In a short space of just over a year the logistics giant has seen a significant strategic realignment. And that much needed shift has apparently begun paying dividends judging from the fourth quarter results ending January which provided one bright spot in a year that was otherwise pretty dismal, in a market that remained flat.
The first quarter this year continued this positive trend with analysts looking to second quarter results due out by end-July to see if this really is sunlight at the end of the tunnel, or just another freight train rumbling head on.
But with the last two quarters showing some definite promise and Urbain’s strategy still in its infancy, it just might be the early rays of sunshine, but one thing is for sure, already there’s been a new vitality injected into the company.
Driving growth
Ceva has never had a particularly smooth ride, born as it was at the onset of the global financial crisis of 2007-08 by the merger of TNT Logistics and EGL. And indeed it’s most enduring legacy since then has been an ongoing struggle with debt combined with a deadly lethargy of never quite living up to its potential.
After a major recapitalisation and refinancing last year the company was set on a more sustainable path, although significant levels of debt will be the bugbear (an estimated US$400 million in net finance expenses in 2014) for the immediate future.
Speaking to Payload Asia at the recent Air Cargo Europe event, Urbain was upbeat on the two consecutive quarters of growth. In reference to the reasonably positive first quarter results Urbain attributed it to two key factors – new business wins and the results of the group’s efforts to transform its business.
“We had a strong focus on the top line with new wins combined with a good retention rate with existing clients,” Urbain said. “So we have a strong focus on the top line that is now giving a nice return in terms of revenue growth – we’re close to 4.6 per cent on constant currency,” he said.
Because of the company’s exposure in Europe it has been hit hard by currency fluctuations as can be seen by its 4.8 per cent drop in revenue growth to US$1.78 billion ($1.87 billion in 2014) if the comparison is made without constant currency adjustment. Overall this amounts to a first quarter adjusted EBITDA of US$51 million up 18.6 per cent, or 23.3 per cent on a constant currency basis. Volumes are also up – out performing the market – with sustained growth in the quarter seeing air freight volume growing 5.2 per cent and ocean freight up five per cent, year-on-year.
“The second driver is continuous improvement and process improvement on which we are working on a daily basis for ocean, air and contract logistics and we started some weeks ago on ground transport. What we try to do is to optimise the way to work inside the company and doing that we are automatically increasing the productivity.”
This has seen product i v ity improvements of 41 per cent in ocean transport and 17 per cent on the air freight side, he said. The group also has an action plan regarding empty spaces in its contract logistics services, which has been rectified to the point Ceva now has less than five per cent empty space worldwide – “which is excellent,” Urbain adds.
“And when you add all of these pluses – additional volumes, new wins, productivity improvements on ocean, air, logistics, etc. – it’s of course creating positive return.”
Driving change
Among the key strategic changes, one of the first to be implemented was to move from a transactional business model to an integrated service business model by replacing regional divisions with 17 geographic clusters of countries.
It was a decision, Urbain said, which took all of 20 minutes in September last year, because all the key people were around the table and they were convinced it was not only the right thing for the company, but an urgent move for the company.
The strategy stems from Urbain’s vision for people who can drive the growth of the company – each of these 17 clusters are managed and run as 17 small companies, independently but as a network.
“For example, if someone based in the US wants to develop something in Dubai then our geographic heads will liaise with each other,” Urbain explains.
“We have not created any complexity for our customers, in fact, we have simplified the way we work and customers have convenient access to other clusters. Our customers have started to say there’s a new entrepreneurial spirit at CEVA, which is good.” Indeed, following the upbeat first quarter results Urbain described the impact of this shift to a Business Line/Cluster operating model as having “energised the company”.
Aside from improving the customer experience, the idea is also to be as lean as possible and not burdened by high head-office costs. In fact, Ceva claims this strategy will result in cost savings of US$50-60 million a year from 2015 onwards, with a one time implementation cost of about $30 million.
Another key change driver was the establishment of a new department whose dual role focuses on continuous improvement, as well as innovation. “We created a new department called Business Process Excellence (BPE) to enable engineers to work with customers in focusing on continuous process improvement. So we have moved from a transactional business model to an integrated service business model, supported by continuous improvement.
Impeccable execution
“Behind all of this is our primary commitment to delivering impeccable execution, because it’s good to work on creative ideas, but if you cannot deliver impeccable execution on a daily basis, nothing will happen,” Urbain says.
