Kuehne & Nagel International AG

views updated

Kuehne & Nagel International AG

P.O. Box 67
CH-8834 Schindellegi
Switzerland
Telephone: (01) 786 9511
Fax: (01) 786 9595
Web site: http://www.kuehne-nagel.com

Public Company
Incorporated: 1890 as Kühne & Nagel, Bremen
Employees: 17,500
Sales: SFr 8.4 billion ($6.1 billion) (2001)
Stock Exchanges: Swiss
Ticker Symbol: KNIN
NAIC: 493110 General Warehousing and Storage; 484121 General Freight Trucking, Long-Distance, Truckload; 483211 Inland Water Freight Transportation; 481112 Scheduled Freight Air Transportation; 541614 Process, Physical Distribution, and Logistics Consulting Services

Kuehne & Nagel International AG (KN) operates as a leading transport and logistics concern with more than 600 locations in 94 countries. The company’s international forwarding unit includes sea and airfreight, international overland, and rail business segments. KN also acts as a major contract logistics firm offering a wide range of warehousing and distribution services, as well as specialized defense and airport logistic services. Third-generation family member Klaus-Michael Kuehne owns 55.75 percent of KN and acts as president and delegate of the firm’s board of directors. In 2000, KN entered an alliance with Singapore-based SembCorp Logistics Ltd., gaining a foothold in the Asia-Pacific region. As a result of the deal, SembCorp took a 20 percent stake in KN. The group is known as both Kühne & Nagel and Kuehne & Nagel, depending on language and country. In German-speaking countries, France, and Turkey, the company is referred to as Kühne & Nagel. In all other languages, however, the ü has been replace with ue.

Early History: Late 1800s-Early 1900s

August Kühne, the son of a forester, was born in 1855. He had intended to study law, but when his father could not afford to fund his studies, he began an apprenticeship with L.G. Dyes & Co., a Bremen import and export company. He completed his apprenticeship but was laid off during the economic slump of the mid-1870s. After a while he began work as a shipping clerk with Fr. Naumann, a forwarding company in Bremen. He rose to be a partner in the firm and became engaged to Naumann’s daughter. She died before the wedding and August later fell out with Naumann. In 1890 he left Naumann’s company to set up his own business.

Friedrich Nagel, who was born in 1864, was a shipping agent at Fr. Naumann. August Kühne persuaded Nagel to join him as a business partner. They scraped together their working capital of just 30,000 marks, and placed an advertisement in the Bremen Nachrichten, the local newspaper, on July 1, 1890. The advertisement announced that “a forwarding and commissioning agency under the name of Kühne & Nagel has been established here and in Bremerhaven.”

Initially KN went into business as a forwarder of glassware and cotton. An essential part of the activities of a forwarding agent is pooling services, the grouping together of consignments from several customers to form one full load, to be transported to the same destination. The risk is that railway cars must sometimes travel half full to meet deadlines. KN kept to schedules, absorbing extra costs itself, and the clients’ confidence was won. At the same time, the firm established warehouses for brand-name merchandise.

During the final years of the 19th century, sugar was a main German export commodity. When the Weser River, along which much sugar was shipped to England, froze up, August Kühne sensed an opportunity for more business. He convinced the managers of large sugar refineries in Hamburg that the problem could be solved by his forwarding firm. KN routed the sugar during the winter months by rail to Bremen, where it was transferred to ocean-going ships.

Before long the firm’s activities included general export and import shipping, and specialization in expert handling, sampling and testing of cotton, grain, lumber, feedstuff, and sugar. Added to this were pooling services or consolidations, general warehousing, and distribution warehouses for the ever-increasing volume of brand-name merchandise.

When it became apparent the firm needed a branch in Hamburg, its foundation was entrusted to Adolf Maass, a former apprentice with the firm who had become manager of the glass transport department. Maass founded the Hamburg office at Groningerstrasse in February 1902. The branch developed rapidly, and transport by water along the Elbe River began to flourish. In 1910 Adolf Maass became a partner in KN.

In 1907 Friedrich Nagel died, and August Kühne took over his shares in the business. Although no member of the Nagel family has been involved with the firm since Friedrich’s death, Kühne & Nagel had already become an established name among freight forwarders, and so Nagel’s name has been retained in the company’s title.

