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Jungheinrich - The logistics of long-term growth

Hermes Global Small Cap

Home / Perspectives / Jungheinrich – The logistics of long-term growth

17 May 2016
Small and Mid Cap

The growth of e-commerce and the drive for efficiency in emerging markets are attractive tailwinds for warehouse equipment and logistics suppliers. With its established capabilities and market-leading innovations in each of these markets, Jungheinrich is well placed to capitalise on these trends.

Not on the high street: While logistics is a cyclical market, there are several trends supporting the industry. Globally, e-commerce has grown continuously over the last few years and in the UK alone is still growing 9% year-on-year.1 The logistics systems required to support the market are complex, given the demand for shorter delivery times, broader product ranges and the need to provide direct delivery to consumers. This complexity has driven investment in warehousing and equipment, with the aim of expanding capacity and improving productivity, and this is a clear opportunity for logistic equipment providers.

New markets: Another opportunity for companies in this sector is the growth and evolution of new markets including China. The opportunities here are long term and resilient. The Chinese economy is becoming increasingly consumer-led, with the more complex distribution demands this brings requiring more advanced warehousing and logistics systems. Meanwhile, the integration of technology in its supply chain lags the rest of the world, as only 18% of the material handling equipment in the country is forklift trucks, which are more efficient, compared to 63% in Europe.

The price is not right: Jungheinrich is a German logistics equipment company, whose main business historically has been manufacturing forklift trucks. Competition from Chinese manufacturers of forklift trucks in the European market is limited due to the cost structure of the industry. While Chinese-made machines are cheaper at the point of initial purchase than those produced by Jungheinrich and other established manufacturers, the 10-year life cycle of the trucks means that servicing and operating costs are a higher proportion of overall costs and so the higher quality, more efficient machines produced by Jungheinrich reduce costs over the long run.

Fast and reliable servicing also helps reduce downtime and is a key way to lower costs, particularly in Europe where high land and labour costs make periods of forced suspension costly. With 4,300 servicing engineers, Jungheinrich has built an efficient maintenance and repairs unit that serves as a competitive advantage. Servicing and spare parts account for almost 30% of the company’s sales and is a high margin, recurring revenue stream.

Future proofing: Automation across the supply chain, from driverless trucks to more efficient picking, is becoming an increasingly critical element of the logistics industry globally, particularly as manufacturers, logistics operators, retailers and wholesalers seek to cut costs and deal with more complex requirements. Jungheinrich has invested heavily in this area to take advantage of its existing and extensive client base.

Jungheinrich’s product range encompasses the entire warehousing process, meaning it can be used to fully automate a warehouse or to automate individual aspects. A key aspect of this is its warehouse management software, which is integrated into customers’ other systems and is often used across multiple sites. This uncommon ability to provide complete logistic systems helps drive sales growth, with around a quarter of new truck sales come through these integrated solutions, while increasing barriers to entry for its competitors. Customers’ reliance on Jungheinrich’s software provides a further barrier to entry by raising switching costs, while the increasing demand for automation is a fundamental growth opportunity for the business.

Jungheinrich’s stock price, 2014 - 2016


Source: Hermes, Bloomberg as at 30 April 2016

A continual recovery: We initiated our position in Jungheinrich in April 2014, when the number of European forklifts sold was 25% below the 2007 peak. Since then, the gap has reduced to 10% below the previous peak, with the market’s recovery slowed by the muted economic recovery in Europe. We are optimistic regarding the company’s further growth, which should be driven by e-commerce and China. A joint venture with Heli, the largest Chinese distributor of fork lift trucks, should enable Jungheinrich to access a range of new markets and the growing opportunity presented by the Chinese markets. As automation becomes a key source of cost reduction and efficiency for companies throughout the supply chain, the comprehensive range of established products offered by Jungheinrich should enable the company to gain market share.

This document is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The stock mentioned above is currently held within the portfolio.

  1. 1 Retail Sales Index, published by the Office of National Statistics, 21 April 2016.
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Hamish Galpin
Head of Hermes Small & Mid Cap Equities

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