As with so many companies, the fourth quarter of last year was a turning point for Kuehne Nagel, one of the world’s largest logistics groups. “It’s as if someone pulled a switch and, all of a sudden, nothing moved,” recalls CFO Gerard van Kesteren. Unlike other companies, however, the SFr22 billion (€14.5 billion) Swiss firm started battening down the hatches relatively early, in October, when air and seafreight volume began to decline. It was an usual situation for K + N executives to find themselves in, having enjoyed double-digit revenue growth ever since the appointment of a new management team — including van Kesteren — in 2000. But since last autumn, the managers’ mantra has been a mixture of strict cost and credit control, “even if it means less growth,” van Kesteren admits. The firm’s fast reactions have left it with a balance sheet heavy in cash and light on debt, allowing it to keep its acquisition strategy active at a time when talk of any sort of M&A is rare at most other companies.
The uncertainty that companies now face is making planning and forecasting virtually impossible in many sectors. What’s the situation at Kuehne + Nagel?
Even if we don’t believe the downturn is something that will end soon, we need to look at what’s happening as a marvellous opportunity to make our company lean after excessive growth and to prepare ourselves for the next phase of development.
But uncertainty is an issue. To give you an idea, before the 2009 budget was finished late last year, the management board had to adjust it, and before the adjustment was finished, we had to adjust that too. So we asked the supervisory board for permission to move to rolling forecasts, by business volume, field, cost, margins and so on.
It’s a completely new concept. The whole annual bottom-up budgeting exercise can be so time consuming, and can paralyse the organisation for months. Of course, we do need an annual budget from a cash flow and from an investment point of view. But we can do it at corporate level because we know the business so well. As for operational budgets, I’m hoping that we’ll continue to use the three-month rolling forecasts.
What is the biggest risk that Kuehne + Nagel faces in the downturn?
The biggest risk for us lies with customers. By way of example, K + N Hong Kong pays the freight to a shipping line for a container that’s exported to Europe, and it takes four weeks for the container to arrive. In today’s turbulence, the customer might go bankrupt during that time.
But we don’t use agents or distributors, so we control the money from the beginning to the end. If Hong Kong pays $4,000 for a 40-foot container to Rotterdam on behalf of a customer, we have a pro forma ledger for any payments that are outstanding, even if they hadn’t been invoiced yet. So if a customer goes bust, the moment the container arrives via the bill of lading, we control ownership of the goods.