August Kühne’s thoughts turned to a successor. His eldest son had died, and two other sons had expressed no interest in joining the business. One son, Alfred, however, decided to forego training as an artist, and in 1910 began an apprenticeship in the Hamburg branch. After two years, Alfred Kühne continued his apprenticeship in Bremen, working in all the main departments, under the supervision of his father.

In 1909 August Kühne acquired the von Kapff Mansion near the Weser Bridge in Bremen, where he had worked as an apprentice. He converted the building into his company’s headquarters, and it was still the site of KN’s German head office in the early 1990s.

In the years before World War I the business flourished. Both the Bremen and Hamburg branches were efficient and profitable, employing 50 people between them. Bremerhaven had warehousing facilities, just like Bremen; there were representatives of the firm in Lübeck and Leipzig, and in 1913 an office was opened in Berlin, the capital of imperial Germany.

Finding Opportunity in the 1920s

The outbreak of World War I in August 1914 brought business to a near-standstill, however. Most overseas connections were cut immediately. Many employees were called up for military service, while others volunteered, including Alfred Kühne, his younger brother Werner, and Adolf Maass. August Kühne tried to keep the business going, but the total naval blockage of 1915 put an end to the last ocean connections that had been sustained with a few neutral states. By the end of the war in 1918, German merchant ships had all but disappeared from the seas. All cargo ships had to be surrendered to the victorious powers and operated under foreign flags. German offices, warehouses, and seaports were undamaged, however. Whereas before the war KN had engaged mainly in transporting imported merchandise, now the firm handled increasing amounts of exports.

Alfred Kühne, who had spent some time arranging sea freight forwarding in Rotterdam, returned to his father’s company in 1921. At the same time, his brother Werner also joined the Bremen office. In the autumn of 1921 they both moved to Hamburg.

In the early 1920s KN took over another company, Johs. Weber & Freund, which brought in more business in the field of imports as well as in the pooling service. A joint venture with a Prague forwarding agent, the Europäische Transport-gesell-schaft, increased dealings with Czechoslovakia.

The rapid devaluation of the German mark in 1923 brought havoc to German businesses. The Hamburg branch of KN was weakened by the departure of five head clerks who set up in business on their own and persuaded other clerks to join them. Even Adolf Maass, manager of the Hamburg branch, thought of leaving. Alfred and Werner Kühne, aged 28 and 25, respectively, persuaded their father to let them run the Hamburg office. Alfred took over the import department, Werner the export department, and Adolf Maass remained, running the bulk cargo and grain departments as well as the business with Czechoslovakia.

Alfred Kühne wanted to extend the existing special services handling raw materials. He established services for cocoa and leather products and developed the firm’s business with Switzerland and Austria, also venturing into the Balkan countries. Werner Kühne expanded the export department, setting up services to England, South America, the United States, and Canada. He traveled abroad a great deal, creating a network of foreign representatives.

In 1924 a branch was opened in Lübeck to handle traffic in the Baltic sea. Additional domestic representative offices were opened in Cottbus, Magdeburg, Gera, Erfurt, Frankfurt, Braunschweig, Hanover, and Stuttgart. In 1928 August Kühne made both sons his partners.

The later 1920s were a time of rampant inflation and mass unemployment in Germany. Like nearly all German firms, KN was struck by a serious downturn in business.

Company Perspectives:

The Kuehne & Nagel Group’s strategy of providing high value integrated logistics services will be of decisive importance to the future development of the company. The trend towards outsourcing logistics services continues. Intensified cost pressure in international competition is forcing companies in trade and industry to concentrate on their core competence. The demand for logistics services from a single source and a “Lead Logistics Provider, “able to generate savings potential and increased efficiency by management, coordination and optimization of the global supply chain is growing. For Kuehne & Nagel this represents a new and highly promising business potential.

On May 20, 1932, the founder and senior partner, August Kühne, died at the age of 77. Alfred and Werner Kühne became joint partners, with Werner in Bremen and Alfred in Hamburg, the main offices in the two most important German seaports. When Adolf Maass left in April 1933 to become a partner with his relatives in another business, Alfred and Werner Kühne were left as sole owners.

