3PL Q&A with John Pattullo, CEO of CEVA Logistics
August 03, 2012
At a time when the global economic outlook is shaky, third-party logistics (3PL) services providers have a unique perch into how things look from both a macro and geographic perspective. This is especially true for global third-party logistics (3PL) services provider CEVA Logistics.
This week, CEVA reported second quarter revenue of $1.81 billion Euro or $2.2 billion U.S. which was up 5.5 percent annually. Revenues for its Freight Management unit, which is comprised of air, ocean and customs brokerage, were up 9 percent for the quarter, and its Contract Logistics business, which includes warehousing and dedicated transport, showed a 3 percent annual gain. Revenue for the first half of the year—at $3.52 billion Euro—or $4.3 billion U.S.—was up 3.5 percent compared to the first half of 2011.
While revenue was up for both the second quarter and first half of the year, CEVA’s EBITDA for the second quarter and the first half was down 13.6 percent and 10.5 percent, respectively.
LM Group News Editor Jeff Berman spoke with CEVA CEO John Pattullo about the company’s second quarter and first half performance and other industry-related items. A transcript of their conversation is below.
Logistics Management (LM): Can you please provide an overview from a CEVA perspective on the company’s performance for the second quarter and year-to-date?
John Pattullo: For sure, it was a challenging quarter. We saw customer sentiment become a bit more pessimistic and flat air and ocean margins. In southern Europe, we felt the impact of the economic downturn. It made for a challenging quarter with all of those things going on. As a company, I think we are adapting well during these tougher times.
LM: In what ways?
Pattullo: We have implemented a number of cost reduction programs, and our business development efforts, led by our new Chief Commercial Officer Inna Kuznetsova are going well, particularly on the Contract Logistics side. Our real bright spot is ocean, which continues to outperform the market.
LM: In the earnings release, CEVA mentioned how the company is taking steps to address its decline in profitability with a program addressing both direct and indirect costs. Can you please provide some examples?
Pattullo: We are doing all of the obvious things most companies do when things are tough like putting a hiring freeze in place and cutting down on travel costs and other things along those lines. When we look at our Freight Management business, we did pretty well on the net revenue/gross profit line, but on the EDITDA line we did not do as well. We have not been as focused as we could have been on our station direct costs so we have launched a number of efforts focused on that. Another component is in southern Europe and its very soft economy. Some of our customers in Italy have seen annual declines of 20 percent or more for their businesses, making it very difficult to sustain profits. In Italy, what we are doing is consolidating sites and focused on some overhead reductions, too.
LM: Southern Europe remains an economic drag as do parts of the Asia-Pacific region. Regarding the global economic climate in regards to CEVA’s operations, what are some of the biggest concerns for the company at the moment on a year-to-date basis?
Pattullo: We definitely are seeing a slowdown in China from a geographic point of view. It is a slow down in the economic growth rate. And most countries in southern Europe are in decline. We view the Americas as being the most buoyant of the major regions in terms of economy and growth, but there are now signs that things are slowing down there, too. Our automotive business has held up pretty well, and we have seen consumer retail continue to grow strongly for us. These are areas we are working on to build a more balanced portfolio.
LM: What are you seeing in the ocean market along the lines of capacity and rates?
Pattullo: It remains a market where capacity continues to exceed demand. We have seen a number of selective rate increases in the March-April period, but there has been some softening since those rate increases were announced. From my view, it is a market still dealing with overcapacity and pricing is slightly more dynamic than it was and more dynamic than air while pricing remains relatively stable.
LM: What about the air cargo market?
Pattullo: We are seeing some movement out of air into ocean and in some cases into over the road. Customers are moving away from the high costs of air freight in a market which is significantly overcapacity. For global airfreight in the first half of the year, the market fell by 4 percent, which is significant. Air is really a challenging market right now. Modal shifts are not uncommon at all right now.
LM: Given your presence in Europe, coupled with the economic malaise throughout much of the continent, how is CEVA working with shippers there to make things more fluid and efficient from a supply chain and logistics perspective?
Pattullo: Customers over there are very precise and demanding in what they are looking for in terms of things like quality, service, and costs improvement. We are doing the best job we can to meet their needs there and are doing particularly well there on the Contract Logistics side. The reason for that is we are offering high-quality, world-class operations. In tough times, customers are looking for even a higher level of performance and standards than normal from their logistics service providers.
LM: Contract Logistics revenues were up 3 in the second quarter. What needs to happen to boost revenues for that segment?
Pattullo: We are seeing positive growth on new Contract Logistics wins. Our wins year-to-date for Contract Logistics are up 22 percent annually. We are looking to build that up more in southern Europe, where we have lost some profitability, due to declining customer volumes in southern Europe, which has led customers to think about consolidating operations there to reduce overhead. And in the Americas we have had a handful of sites that are underperforming that we are focusing on.
LM: What are customers telling you they want and need from CEVA as a 3PL these days?
Pattullo: Our large, multinational customers want control and visibility into their supply chain from raw materials coming from China to their end destination. They want visibility to have access for all freight movements and hand-offs along the supply chain. Another component is in the area of compliance. In a global operational network, they will have their own standards of legislative compliance
Subscribe to Logistics Management magazine
entire logistics operation. Start your FREE subscription today!