Freightways has posted a $47.4 million profit for the 12 months to June 30.
This is down 25% year-on-year despite operating as an essential service across every one of its business units during the COVID-19 lockdowns in New Zealand and Australia. Total revenue for the period was up 3% to $630.9m.
The challenges have been “many and varied” during the pandemic, the company says. Its brands helped to pick up, process and deliver over 20 million essential items for customers during the period.
This includes the delivery of food and personal protective equipment (PPE), the retrieval of hospital files held in offsite storage, the establishment of new trans-Tasman airfreight services, to the collection of medical waste from newly formed quarantine facilities.
Following the initial drop in activity during lockdowns, the company says it steadily improved through the lifting of restrictions, although the recovery in Australia has now been affected by an outbreak in Victoria and New Zealand has experienced another lockdown.
Freightways says the “current environment remains highly uncertain” and it has suspended a final FY20 dividend to shareholders.
“The board feels the prudent course of action is to not declare a final dividend for FY20 given the uncertainty in both the NZ and Australian markets.
“While recent trading has been strong in NZ, there has been a recent return to level 3 lockdown in Auckland and level 2 nationally along with a continued severe lockdown in Victoria.
“The consensus is the full economic impact has yet to be felt in either country at this stage,” the company says.
Management and directors took a 20% cut in fees and fixed salaries for the quarter and some of its businesses accessed the government wage subsidy.
COVID-19 driving delivery demand
COVID-19 drove changes in consumer behaviour and, following the initial impact of lockdowns in NZ, the courier industry has seen a surge in the number of parcels, it says.
“While some of our competitors struggled to cope with that flow, our people responded to the change in volumes and got on with making it work. The teamwork amongst the businesses was inspiring. Our people volunteered for roles as freight sorters and couriers to get the job done.
“We had to react quickly and decisively because level 4 lockdown had such a deep and immediate effect on us. Express Package volumes initially dropped by 65% while Information Management activity in New Zealand ground to a halt, leaving us with just storage revenue.
“In Australia, the decrease in Information Management activity was around 25% but while the impact has been shallower, it has also been more prolonged than in New Zealand and continues into FY21 particularly in Victoria and NSW.
“We quickly adapted to this dramatic reduction in activity, cutting our discretionary costs, reducing our wage and salary costs by rostering for lower volumes, taking leave without pay and through most of our team working less hours to reduce our overall labour costs.
“In line with lower volumes, our businesses moved quickly to right size operations by removing linehaul runs, flights and other variable costs to minimise the impact on profitability,” the company says.
Express Package
Freightways saw steady increases in organic volume up until March 25 when the level 4 lockdown began.
As New Zealand moved through lockdown levels 4 to 2, it experienced growth in the proportion of B2C freight.
This came from a combination of supporting customers who were changing their models to enable B2C for their essential items as well as increasing charitable deliveries (performed at cost). By June, this B2C proportion had moderated from around half of all deliveries back to 24%, yet still 4% higher than pre-COVID-19.
This has accelerated a trend that was already expected before the epidemic, and for which Freightways says it had been preparing for through its pricing for effort (PFE) programme (of 73c per item) as B2C deliveries attract lower margins than B2B for the company.
Residential productivity through the lockdown period increased by 17%, assisted by less congested roads and a greater proportion of first-time deliveries because receivers were home to accept items.
Courier pay was impacted by the COVID-19 lockdown period, being 2% behind last year’s average of $103k p.a. per contractor. Self-employed contractors were able to draw on the government wage subsidy if their income dropped by 30% in a given month.
The company says volumes in June, July and August to date have been “stronger than expected”, attributable to market share gains and also higher levels of organic trade.
“We remain wary as volumes are still sensitive to overall economic conditions. At this stage, they seem to be driven by a combination of pent up demand, stronger than expected retail sales and sustained B2C volumes,” it says.
The company’s recent acquisition of Big Chill initially suffered a 22% decline in revenue through level 4 and 15% through nationwide level 3. Despite this, the business was able to adjust quickly and reduce costs in response to lower demand. Business conditions had improved by June, with the last month of the year delivering revenue growth of 15% year-on-year. 
“Big Chill’s expansion into 3PL in Auckland will be a focus as well as taking advantage of a larger temperature-controlled Wellington hub,” Freightways says.
“Customers will be able to benefit from a fully outsourced storage, picking & labelling service that links seamlessly into Big Chill’s national delivery network.
“There are a number of new market opportunities for Big Chill, some of which will leverage the ability to provide a last-mile express delivery service to customers as well as improving their customer experience by leveraging our suite of express package technology,” it says.
Through Q4 Freightways also provided 1.4 million kgs of international trans-Tasman airfreight capacity as part of the Government’s International Airfreight Capacity Scheme. The agreement has been extended through until the end of August when it will again be reviewed by the Government.
Outlook
Freightways says it’s encouraged by strong early trading results achieved in the last few months, however the economic backdrop to FY21 can “best be described as uncertain for all business units in Australia and New Zealand”.
“In Express Package, the current higher level of volume, which includes a slightly higher proportion of lower-margin B2C deliveries, will likely eventually track the level of macro-economic activity and of business and consumer confidence.
“In Information Management, whilst storage revenues are reasonably resilient, the activity-based revenue streams will be driven by the number of people returning to office environments and, in some cases, this will be lower than pre-COVID-19.
“In both divisions, we will react quickly to any reduction or growth in volumes to ensure we are providing services as efficiently as possible whilst maintaining the service standards our customers expect.
“We expect that COVID-19 will also continue to provide opportunities that our teams can capitalise on, either for new services, market share opportunities from customers valuing our reliability or the potential for accretive acquisitions.
“While Freightways is not alone in being cautious around the outlook for FY21 in a macro-economic sense, our stakeholders can be assured that our response to movements in volume will be swift but will not compromise on service to customers and the safety of our people,” the company says.
