3PL news: 2011 first half revenue for CEVA is up 5.2 percent annually

Despite the many challenges the global economy has caused, it did not stop global third-party logistics (3PL) services provider CEVA Logistics from reporting strong first half numbers earlier this month. For the first half of the year CEVA’s revenue was $3.399 billion Euro or roughly $4.9 billion, which represents a 5.2 percent annual increase. U.S. LM Group News Editor Jeff Berman recently spoke with CEVA CEO John Pattullo about the company’s first half performance and other industry-related items. A transcript of their conversation is below.

LM: Given the economic unease at the moment, CEVA had a strong first half. What were the drivers for that?
Pattullo: This has been driven by tighter management of our freight management network and by continued introduction of our Operations Excellence program, which focuses on using Lean and Kaizen techniques across our business. With regards to revenue, what is working for us is that we are and continue to offer a unique operating model in which we are using integrated, end-to-end selling, so we don’t operate as a contract logistics or freight management company but as more of an end-to-end supply chain company. That seems to be working particularly with bigger customers who tend to want sophisticated end-to-end solutions. Those are the main dynamics, and I think it would also be true to say that it is clear that the markets have been slight so these results for the first half are good, but there have been signs of a slowdown, with the second quarter not being as strong as the first quarter in terms of growth.

LM: With the many austerity measures in place in Europe, coupled with debt issues, what are the subsequent impacts on supply chain operations? Are shippers changing the ways in which they do business or move freight in light of the current economic outlook?
Pattullo: I think it is worth saying that even in Europe there is a bit of a two-seamed economy, with southern Europe, Italy, Spain, Greece having particular economic problems while other countries such as Germany doing somewhat better. In the southern European region, it is very difficult to sustain any type of organic growth with existing customers because their businesses are soft. That said, there is an appetite for new added value supply chain solutions, although customers are wary of the costs that can be required to run major projects. There is a bit of a paradox there, with an appetite for new cost-saving solutions but also uneasiness for putting up the capital required to make needed changes and risk as well.

LM: This can be challenging for shippers, right?
Pattullo: Yes. It creates a situation where things can slow down and things are done more deliberately.

LM: We are dealing with a shaky retail sales market, stock market swings, and the recent debt ceiling issues. With these things creating a fair amount of uncertainty, are you seeing any meaningful or visible signs of a Peak Season?
Pattullo: My view is that it is a little soon to see if those events will translate into a real economic slowdown. We are still operating on the basis that we will see a modest Peak Season but are not planning on the same intensity that we may have seen in previous years and definitely did not see last year. It would be nice to see an upturn over the rest of the year. But it is still too early to tell if things will be very active or not really.

LM: How is CEVA approaching growth in the U.S. and all of North America?
Pattullo: Our main strategy is to run North America in an integrated fashion—to combine freight management and contract logistics activities. We have done this. We have regional managers in the U.S. (East, Central, and West), and those people running these regions are responsible for our contract logistics and freight management business there. Integration is the main theme, and the second one is triggered by our North America efforts in the form of a separate business unit in Canada that was previously managed as an off-shoot of the U.S. That is the right thing to do as it brings more focus to that market. We also have a similar set-up in Mexico, too, which was also part of our U.S. operations.

LM: Diesel prices are below $4 per gallon in the U.S. but are still roughly $1 per gallon higher than a year ago. Any declines in price are viewed as good news. How does CEVA approach fuel management and how does it fit into its strategy.
Pattullo: As a supply chain services provider for the most part, we pass through fuel costs to customers so any reduction in price is good news for them. When prices are rising, it marginally hits our margins, because we cannot pass it through as quickly as it rises. And when prices are falling, it marginally helps our margins for the same reason. We pass fuel through, and we want to buy fuel as efficiently as we can, with customers wanting us to pass it through at a good, efficient price. But it is not something that hugely impacts our business. When prices get to a certain level, shippers look at their supply chains and try to determine if there is a more efficient supply chain design that uses less fuel.

LM: Are you hearing anything new from shippers as to things they are looking for from a 3PL, given the current economic situation?
Pattullo: I would say that the two things I have heard most are control and visibility of the extended supply chain: let me know where my product is and help me manage my inventory as tightly as I can and give me data all the way through the supply chain. As supply chains have globalized and extended, that has become the biggest need for many shippers that I have seen. Another thing that may be more of an emerging shipper need is that shippers are more willing to let 3PLs provide more guidance and help in things that are not their strengths—like technology—and letting 3PLs really run that part of operations for them.