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CEVA customers switch from air

By Hpanchal on November 28, 2012

Modal shift has become a fact of life for CEVA Logistics, as customers look for bottom-line savings on their freight movements. The company attributed a 5.1-percent, year-over-year, increase in revenue in the third quarter to “strong growth in seafreight and the automotive sector.”

Chief financial officer Rubin McDougall told Air Cargo World that seafreight revenue for the three months ending September 30 was higher despite flat volumes, while airfreight saw a “high single-figure decline in volume terms” with revenue “slightly off.”

He said that in the important technology and automotive sectors, airfreight was now reserved for new product launches or “line-down” situations, rather than acting as the default mode. “When manufacturing pressure is light, they can accommodate longer time horizons.” Peak season had been modest in both air- and seafreight, McDougall said.

He admitted that CEVA’s performance was “below average” versus its peer group. “Currency plays a role, and on a constant currency basis we’re down 2 percent [on revenue].” However, pre-tax earnings of €70 million were down 18 percent on the equivalent quarter of 2011, prompting the company to announce a sweeping plan to reduce costs and improve contract performance that it hopes will produce a net benefit of €100 million in 2013.

Contract logistics accounts for a little over half of CEVA’s revenue, and it is here that the company has faced the greater pressure. CL revenues increased 3.3 percent compared with 6.4 percent for freight management. “We have terminated contracts that were not performing well, either because of statutory changes or increased labor costs, or where customers changed scope or the mix of business was not as anticipated, driving up costs,” McDougall said.

CEVA has a significant CL footprint in Southern Europe, especially Italy. “We have a large automotive business there, but we’re also in fashion, drugs, technology and publishing. We touch 50 percent of the printed material distributed in Italy through our City of Books multi-user facility,” McDougall told Air Cargo World.

While this was a rare bright spot, he commented that he was “not wildly optimistic about Europe.” As part of the economy drive, CEVA is merging its Northern and Southern Europe regions and will manage all operations across the continent from its UK base in Ashby-de-la-Zouch. Fixed costs will also be reduced across the station network and McDougall said this would involve a reduction in headcount.

In a statement, CEVA CEO Marvin Schlanger said, “Weak economic conditions continued to weigh on customer sentiment in the third quarter. With no real prospect of a significant and sustained market recovery in the short term, we continue to focus our efforts on cost control to maintain our efficiency and on new business development to secure our future revenues and ensure we are ready to take advantage of any improvements in global markets.”

“Our business development activity has accelerated, resulting in our best quarter for contract wins since 2009,” Schlanger added. “This is an important endorsement from the market of our unique operational capabilities and excellent service and value proposition.”

McDougall explained that the new business secured in Q3, estimated at €532 million, had come primarily in the technology and consumer products sectors. Geographically, although he could see “no sign of a rebound in the European economy,” he said CEVA was well placed in Asia to benefit from any recovery in 2013.

“If the U.S. economy can turn, we have a good presence, and markets such as Brazil continue [to be] relatively strong,” he added.

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