Cartage and barge operations were added to the Hamburg business, while Bremen expanded the pooling service, lumber shipments, and dealings with England, and had great success handling cotton. In 1932 a bonded warehouse was set up in Leipzig, and in 1934 a KN branch was opened in Stettin, which specialized in handling fibers.

The outbreak of World War II in September 1939 brought overseas traffic to a standstill. A restricted pooling service within Germany operated throughout the war. Highway and traffic routes were opened up, establishing a link to both the Middle East and the Far East, via Russia.

Alfred Kühne suffered from a foot disability, which meant he could not serve in the army. He continued to run the company, helped by Ludwig Rõssinger who had joined KN in 1924 as representative in Frankfurt. KN was reorganized in 1942 and was run from the central office in Berlin. In the same year, a branch was established at Königsberg and another at Regensburg in 1943.

The war left much of Germany’s industry in ruins, and its seaports had been destroyed by bombing. KN’s headquarters in Bremen, including the archives, were completely destroyed during an air raid in 1944. By 1945 there were few docks left in Germany, and large areas of industrial hinterland had been lost. Germany was divided into four occupation zones, while the Allies decided the shape of the future Germany.

Postwar Growth

When the first oceangoing vessels, mostly carrying food parcels from the United States, tied up in Germany, KN established emergency offices and converted its damaged facilities into makeshift work places. Without hope for the resumption of worldwide shipping activities, KN concentrated its efforts on providing transport in the three remaining German occupation zones. In 1946 a branch was established in Dusseldorf, followed by one in Braunschweig in 1947.

Gradually the German economy recovered, helped by a massive amount of aid from the United States, known as the Marshall Plan. Sugar, cocoa, coffee, and cotton imports increased. Ruined quays were rebuilt. Alfred Kühne took the opportunity to erect a modern warehousing and cargo-handling facility in Hamburg Free Port. It was opened in September 1950, and had a storage capacity initially of 6,000 square meters, which was later expanded to 25,000 square meters.

During the period of postwar reconstruction, political leaders and industrialists came increasingly to realize that the future lay in a tightly interlinked Europe. With this in mind, KN swiftly expanded its German organization, linking the seaports by means of rail and trucks. Branches were opened in Frankfurt in 1949; Bonn—the new capital, Passau, and Hanover in 1950; Mannheim in 1953; Cologne in 1954; Munich and Stuttgart in 1955; Bielefeld in 1960; Wuppertal in 1961; and Hagen and Nuremberg in 1963. Altogether the 19 German branches had 1.6 million square feet of storage area.

Changes took place in top management. Werner Kühne emigrated to South Africa at the end of 1951, and Dieter Liesenfeld, junior partner since 1945, left the company at the end of 1953. Ludwig Rössinger became Alfred Kühne’s partner on January 1, 1954.

In the postwar economic boom of the 1950s and 1960s, worldwide cargo traffic assumed great proportions. KN realized that to benefit from the new trade routes it was necessary to have employees on the spot and thus began to establish a worldwide network of operating bases. As well as road, rail, and sea freighting, the air freighting business began to grow in importance.

The formation of the European Economic Community (EEC) produced an increase in traffic; in response KN instituted an express service by rail to and from all EEC countries. KN needed to find suitable forwarding agents in European countries; where this was not possible, KN set up subsidiaries. Consequently, in 1954 establishments were set up in Antwerp and Rotterdam, followed by the foundation of Kühne & Nagel AG, Switzerland, with offices in Basel and Zurich in 1959. In 1963 KN became the majority shareholder in Proodos S.A., of Athens. Special pooling services from Italy were incorporated in 1964, and the Kühne & Nagel S.a.r.I., Milan, was founded. This completed the European organization for the time being.

Canadian Expansion: 1950s

In 1953 a KN subsidiary was founded in Canada, with branches in Toronto and Montreal. At the time Alfred Kühne said, “We want to create an organization paralleling that in Germany and Western Europe. We have chosen Canada because we consider her a country of great potential, and because she is a nation of dynamic progress.” The basis of the Canadian expansion was the tremendous growth in German imports. A licensed customs house broker, J.W. Mills & Son, Ltd., of Montreal and Toronto, was incorporated into KN, thus making it possible to combine shipping operations with customs clearance.

