial Officer Jens Lund tells ShippingWatch in an interview.

It's all the functions. It's across the entire business

Jens Lund, CFO, DSV Panalpina

"It's all the functions. It's across the entire business. We've tried to make reductions both at the main office and out in the more operational areas," Lund says.

The cost saving plan of DSV entails that annual costs must be reduced by DKK 1.4 billion (USD 203.8 million). The plan is expected to cost DKK 1 billion during 2020 and will, aside from staff, affect a number of "additional recurring costs", Lund says.

By the end of March, DSV Panalpina employed a total of 58,788 people.

Fewer hands needed

DSV is built up according to an asset-light model, which enables the company to quickly adjust its business when the surrounding reality changes. This applies to planes, ships, trucks and, in the end, employees.

"Our personnel consumption is determined by activity, so you could say that when there's less work to do, fewer hands are needed," Lund says.

According to the CFO, air freight has been hit the hardest and seen the steepest volume decline, but seaborne activities have also decreased somewhat.

Our personnel consumption is determined by activity, so you could say that when there's less work to do, fewer hands are needed

Jens Lund, CFO, DSV Panalpina

"Sea freight has been at a low level, but more stable when comparing air and sea. There's still some sea freight, although the market declined 6-8 percent in the first quarter, which is a lot. Those are high numbers," he says.

DSV Panalpina handled 575,000 twenty-foot containers (teu) in the first quarter. This is an increase compared to last year, but it is due to DSV this year being able to factor in the activities of Panalpina, which the company acquired in 2019.

Competitor Kuehne + Nagel saw a decline in sea freight of 6.2 percent in the first quarter. The logistics firm is confident that the division will hit bottom in April or May, and Lund makes the same assessment.

Earning ability wanes

Whereas the Panalpina acquisition has a positive effect on freighted volumes, the opposite applies to the operating margins, the numbers most often highlighted within the industry. The margins describe the company's ability to glean earnings from the present revenue.

In the first quarter of last year, DSV had a margin of 10.6 percent in sea and air freight, while the combined company DSV Panalpina is at 6.8 percent in the same business division this year.

"It's Panalpina that enters with a lower margin than what we had before, but the coronavirus also affects some of it," Lund says.

If the margins are to rise again at a time when revenue and activities are dropping, it will require costs to be reduced.

Integration going as planned

Questioned as to whether the current efforts to integrate Panalpina could provide an advantage in the current adjustment plan, Lund answers:

"We're a company that's consolidating, and we did so before and after Panalpina, and with and without corona. We have a business model that can adapt to major changes. That's what we're looking at, and we don't think it's good to end up in a situation like the current one, where we have to take drastic measures. It's not an advantage for us that we have less work to do," he says.

The financial report states that the integration of Panalpina is still going as planned.

"You could say that we had come so far with the integration of Panalpina that we actually had a company that was quite well prepared for the activity level we had before the covid-19 situation [coronavirus, -ed.]. Now we have covid-19, though, so we'll adapt to that."

English Edit: Jonas Sahl Jørgensen

DSV Panalpina to lay off 3,000 as part of cost-cutting measures after coronavirus 

Kuehne + Nagel faces "major challenges" in the coming months  

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