Freight pulse slackens, CEVA chief says
The pace of freight volume growth is slowing worldwide compared to earlier this year, with some trade lanes experiencing dramatic reductions in shipments during the past couple of months, CEVA Logistics top executive said.
Freight momentum has decelerated since the end of the second quarter when global freight tonnage levels were back to the highs experienced in early 2008, before the recession, said John Pattullo, CEVA's chief executive officer, at a press briefing. Industry consensus is the normal peak season that occurs towards the end of each year will be 'very weak' going forward, he said.
'I have a pessimistic view of the economy' for 2011, Pattullo added during a breakfast he hosted in conjunction with the Council of Supply Chain Management Professionals' annual conference in San Diego two weeks ago.
His assessment dovetails with the October Port Tracker report released Monday by the National Retail Federation, which said the normal October peak shipping season for U.S. container imports moved forward to August this year.
The change came both because of a cargo backlog earlier in the year after ocean carriers were slow to replace vessels taken out of service during the recession, and because retailers brought merchandise into the country early to avoid the risk of delays this fall.
Ben Hackett, the report's author, said the fourth quarter will be weak for ocean imports on a seasonal basis, but will be good compared to other years.
CEVA is the world's fifth-largest outsourced logistics provider, with 2009 gross revenue of 5.5 billion euros ($7.64 billion). Freight management, in which it coordinates the movement of goods by the most efficient mode, represents about 43 percent of its business.
The company reported first half revenue gains of 16 percent to 3 billion euros ($4.15 billion) and a 10 percent operating profit gain to 109 million euros ($151 million), based on a stable exchange rate formula, from the same period in 2009.
Pattullo singled out Asia/Europe and Asia/U.S. as freight routes with noticeable volume declines. U.S. ocean exports have softened 1 percent to 2 percent, said Matt Ryan, CEVA's president for the Americas.
The monthly volume declines are a result of companies having replenished inventory during the first half and order pullbacks by retailers skittish about consumer demand. Production cutbacks are to be most pronounced for manufacturers of products with longer lead times.
'If factories are slowing we'll see it in six to eight weeks,' Ryan said.
Pattullo's economic outlook coincides with a recent survey of 125 U.S. chief executives conducted by the Business Roundtable, which showed a decrease in collective optimism for the first time since the beginning of 2009.
Sixty-six percent of respondents said they expected sales to grow in the next six months, down from 79 percent in the second quarter. The CEOs reduced their economic growth forecast to 1.9 percent for 2010 from 2.7 percent in the previous survey.
CEVA's didn't do as well as possible in the first quarter of 2010 compared to some competitors because it failed to anticipate freight demand would bounce back as quickly as it did from the economic downturn and committed with carriers for less freight capacity than ultimately was required, Pattullo said. The situation arose because consolidators have to buy blocks of vessel or aircraft space ahead of time.
The CEVA chief said the company has since done a better job of analyzing data from its global network and developed a tool to better project future economic activity. The company's sales margins subsequently improved in the second quarter and should remain solid through the third quarter, he added.
CEVA, which was created through Apollo Management's blockbuster acquisitions of TNT Logistics and Eagle Global Logistics, has no need for any large takeovers in the future because it already is in all the countries and population centers in which it wants to operate, Pattullo said.
'It's much more cost effective for us to grow organically than through acquisitions,' save for some niche purchases such as last summer's purchase of DIMAF, a 15 million-euro Italian company that delivers pharmaceutical supplies to distributors.
Picking up the pre-wholesaler allowed CEVA to enter the health care market for the first time in Italy, where CEVA is the leading logistics provider, Pattullo explained after the meeting.
In early 2008 Pattullo boasted that the 3PL would become a 10 billion euro company by 2010. Now he is more circumspect.
'Sometimes I wish I'd never said the 10 billion-figure. At the time, it was a reasonable stretch goal,' given the hot logistics market and global economic growth, he said in response to a question about how long it would take to reach that target. Logistics spending subsequently collapsed 25 percent in 2009. CEVA itself experienced a 13.2 percent revenue drop to 5.5 billion euros, and a 28.5 percent fall in net income to 233 million euros from 2008, which contributed to the need earlier this year to extend the maturity date on some corporate debt.
'That put a substantial dent' in any future growth levels, he said. ' Eric Kulisch