Key Dates:

1890:: August Kühne and Friedrich Nagel establish Kühne & Nagel, a forwarding commission agency.
1902:: Adolf Maass heads up the Hamburg branch office.
1907:: Nagel dies; Kühne takes over his shares.
1914:: The outbreak of World War I brings business to a near-standstill.
1932:: August Kühne dies; sons Alfred and Werner become joint partners.
1946:: KN focuses on providing transport in the three remaining German occupation zones.
1950:: The company opens a modern warehousing and cargo-handling facility in Hamburg Free Port.
1959:: Kühne & Nagel AG is formed in Switzerland.
1981:: British conglomerate Lonrho Pic acquires 50 percent of KN’s shares.
1992:: KN repurchases Lonrho’s shares.
1994:: KN goes public.
2001:: The company acquires USCO Logistics Inc.

In the winter, when Montreal and Toronto were cut off from the Atlantic by the freezing up of the St. Lawrence River, KN used the ice-free ports of Halifax and St. John. Consignments from Europe were loaded into boxcars and sent by rail to Montreal and Toronto. KN also established bonded warehouses and eventually built up a total storage area of 329,000 square meters in Canada.

A branch was opened in Vancouver in 1957 to handle incoming goods from Japan and Hong Kong, and to reship them to eastern Canada. To complete the chain, additional branches were opened in Quebec City, Hamilton, Ontario, and Winnipeg. KN is the biggest freight forwarder in Canada.

By the late 1960s, KN was run by a third-generation member of the Kühne family, Klaus-Michael Kühne, Alfred Kühne’s son. Klaus-Michael Kühne joined his father and Ludwig Rõssinger as a junior partner in 1963, having completed an apprenticeship in banking. In 1966, at the age of 30, he joined the top management as chairman of the executive board. He initiated the further growth of KN’s activities with particular emphasis on Europe and the Far East. The KN organization had 400 offices in 60 countries around the world.

Alfred Kühne died in 1981. In July of that year, the British conglomerate Lonrho Pic acquired 50 percent of KN’s shares at a cost of DM 90 million. After the purchase, Klaus-Michael Kühne and Lonrho’s head, Roland W. (Tiny) Rowland acted as joint chief executives of the entire organization. The main reason for the sale of half of KN to Lonrho was losses sustained by the Kühne family in attempting to expand its shipping fleet.

Expansion: 1980s and Early 1990s

During the 1980s KN Germany operated as the biggest KN company worldwide, even though its senior management was based in Switzerland at Pfäffikon. In 1989 the prestigious German business publication Manager Magazin voted Klaus-Michael Kühne “Mr. Europe,” reflecting the farsighted approach KN took in the increasing economic integration of Europe and the removal of internal trading barriers, scheduled for 1993.

In 1985 KN’s management devised a pan-European strategy to prepare the company for the single European market. The company’s top priority was to expand its transport, warehousing, and distribution network in Europe. This concept was called “KN Euro Logistics.”

To prepare for the single market, KN bought into leading freight companies in Italy (Domenichelli SpA), The Netherlands (Van Vliet BV), the United Kingdom (Hollis Transport Group Ltd.), and Spain (Transportes TresH). Further capacity was acquired in Denmark, Norway, and Sweden. KN also looked to acquire a stake in a suitable company in France. These acquisitions were masterminded by a special corporate development department.

Without doubt, German reunification was the outstanding event of the 1990 business year. In May 1990 KN founded, via a joint venture contract with the former state-owned forwarder VEB Deutrans, the KN Speditions-GmbH in East Berlin. Later, after KN bought out the Deutrans share, it became a wholly owned KN company. It consisted of a network of a dozen branches, field offices, logistics depots, and air freight stations in the five states of the former German Democratic Republic.

By the early 1990s, KN was the second largest freight forwarding firm in Germany, behind Schenker-Rhenus, but reunification provided the impetus to KN to expand its “KN Euro Logistics” service across Germany. KN held the contract to distribute branded goods across Germany for three major manufacturers—Philip Morris, maker of Marlboro cigarettes; Tchibo coffee; and Thomson Consumer Electronics Group.

