Q&A: CEVA Logistics CEO Marv Schlanger

On the heels of its recent recapitalization efforts, global third-party logistics (3PL) services provider CEVA Logistics recently announced that for the second quarter its revenue increased 1.4 percent to $2.148 billion and its adjusted EBITDA increased 50 percent to $80 million. Logistics Management Group News Editor Jeff Berman recently caught up with CEVA CEO Marv Schlanger about the company’s year-to-date performance and its growth prospects, among other topics. A transcript of the conversation is below.

Logistics Management (LM): What are some of your initial thoughts regarding Q2 earnings and how things are going as a company for CEVA?
Marv Schlanger: This year has been the tale of two quarters. The second quarter, I think, reflects a lot of the actions we took both at the end of 2012 and the first part of 2013. The steps we took and things we are putting in place are showing their positive impact. Cost reductions are making their way through the system to the bottom line, as well as things we have changed within our Contract Logistics business that are making their way to the bottom line. Also, our recapitalization is behind us, and our customers in the marketplace respect our strong financial position and are gaining momentum as we win deals from out competitors.

LM: How are you viewing the global economy as it relates to logistics and the supply chain on a year-to-date basis? Are economic conditions still in as rough shape as they were earlier this year?
Schlanger: We are not seeing any real difference in the European economy compared to a few months back. Northern Europe is flattish and southern Europe is weak still. It is summer holiday season there so things are distorted for a bit, but there is not change in the overall trends we have seen throughout the year.

LM: What about the NAFTA economy? How are things doing there in your opinion?
Schlanger: Our domestic NAFTA business is OK or maybe slightly better than that. Imports are not doing robustly but it is still going well.

LM: What components on the domestic side are doing well?
Schlanger: In North and South America, the automobile business is robust, with strong car sales having a definite impact for the businesses serving that industry. We see that in reasonably good shape. Consumer-related business is fair and it is hard to read trends but we see improvement in the domestic consumer business. I would say that the technology business is flat, but we are looking forward—based on what our customers are telling us—to expect an exciting holiday season in technology. But we have not seen that happen yet.

LM: Circling back to your Contract Logistics business, what are some of the changes you have implemented, aside from the termination of several contracts that have helped to drive bottom line improvements?
Schlanger: Terminating some contracts that were underperforming was one thing, as well as some operational issues we had to address. Those were things under our control that we had to get better at and correct, and we have done that in a number of cases. We also have had to renegotiate some contractual terms with our customers to make sure the contracts were more reflective of commercial reality and the actual work we were doing for our customer. I am pleased to say we have had a number of successful negotiations around those kinds of issues.

LM: The recapitalization effort appears to be paying off already. What are some of the things you are seeing so far?
Schlanger: It is almost universally seen by our customers and employees as a very positive transaction in that it is beneficial to CEVA and makes CEVA a stronger player in the supply chain industry. And the result of that and what we consider to be real momentum among our customers is reflected in a number of wins and pieces of business we have been able to capture in the marketplace from our competitors.

LM: Are modal trade-downs by shippers impacting your business in any type of meaningful way?
Schlanger: Shippers are turning to lower-cost options at this time, and that could be things like using ground for domestic moves and ocean for international moves, rather than air. Shippers can do this for a few reasons, including low interest rates and they can afford to carry more inventories without too much of a detrimental cost. We think there is a cost but they are seeing savings in shipping costs being worth the expense of carrying extra inventory. This is a historically low interest environment and sooner or later rates are going to go up. Another thing is shippers have lots of production capacity and demand is not that robust so they can afford to have some flexibility in when they deliver goods to customers. Over time as demand catches up to supply capability and customers need to be more accurate and schedule driven than they are now, there will be an incentive to be much more in control of the timing of when goods appear at their customers’ doors so that will change. Ultimately, we think a good deal of the incentive to downgrade shipping capability will go away and some of that volume will go back to air.

LM: Are you seeing any Peak Season-related activity at this point?
Schlanger: A number of our customers have said we can expect to see increased volumes due to Peak Season, but it is still somewhat early to actually see it yet. We have not seen any big volume pick up to this point, but are expecting something.

LM: What are you hearing from customers in terms of what they are looking for from CEVA?
Schlanger: Most of what I hear is related to the longer term. Customers have confidence in the short term and know their suppliers [logistics services providers] to one extent or another are capable of moving goods for them. And we think with our global footprint and capabilities as a full supply chain services provider we are better than anyone else. The conversations we are having with customers are more about the long term, and what they are looking for is people like ourselves is to provide them with a long-term solution or optimization for their supply chain than they are currently operating. They want us to help them design a supply chain that provides a breakthrough in their service capability and the ability to grow and serve those customers.