Ceva Logistics is glad to see the back of a second quarter that its chief financial officer, Rubin McDougal (pictured), said was disappointing in terms of projected volume growth in the air freight division and a poor performance in the contract logistics sector, in large part because of losses in southern Europe. “I’m glad it’s over,” he told Automotive Logistics News.
“We have a big presence in southern Europe and those contracts performed poorly as some of the key customers saw their businesses decline by as much as 15-20% in some cases,” McDougal said. “Southern Europe was the biggest drain and our biggest piece of business in the that region is in the automotive sector,” he added.
Results for the second quarter, released last week, show that revenue increased 5.5% to €1,808m ($2,229m) on the same quarter in 2011 but that adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) showed a decline of 13.6% to €70m. While freight management maintained EBITDA at the same level as the same period last year and accounted for a revenue increase of 9%, it was offset by a decline in contract logistics, which though it reported 3% growth, actually showed a decline in the adjustments.
However, the company did see some gains in ocean freight, gaining market share from smaller players and performing “marginally better than the industry average” according to the company. The automotive sector remains “a bright spot” in terms of ocean shipments for Ceva, which has seen its customers get a better grasp of their operations, especially in Asia Pacific. McDougal said that the greatest part of the significant growth it has seen in its less-than-container-load ocean business is in the automotive sector. In fact, it is this modal shift to ocean that has partly impacted air freight volumes.
“If you are an automotive manufacturer it makes sense,” said McDougal. “[The customer] has better discipline in their processes, having improved certain things, and are able to take advantage of our ability to provide a very good ocean option.”
McDougal said that the let up in pressure on manufacturing capacity has afforded certain companies latitude to shift more of their volume onto ocean services.
That said, McDougal highlighted the fact that air freight was cyclical and that once an economic rebound occurred, the sector would see above average growth.
With regard to its contract logistics business, Ceva is now looking at what it termed “cost reduction opportunities”, both direct and indirect. This includes such things as reducing the amount of facilities it uses in southern Europe by not renewing leases or scrutinising individual contracts and offering a customer the chance to switch their dedicated facility into a multi-user one.
“We use an opportunity such as this to compress the footprint. In some contract logistics sites we able to go in and take out certain costs very quickly through rationalising the footprint and getting better capacity utilisation,” said McDougal.
On the freight management side, the company is in better shape and will not be closing any of its stations. Across the network the company’s facilities stand to benefit from its Project Uno standardisation initiative, which is near completion.
McDougal said that the initiative was delivering consistent processes and systems that allow Ceva to look at its metrics around the world in a uniform way.
“We can look at areas that were harder to see in the past and have identified productivity opportunities that allow us to do the same amount of work using different processes,” he said.
This includes reducing the amount of labour the company previously used to move a single shipment by better using core staff and reducing overtime.
“Or we may have other situations where we can reduce the amount of equipment needed because we have gotten more efficient,” added McDougal.
In Asia Pacific, where Ceva is doing well, the situation is favourable for other reasons. Here the market appears to be shifting from one in which companies have historically tended to be more internally integrated for logistics, to one where there are now a greater number of first-time outsourcers.
Using China as an example, McDougal said that indigenous companies are increasing their use of outsourced providers for such activities as managing their warehouses, providing opportunities for Ceva.
“It is not just economic growth but the changing behaviour of customers,” he noted, something that has become more pronounced over the last 6-18 months.
On the question of Ceva’s initial moves in May this year to float its business on the New York Stock Exchange in a bid to raise $400m in share capital, there was little to report.
McDougal said that the filing was a procedural step that was necessary to the eventual process of a stock flotation but which did not commit the company to doing so.