The freight rate fell, and the net profit of China Eastern Airlines Logistics fell by more than 30%! Cross-border e-commerce related revenue increased by 70%, and airlines grabbed the "cake"

Source of this article: Times Finance Author: He Mingliang

Image source: China Eastern Airlines Logistics WeChat public account

On the evening of April 23, China Eastern Airlines Logistics (601156. SH) announced its 2023 annual report, with its annual operating income falling by 12.14% year-on-year to 20.621 billion yuan, and net profit attributable to the parent company falling by 31.58% year-on-year to 2.488 billion yuan.

At the same time, the gross profit of the main business of China Eastern Airlines Logistics was 4.433 billion yuan, down 31.76% year-on-year, and the comprehensive gross profit margin was 21.51%, down 6.18 percentage points year-on-year.

China Eastern Airlines Logistics explained in its annual report that the decline in profits was mainly due to the gradual recovery of the air cargo market to a new normal stage, and the sharp decline in freight rates year-on-year.

Unlike air passenger transport, which was hit hard during the epidemic, air cargo during the three-year epidemic period, factors such as demand growth and insufficient capacity once pushed up freight rates, which also allowed air cargo companies to reap excess profits.

For example, China Eastern Airlines (600115. SH), its revenue in 2022 decreased by more than 70 billion yuan compared with 2019, and the cumulative loss of net profit attributable to the parent company in 2020~2022 exceeded 60 billion yuan, but the revenue and net profit attributable to the parent company of China Eastern Airlines, which is mainly engaged in freight, have been rising, from 11.296 billion yuan and 788 million yuan in 2019 to 23.470 billion yuan and 3.637 billion yuan in 2022, an increase of 107.77% and 361.55% respectively.

The decline in freight rates dragged down the air express business

Since the gradual recovery of global air cargo capacity in 2022, freight rates have fallen. On the supply side, with the resumption of international passenger routes, the belly compartment of international passenger aircraft will recover rapidly, and the supply of international capacity will increase significantly.

In terms of business segments, the performance of air express, which accounted for 40% of the logistics revenue of China Eastern Airlines last year, declined the most, with revenue down 31.37% year-on-year to 9.117 billion yuan, gross profit down 51.78% year-on-year to 2.241 billion yuan, and gross profit margin down 10.41 percentage points to 24.58%.

China Eastern Airlines Logistics explained that with the gradual recovery of the air cargo market to the new normal stage, the freight rate has fallen sharply, and the total turnover of its cargo and mail transportation in 2023 will increase by 18.80% year-on-year, but the revenue will decrease by 31.37% year-on-year.

The scale of ground comprehensive service revenue increased slightly, increasing by 0.55% to 2.367 billion yuan in 2023, gross profit increased by 119.87% to 958 million yuan, and the gross profit margin was restored to 40.48% from 18.51% in 2022, which is at a historical normal level. China Eastern Airlines Logistics explained that from the cost side, the labor cost of this business segment will decrease year-on-year in 2023, and at the same time, the expenditure on epidemic prevention expenses will be reduced compared with 2022.

In terms of integrated logistics solutions, revenue increased by 16.74% year-on-year to RMB9.125 billion, while gross profit decreased by 12.65% year-on-year to RMB1.233 billion, and gross profit margin decreased by 4.54 percentage points to 13.52%. China Eastern Airlines Logistics said that the company gave full play to the advantages of resources such as air transportation and ground cargo station operations, strengthened direct customer marketing, etc., but in the case of a sharp decline in air freight rates, the gross profit margin declined.

Cross-border logistics is good for air cargo

In recent years, cross-border e-commerce represented by Shein and Pinduoduo Temu has developed vigorously. In September 2022, Pinduoduo Temu was officially launched in the U.S. market, and became the most popular shopping app in the U.S. in just a few months, with an average daily merchandise transaction volume of more than $1.5 million in the first month of its launch.

With the outbreak of domestic cross-border e-commerce logistics demand, it has brought benefits to the air cargo field, and airlines have also grabbed this "cake".

According to the prospectus of China Southern Airlines Logistics, in 2021, Shein did not enter the ranks of its top five customers, but in 2022, it jumped to become the second largest customer, and in the first half of 2023, it surpassed Apple to become the largest customer of China Southern Airlines Logistics, and its revenue proportion also increased from 4.41% to 12.79%.

Air Cargo's prospectus also shows that it first set foot in cross-border e-commerce logistics services in 2007, gradually expanded resource investment since 2018, and then set up an independent business segment.

Lv Daliang, spokesman of the General Administration of Customs and director of the Department of Statistics and Analysis, revealed at a press conference in January this year that according to preliminary estimates, in 2023, the import and export of cross-border e-commerce in mainland China will be 2.38 trillion yuan, an increase of 15.6%. Among them, exports were 1.83 trillion yuan, an increase of 19.6%.

It is worth noting that Shein and Temu are both headquartered in Guangzhou, Guangdong Province in South China, while China Eastern Airlines and China Eastern Airlines Logistics are based in Shanghai in East China.

However, a person related to a listed airport pointed out to Times Finance that "the whole country is transporting cross-border e-commerce goods in the Pearl River Delta, and many airports are attracting the supply of goods in the Pearl River Delta in the form of subsidies, and a flight can give a subsidy of more than one million yuan." ”

"The international air traffic rights in the territory are mainly gathered in Beijing, Shanghai, Guangzhou three cities, Shanghai Pudong Airport has the advantage of a lot of international air traffic rights, and the route from Shanghai to and from the United States, than Guangzhou or Shenzhen to and from the United States flight time is less, has a greater cost advantage. The above-mentioned airport source said.

China Eastern Logistics has also noticed the booming demand for e-commerce cross-border freight in South China.

According to its annual report, in 2023, China Eastern Airlines Logistics will operate two full-freighter scheduled routes departing from Shenzhen and covering the European and American markets to serve the cross-border e-commerce needs of the South China market, and use the capacity of Shanghai to meet customer shipment needs through the "South-to-North Cargo Transfer".

In addition, based on the customized needs of manufacturing customers in the East China market and e-commerce customers in the South China market, China Eastern Airlines Logistics has optimized the transfer routes of transit trucks and the connection of passenger and cargo aircraft flights, and upgraded the product system of routes from Nanjing, Chengdu and Kunming to Europe and the United States.

In February 2024, China Eastern Airlines and Shein Shein signed a memorandum of understanding (MOU) to deepen cooperation by enriching the route network, expanding the charter business, and strengthening the logistics layout in South China and overseas markets.

In 2023, the main business income of China Eastern Logistics' cross-border e-commerce solution will reach 4.698 billion yuan, an increase of 71.71% year-on-year. Moreover, in 2018~2023, the compound growth rate of the company's revenue in this segment will reach 73.60%, accounting for 2.74% of the company's overall revenue from 2.74% in 2018 to 22.79% in 2023.