“The first thing is to focus on processes. This means for instance, we have shipments but what do we do with the shipments? Do we have some waste, do we have some double work, some triple work and how can it be eliminated?
“So it’s basic work regarding a detailed analysis on the way we execute shipments, or the palettes, or cases, or whatever it is. In doing that we can identify where we are good and where we are bad and after that we have a team in charge to fix where we are weak.”
Currently ongoing in air, ocean and contract logistics divisions the process will soon begin in ground transport as well. Teams analyse each and every execution within each business line to find out where there is room for improvement.
“So first of all we fix what we have to fix – the immediate improvements – but are there creative ideas which could create some innovation, or be a step forward? Secondly, we start to analyse which type of improvement we can do through a digital initiative which is one driver for us.
“Digital is an important driver for us and the second one is big data analysis.”
The group has started to focus on this for contract logistics which includes investment on IT and also automation as well.
But Urbain cautions that with technology it’s prudent to be pragmatic: “Don’t dream that tomorrow we use drones to deliver the product. We have to be pragmatic and that means our investment has to deliver a speedy return, not in five year’s time, but in 2-3 years time – no more.
“So we have three drivers, the first one is mainly to do the job in a more efficient way, that is the basic foundation of the business; the second one is improvement through IT functionality, eliminating manual work, double work, etc.; and the third one is more linked to the digital aspect that we can generate from data mining analysis and that way we can create a new workflow in terms of supply chain and of course link with how we can optimise through robots picking and pack etc., for contract logistics.”
Air freight
When asked specifically about air freight portion of Ceva’s business, Urbain is clear: “We cannot judge air cargo independent of the rest of the activities, because when we speak about the supply chain we speak about air, ocean, ground and also contract logistics and there are plenty of different value-added services on the top and on the back, so for us air cargo is one piece of the process.
But there are issues specific to air cargo Urbain notes, highlighting that in some parts of the world there are capacity issues and also rates can be issue as they can be very expensive. From Ceva’s new strategic point of view the question becomes one of how can the group be creative and innovative in order to avoid these issues. “Can we find some different route which could perhaps create additional delivery time, two or three days more? But we should guarantee the service level in terms of day definite and also in terms of price and in terms capacity,” he says.
Another intersting point is that Ceva increasingly finds itself arbitrating between air and ocean. This requires it to optimise the supply chain with better integration between the different pieces of logistics – between transport and contract logistics.
“For all our customers what they want is, firstly they want to see a decrease in their logistics spend and secondly they want to increase their service level to their end consumer and end-users.
“So we have to arbitrate more and more between these two parameters, or two drivers and find which are the best solutions that we can offer using air and/ or ocean, and/or ground, and/or contract logistics.
“And if we switch more and more from air to ocean our customers have to accept burning some cash because we create more inventories. We have some ongoing discussions with some of them in the US for example, because they want to move some volumes from air to ocean so we tried to convince them that if they want to do that, we can do it, but their inventory base will go up by 20 days, or 30 days. So you don’t win everywhere,” he adds.
Sense of urgency
When asked for his take on the air cargo’s focus on improving service levels, Urbain side steps diplomatically saying, “no one is perfect.” He goes on to elaborate: “I will not say Ceva is perfect, we have a strong focus on impeccability of execution in our operations – that is a very strong focus for the moment and I know that sometimes we are not such as our competitors. Sometimes all of us are not so good and we are not proactive enough to solve the problems.
“So if we have an issue sometimes the issue is on for one, or two, or three days and in air freight that is not acceptable – it needs to be solved in one, two or three hours. The sense of urgency we have to get in our DNA and it is something we are focusing on a lot at the moment with our people.
“The point is not to fail, we will always have some issues somewhere in the world, you cannot be perfect, but the point is to fix it quickly and what I try to implement in Ceva is the strong sense of impeccable execution and the second one, when we fail, treat the problem in a few minutes or hours.
“I will never sell to my customers, ‘go to Ceva because we are perfect’ – we are not perfect and we will never be perfect. We have more than 1,000 locations in the world and you cannot be perfect all the day, all the minutes, everywhere in the world.
“However what you can do is to have a strong focus despite that, on an impeccable execution on a daily basis and secondly a strong sense of the urgency training our people to treat the problem in a few minutes, informing our customers in a very transparent way and
transparency in that way when you fail
is a very important point.”
