CEVA quarterly revenue is up 5.1 percent
November 29, 2012 - LM Editorial
Earlier this week, global third-party logistics (3PL) services provider CEVA Logistics reported third quarter earnings of $1.8 billion Euro or about $2.4 billion U.S., which represented a 5.1 percent annual gain.
CEVA officials said the company’s Oceanfreight and Automotive groups showed strong growth in the third quarter, and the company also reported that it secured an estimated $532 billion Euro ($686 million U.S.) of new business. Its Freight Management (FM) group saw revenues move up 6.4 percent, and the Contract Logistics Group improved by 3.3 percent.
Logistics Management Group News Editor Jeff Berman spoke with CEVA Rubin McDougal about the company’s quarterly results and industry market trends in the global 3PL sector. A transcript of the conversation is below.
Logistics Management (LM): Can you please provide an overview from a CEVA perspective on the company’s performance for the 3rd quarter and year-to-date?
Rubin McDougal: The summary of the third quarter performance would be that we had great new business wins at almost a record level, and we had very good ocean volume in the quarter. We did have some significant issues with a couple of specific contracts in our Contract Logistics business. Revenue was up about 5 percent in Euros but would have been down 2 percent if we had the same exchange rates in place this year and last year. The drivers of that were primarily lower volumes in southern Europe, particularly in Contract Logistics and declines in airfreight volumes compared to prior years.
LM: In the earnings release, CEVA mentioned how the company rolling out a plan to reduce costs and improve contract performance with a net benefit of $100 million Euros ($128.9 million U.S.). Can you please provide some specifics?
McDougal: There are three main components. First is a reduction in our fixed costs and SG&A. That will include eliminating our south Europe region and consolidate that with north Europe into a single European structure. We will be taking out additional costs in our SG&A to reflect the fact that air volume is down and we will be making some concessions there. Secondly, we will be reducing fixed costs in our Freight Management network. What we have is 100s of stations in FM that handle freight so if we are taking a product to a customer we are moving it from one station to another and then to a customer. If you have less volume for that network, the costs of the network are largely unchanged so it takes additional action to reduce those fixed costs, which are equal property- and equipment-related. Third, we will be renegotiating some of our underperforming contracts. On the CL side we have contracts that have costs that are no longer consistent with the level of revenue in the contract. In southern Europe, for example, we have contracts where we have inadequate fixed volume protection and fixed cost protection of the contracts. And then we have some other contracts in other places in the world which because of a change in scope or costs are no longer returning adequately to our investment. In the last quarter, we have eliminated two contacts and improved our results by doing so.
LM: How do you view the market in southern Europe? Former CEVA CEO John Pattullo characterized it earlier this year as “worse than you can imagine.”
McDougal: We split up south Europe into two hemispheres. There the Italy, Greece, Iberia hemisphere, which is pretty dismal as far as the economic outlook. There is also Turkey, the Balkans and South Africa which are actually doing pretty well. And our FM business in south Europe is also doing well. We have a smaller footprint so while the overall density is down, we had share gains.
LM: How are things going in the Asia-Pacific region?
McDougal: Asia is performing well, and there is a totally different view of how the different economies are performing within that market. There are many in China that look at that economy and think things are bad relative to past growth rates, but it is still outperforming anywhere else in the world. It is still growing but at a les rapid rate so it is a frustration for China, because it is not growing as fast as it once was. The weak link in the Asia-Pacific though is Australia. It is really a two-track economy right now. There is the natural resources side, which is doing well, and there is everywhere else that is quite soft. China and India continue to do well but are just not growing as fast as in the past.
LM: What are you seeing in the ocean market along the lines of capacity and rates?
McDougal: We are seeing a concerted effort by the carriers to get some price increases. And that effort includes the normal efforts like slow steaming and it also includes what might be an all time high level of idle capacity. We have seen carriers taking out leased equipment in favor of their own equipment to try to maximize their own earnings. That said, we have seen rate pressure in some areas where idling is occurring and there is some volume right now but we don’t expect this current rate environment to continue much past the end of the year.
LM: Where does CEVA rank as a provider of ocean services? The company had a stated goal of being in the top 5 a year ago.
McDougal: It depends on whose data you use, but we are probably in the 8-to-10 range. Going back to the creation of CEVA five years ago, though, we were about number 35.
LM: Air cargo volumes are quite depressed, save for an iPhone release or something like that. How do you view this sector at the moment?
McDougal: There is softness all around. One of the areas holding up the longest is European exports, which has softened over the last 90 days. Strength in some markets we have seen has been seasonally-related such as Hong Kong into America lately. Overall, there is lots of capacity and lots of carriers taking action to reduce capacity in a low rate environment. We have seen some carriers exiting lanes and reducing capacity and with a minimal seasonal peak. New product launches seem to be driving some volume, and the other piece of business that is fairly ordinary is critical items, especially on the industrial side.
LM: In regards to the “fiscal cliff: in the U.S., how are you viewing it and approaching in regards to your business?
McDougal: In our view it is based on what our customers will do, and they are driven by what their customers will do. But what we are seeing is automotive being very strong and much stronger than the overall economy and the rest of the U.S. economy being a bit soft. Automakers have an optimistic view, which is partially based of the age of the fleet and the necessity of replacing aging vehicles. Other areas still remain cautious with many keeping an eye on inventory, which is good for us, because if you think about what happened in 2008 and 2009 people got overextended on inventory and demand fell off a cliff. Demand then came roaring back but people overdid the inventory reduction. In the current environment, people are watching inventory closely and we don’t see either scenario—the rapid plunge or the huge increase as possibilities in the near-term.
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