3PL news: CEVA CEO is optimistic about future growth prospects

With the global economy still struggling to regain its footing to a large extent, third-party logistics (3PL) services providers are facing myriad challenges. But even though market conditions are challenging, 3PLs are still doing well. A good example of this is global 3PL CEVA Logistics, whom recently reported third quarter earnings of $1.84 billion Euro or about $2.5 billion in U.S. dollars. As they have done in the past, LM Group News Editor Jeff Berman recently spoke with CEVA CEO John Pattullo about the company’s quarterly performance and other industry-related items. A transcript of their conversation is below.

LM: Quarterly revenue was up annually but down compared to the second quarter, which CEVA said was due in part by lower rates and volumes in the Freight Management group. That said, what is your take on the overall quarterly performance, which looks pretty solid, given the ongoing economic turmoil?
Pattullo: It was a pretty solid quarter. Our view is the fact that we were able to marginally increase profits at a time when revenues were down is an indication that our business model is proving to be quite robust and that we are on the right track. And we think that some of the structural projects the company has been tackling for things like a set of stemmed processes for Freight Management, and another to revolutionize our financial back offices and to leverage scale. We have been working on these big structural changes for about 18 months now, and they are starting to make dividends in making us a bit more resilient when times are tough.

LM: What about things on the project side?
Pattullo: Ocean is a very positive story and is an area we are investing in. We want to become a top five ocean forwarder by the end of 2013. We were ranked 35th when we first created CEVA in 2007 and are now number 13. This business has been growing well ahead of market growth, so we are happy with that performance. The ocean market is growing, with some forecasts saying in 2011 it will be up 6 or 7 percent over 2010. We will grow significantly more than that in terms of our TEU (Twenty-foot Equivalent Unit) count. 

LM: As a forwarder, you are not as impacted by the capacity surplus on the ocean side.
Pattullo: There is an excess of capacity, and the idled shipping fleet has been higher than it has been for a while and new vessels are still coming online, which is keeping rates depressed. It has an impact on revenue but in terms of growth we are where we need to be.

LM: How is the ocean rate environment right now?
Pattullo: It depends because ocean carriers are doing everything they can to push up rates. But if you take a macro view I would say for both ocean and air rates are essentially flat, with no recent upturn.

LM: With the European economy and the situation in Greece still shaky, have things changed at all from your perspective in terms of how shippers approach doing business in Europe?
Pattullo: I don’t think so. In the Mediterranean economies like Greece, Italy and Spain, economic activity is pretty soft, and GDP in those regions is declining, I would imagine. We see soft markets there but no dramatic changes in shipper behavior or anything else. From a CEVA perspective, we have a regional group in Southern Europe, Eastern Africa, and the Middle East, where we are combining the Mediterranean economies with some of the faster growing economies in the Middle East, Africa and Turkey, which is balanced and not directly affected by the sovereign debt issues in southern Europe.

LM: How are things going for the Contract Logistics and Air businesses?
Pattullo: On the Air side, the global market is down annually by roughly 3-to-4 percent, according to most estimates. This is the one segment where CEVA’s performance is worse than the market rate. Our business is very dependent on the Trans-Pacific and technology sectors, which are two of the softest areas in the global airfreight market. Because of our business mix, we are more affected than average. Our game plan here is to put even more effort behind trade lanes in determining a few targets with strong sales teams at both ends of these lanes, with as an example the sales staff in the U.S. selling to Germany and vice versa and then developing appropriate partnerships with airlines or steamship lines to give us cost-effective capacity on those lanes. We think that by focusing on trade lanes we can maybe have a slightly more balanced portfolio in those areas that will help us ride out tough times better in the future. Our Contract Logistics business is growing well, and we are growing solidly ahead of market growth rates, which are estimated at 4-to-5 percent globally—and we are ahead of that. And we are benefitting from strong performance from our existing customers and from good having good operating performance from those customers at the moment. 

LM: About a month ago, you said that Peak Season was “muted.” Now that October is behind us, what is your final verdict on the 2011 Peak Season?
Pattullo: We were not really expecting to see much of a peak, and I think that has proven to be the case. There is really very little evidence of a seasonal peak for either air or ocean, save for a few certain lanes really. It is a market reality.

LM: How is business going in the Americas for CEVA? It was down about 6 percent in the second quarter. Are things moving in the right direction despite the decrease?
Pattullo: Matt Ryan, CEVA President, Americas, is doing all the right things to turn around our Americas business, and I am confident we are on the right path. He has done a lot of work to change the station footprint in the U.S. and improve processes. These quarterly numbers are a bump in the road, as I think we have the right plan there and I am happy with the way he is leading our business. It is the biggest market in the world and a market where we have to win.