The 1990 annual report stated that the company’s future strategy would “continue to center on the consolidation and integration of KN’s activities in Europe.” KN’s involvement in Eastern Europe began in the 1950s, when imports of timber, paper, and furniture were forwarded from Romania, Poland, and Hungary. Political and economic liberalization in the former communist-bloc countries presented many business opportunities for KN. KN formed joint ventures or signed contracts of cooperation with local freight forwarders in Soviet Russia, Romania, Bulgaria, Albania, Hungary, Poland, Czechoslovakia, and Yugoslavia. KN aimed to provide the full range of freight forwarding services, as well as special container, trade fair, seaworthy packaging, and distribution services. The company also adopted a new management structure that year, which was designed to aid in European expansion.

The year 1990 saw a reduction in KN’s net operating profits to SFr 34.2 million from SFr 37.5 million in 1989. The decline was in part due to the general economic downturn and to unavoidable losses in connection with the development of new products (“KN Euro Logistics”). The weakening of the U.S. dollar, high interest rates, the Persian Gulf War, and overdemand in some European countries leading to higher costs all contributed to the decline in profitability. Substantial additional costs for freight purchasing were necessary—KN’s own transport capacities were limited at the time. Therefore, KN planned to acquire additional vehicles to fulfill this demand, particularly in Germany. Canada, the Far East, and several European countries were the main contributors to net profits.

Becoming a Major Global Logistics Company: 1990s and Beyond

KN spent the remaining years of the 1990s focused on positioning itself as a major player in the logistics industry. The company’s first step in its game plan included the purchase of Lonrho’s 50 percent stake in the firm. Then in 1992, after securing a record net profit of $26.6 million, KN announced its intention to go public. In May 1994, the company listed on the Zurich and Frankfurt exchanges. The company also established a Russian subsidiary that year and purchased a majority stake in a forwarding concern that had locations in Norway, Sweden, and Denmark. During 1994 KN posted record sales and income.

KN’s strategy, including its focus on its logistics operations, continued to pay off for the company. Sales and income soared as the firm landed lucrative logistics-related contracts, including one with E.I. de Pont de Nemours & Co. in which KN would operate the chemical giant’s leveraged distribution activities in Europe, the Middle East, and Africa. Klaus-Michael Kühne summed up the company’s direction in a 1998 Journal of Commerce article claiming, “Logistics operations are of crucial significance for the further evolution of the Kuehne & Nagel group.” Kühne stepped down from his CEO post in July 1999 but remained president and delegate of the company’s board of directors.

Klaus Herms, KN’s new CEO and longtime company executive, continued in his predecessor’s footsteps in the early years of the new millennium. In November 2000, KN forged a strategic alliance with Singapore-based SembCorp Logistics Ltd., giving the firm a foothold in the Asia Pacific contract logistics market. One year later, the company pushed ahead in the North American market with the $300 million acquisition of USCO Logistics Inc., a warehouse-based logistics service provider based in Hamden, Connecticut. During 2002, Nortel Networks divested its global outbound logistics operations management business to KN, which further strengthened the company’s global reach. KN also was selected by department store chain JCPenney Company Inc. to operate four regional distribution warehouses.

KN’s financial performance continued to move in a positive direction, as it had since the mid-1990s. Both revenue and profits increased during 2001. The faltering North American economy forced KN to restructure certain operations at its new USCO Logistics subsidiary. The company’s other regions, however, proved to be on track for future gains. Europe continued to be the company’s most lucrative market, but its North, Central, and South America; Asian Pacific; and Middle East and Africa businesses continued to strengthen. KN’s international forwarding business was its largest contributor to revenues and contract logistics remained a close second. With a strong global strategy in place and a longstanding history of success behind it, Kuehne & Nagel appeared to be well positioned for growth in the years to come.

Principal Subsidiaries

Kuehne & Nagel Management AG; Kuehne & Nagel Internationale Transporte AG; Kuehne & Nagel Liegenschaften AG; Kuehne & Nagel Treasury AG; Nacora Holding AG; Nacora Agencies AG; Nakurail AG; Ferroviasped Holding AG; Kuehne & Nagel Asia Pacific Holding AG.