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Airfreight decline hits UTi

By Hpanchal on December 7, 2012

Freight forwarder and contract logistics provider UTi Worldwide expects the weak macroeconomic climate to drive more customers from airfreight to ocean. Reporting “unsatisfactory” results for the fiscal third quarter, CEO Eric W. Kirchner said: “Global economies are slowing, consumer demand is weak and clients remain very cautious. As we anticipated, a broad peak season failed to materialize in the third quarter. Airfreight lagged the most, as weight per shipment fell and clients favored lower-cost options.”

UTi saw revenues fall by 10.7 percent to $1,128.9 million in its third quarter, to 31 October, 2012, compared with the same period in 2011. But net income was just $10.5 million in the quarter, down from $28.5 million last time. The company estimated the negative impact of Superstorm Sandy, which hit the U.S. east coast in October, and the transportation strikes in South Africa at approximately $3.5 million.

Airfreight tonnage fell 12 percent during the quarter, while ocean freight tonnage was in line with last year. The airfreight decrease steepened to 18 percent in September, with the largest decline coming out of the Europe, Middle East and North Africa region. There had been “no appreciable peak shipping season” this year, Kirchner said. October saw some improvement but the overall trend in the third quarter reflected the year to date, with wafer shipments falling and clients increasingly favoring the less expensive mode of ocean freight.

UTi had a multi-disciplinary sales team, Kirchner told investment analysts. “Our general sales people in the forwarding space, sell air, ocean and brokerage. Our company has been biased towards air, but we’ve initiated more training on the ocean side. Ocean has the potential to grow more consistently over a longer period of time than air. I think ocean is a larger focus area for us in the future.

“We think that it’s prudent to plan for no growth in terms of an increase in airfreight tonnage next year,” he added. “People try to avoid using airfreight on a programmed basis. It’s more in response to supply chain disruption or emergencies, quality control problems and things like that. So we’re not going to bank on airfreight coming back in a huge way.”

CFO Rick Rodick said UTi was looking to make annual cost savings of $25 million through the rollout of a new operating system, currently live in five countries. It will also reduce headcount by around 300.

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