Ceva Logistics has reported stable profits in the third quarter despite a 3.3% decline in revenue amidst a challenging business environment and highly volatile exchange rates. According to its senior management, on-going payback from Ceva’s cost reduction programme and strong performance in the automotive sector in the contract logistics and freight management divisions have helped maintain profitability.
The company also sees continuing volatility in markets, along with substantial disruption to automotive and technology customers in Thailand, where Ceva has been taking extraordinary measures to help the country’s flood-stricken factories relocate inventory where possible.
Ceva has maintained EBITDA of €86m ($117m) in the third quarter despite revenue dropping to €1.75 billion from €1.8 billion a year earlier. While Ceva admits that some verticals, such as technology trade on trans-Pacific routes, have held down revenue, the quarterly decline has also been a factor of volatile exchange rates. At constant rates, Ceva revenue would have risen 1.2% and profit would have risen 5.8% to €91m.
Year-to-date operational profits are up 17.2% to €238m, on revenue up just 2.1%. According to CEO John Pattullo, this strong improvement in margin has been down to actions taken over the last 18 months designed to reduce costs and increase operational efficiency. Rubin McDougal, Ceva’s chief financial officer, pointed to initiatives including global standardisation of business processes in freight management, outsourcing certain back office finance operations, combined load building operations and centralising procurement, among others.
But the results have also been helped by services to the automotive industry, which has outperformed other verticals for contract logistics. Ceva has seen automotive revenue increase year-on-year almost 10%, driven by strong manufacturing output, said McDougal. “As we looked at our competitors’ rates, contract logistics has been tough for some, but for us it has actually been a very good market, particularly automotive,” he told Automotive Logistics.
Automotive business represented just over a quarter of the company’s business last year, equal to 26% in terms of year-on-year revenue.
In terms of freight management, logistic providers have been challenged on Trans-Pacific routes, especially in the movement of goods for the technology sector. By contrast automotive was doing better, said McDougal, adding that Asia-Europe routes were also healthy.
This improvement has been helped by new contracts. The latest quarterly figures show that business wins across the company totalled €391m, with one of the strongest growth sectors being automotive. While the company could not provide a breakdown by sector for this total McDougal said automotive figured heavily in the list of global wins, including business for Suzuki in the UK and for Chrysler in France and Poland.
Earlier this year the company also announced new inbound supply contracts with Honda in Brazil and the UK (read more here). 
While the fragile economy is having an impact on Ceva’s results, McDougal indicated that Ceva’s asset light model was helping it succeed, as well as the relative strength of automotive production. Asked whether volatility over the last three quarters was making it difficult for Ceva to plan investments or prioritise the right actions needed to secure business, McDougal said it had not been a huge challenge.
“In some respects it is actually to our benefit because what we are able to do is move our capacity from X to Z without incurring a lot of cost,” he said. “If our customer says ‘I’ve decided to source it from market A and not market B’, we can flex those resources quite considerably.”
Less-than-container load shift
The company has also seen growth in its ocean services and is seeing volume increase there thanks, in part, to the expansion of the less-than-container load (LCL) offering and in some part down to the drop in container rates. Falling rates generally help freight forwarders’ margins because the forwarder pays less to the shipping line while still collecting higher rates from previous agreements with customers.
“As far as margin goes, clearly the drop in [container shipping] rates has a beneficial impact,” said McDougal, but he added that as far as revenue went the drop was having a detrimental impact on performance.
“As rates drop there is typically a lag impact and that is what we are seeing in part, and when rates go up there is a lag in the other direction,” he said. “But it is having an impact on margins.”
In terms of the LCL expansion, this marks a shift from its previous preference for full container loads and the farming out of the load building activity to third parties.
The company is now able to build loads more effectively for customers, including those in the automotive sector, because it has taken that activity inhouse.
“That is true of a number of countries in Asia. It is not just a single country, there are several sites where we are dealing with a number of manufacturers where the LCL business for building a container load has now been moved inside,” said McDougal. “This makes it faster and makes it more efficient for us because we take away that third party administrative hassle.”
The shift to include LCL also facilitates more integrated end-to-end solutions with its customers.
“If we are dealing with their container and have their LCL, and can do both ends, it makes it a more persuasive and comprehensive solution,” said McDougal.
Impact in Thailand
According to Ceva, the current exception to strength in the automotive sector is the disruption to production in Thailand following the unprecedented flooding in the country.
“The only outlier is those manufacturers currently being impacted by the situation in Thailand,” noted McDougal. “We have seen that and, of course, local Thai production is very heavily impacted, but in some cases it is affecting production outside of Thailand because it is part of the supply base.”
McDougal said that Ceva was “the number one freight management expert in the country” and the company has reported that it is assisting manufacturers based in Thailand by moving inventory and using its global networks to reengineer the supply chain. This has included the transport of inventory from facilities in the affected areas to relocated warehouses leased by Ceva and supplied with its own IT systems.
“We have also in some cases taken the product outside of the country and put it into a warehouse using charters that we have arranged,” added McDougal.
Ceva currently have more than 120 people working to assist customers in Thailand, and predicts that the full extent of the impact will only be known once the flood waters abate.