Rise of a fallen star

UTi’s new CEO Feitzinger is resolved to bring back freight forwarder’s shine.    The everlasting saga of freight forwarding goes something like this: the big guys have great global networks and access to capacity of all the top ocean carriers, while the smaller forwarders focus more intently on customized service.
   That may be a very black-and-white reading of the market, but it could be said in the mid-2000s that the freight forwarder and contract logistics provider UTi Worldwide bridged those two ends of the spectrum as well as anyone.
   Driven by a customer service-oriented ethos and backed by a global footprint that included boots on the ground in some of the hardest places in the world to do business, UTi was a star on the rise.
   But the company’s reputation has taken an undeniable hit over the past few years—not coincidentally during a period when the Los Angeles-based company was led by former Chief Executive Officer Eric Kirchner. He departed abruptly in December, around the same time UTi announced a third quarter 2014 loss triple that of the same period in 2013.
   For its fiscal 2014, which ended Jan. 31, the company sustained a $203 million operating loss. Also in December, the European-based forwarder DSV was said to be deep in discussions to acquire UTi, talks that eventually broke off.
   The end of 2014 was in many ways the nadir for UTi, which had struggled for years with the implementation of information technology meant to better stitch together the company’s business units and global offices. According to analysts and insiders, that behind-the-scenes transformation took a toll on the company’s ability to do what once set it apart in the first place—to serve its customers really well.
   Into the leadership breach stepped Ed Feitzinger, a well-respected logistics veteran who had previously served as UTi’s executive vice president of global operations. Feitzinger immediately set about restoring UTi’s brand by reorienting its focus back to customers and away from internal restructuring.
   Dave Ross, managing director at Stifel’s Transportation & Logistics Research Group, wrote in January that UTi’s forwarding business was hurt by “confusion, distraction, and changes from the migration to 1View,” the company’s global forwarding IT system.
   “This is a show-me story and will be mostly dependent on management execution, in our view,” Ross said in the note to investors.
   In May, Ross wrote in a report about the state of publicly owned forwarders that UTi “is struggling to get traction again after mass disruption as a result of its Transformation (internal program)—simultaneous disruption in systems, personnel, and processes, which led to poor margins and forced the company into a dilutive refinancing a little over a year ago. UTi is attempting to stop the bleeding and focus on regaining stability.”
   In a wide-ranging interview in late July, Feitzinger told American Shipper that six months into his tenure at the top of UTi, his focus has been on getting the organization to look ahead rather than dwell on the troubles of the past.
   “It’s a natural progression point to move on to the future,” he said. “The organization is seeing the possibilities of the future rather than thinking about the past experience. The founders did a fantastic job creating the company. It was about understanding the clients’ needs, doing that a local geographic level and also at an international level. I reminded people at a March meeting what our roots were. That culture still exists. That’s what made us an exciting forwarder 10 years ago.”
   Feitzinger admitted that UTi “took on too much change at once, but we got through it. It’s important to leave those harder times behind.”
   In April, he told The Loadstar that UTi’s internal focus on systems and processes—not to mention a host of personnel changes—meant the company had “taken its eye off the ball” with customers. 
   “We were ‘under the hood’ for a lot of last year and it was a really bad time to be ‘under the hood,’” he said to the online publication. “The first half of the year was tough competitively and the second half was when the market sprang back—we lost our client focus, as anyone would  that undertakes an ERP transformation, and we needed to get out back on the street.”
   In his discussion with American Shipper, Feitzinger specifically cited the challenges that bringing a regionally autonomous forwarding structure onto one system presented. But he also explained the rationale for attempting to build such a structure.
   “With any forwarder, you’ll find a network that’s cobbled together from a variety of agents,” he said. “The linkages between those systems are imperfect. The organization at UTi had grown up providing services all over the world and, by nature, was using different systems. One system by definition is going to have homogeneity.
   “But there’s no question the average customer felt it. Maybe we didn’t spend as much attention to them as we did in the past. Maybe we lost some of that intimacy. Also, service and billing issues frustrated certain clients,” Feitzinger explained.
   Making matters worse is that UTi also undertook a financial transportation and ERP implementation, a course of action, Feitzinger said, he would have handled differently in hindsight.
   “I would have done those separately to keep it simple,” he said. “There were too many moving pieces.”

From Global To Local. From a customer engagement perspective, Feitzinger redrew the company’s geographic operations model.
   “We strategically recognized through the integration that forwarding occurs globally, but it really occurs regionally, and even more so locally. It’s not a pan-North American solution, it’s not even a pan-U.S. solution,” he said.
   UTi’s geographic and customer category reorientation consists of four regions for its contract logistics business and 16 areas for its forwarding business. 
   “We spent a lot of time thinking about this strategy,” he said. “The way I think of it is you have mega-forwarders, who, by definition, are somewhat impersonal. Then you have multinational forwarders, where we sit with five to 10 others, who are big enough to matter, but small enough to care and have a nimbleness of service that globals can’t. At a certain sheer size, you get a standardization of product. If our organization was 10 times our current size, it would be difficult to meet with many of our key customers.
   “If you’re a small local guy, you provide a great service, but you’re going to be in trouble because you can’t provide systems information that the bigger forwarders can. We’re not trying to take share from our bigger competitors, but we are taking considerable share from small local players that just can’t keep up,” he said.
   In a February statement announcing the changed structure, UTi said the reorganization would empower local teams to “make decisions faster in response to dynamic client and market needs.”
   Feitzinger said “UTi’s roots and success stemmed from local ownership and responsiveness to client needs. We possess an entrepreneurial energy that we can unleash within the framework of our improved network tools and processes.”
   The February announcement also specifically noted that Feitzinger was taking direct control of UTi’s three primary vertical sales groups—pharmaceuticals, automotive, and energy, mining and projects—to put him in closer contact with key clients.
   The public reorganization message in February followed a less public 8-K statement in January (an 8-K is a broad filing designed to inform investors and the U.S. Securities and Exchange Commission of a material business change by a public company). The 8-K filing indicated that UTi would be shedding positions and moving to its multiple sets of systems and processes across its forwarding network onto a single system and network, with projected savings of $30 million to $40 million annually.
   If those two messages sound somewhat conflicting, Feitzinger described the new structure as a single foundation with multiple regions empowered by the single system to make better business decisions at the local level.

Back To Basics. Meanwhile, former UTi insiders said the company was sorely in need of a return to the basics instilled by Roger MacFarlane, Peter Thorrington and Tiger Wessels, the trio that in the early 1990s took the former Union-Transport and turned it into a global forwarding phenomenon.
   As one former executive put it, “they all led from the front (and by your side) and motivated both employees and customers to follow them. They would never ask you to do something they couldn’t do themselves, and as a result UTi always was a people organization.”
   The implication is that Kirchner’s turn at the helm shifted the focus too far away from people and too much toward systems development. That might underplay the extent to which shipment management systems developed by UTi in the 1990s underpinned the company’s growth and subsequent decision to go public in 2000, but it speaks volumes about the disenchantment many inside the organization felt at the way UTi lost its compass.
   Ross told American Shipper earlier this year that some of the problems stem from the mid-1990s to the mid-2000s, when UTi made dozens of acquisitions but didn’t necessarily worry about the need to integrate those companies. That lack of integration led to a lack of pricing visibility, which ultimately led the company to conclude it needed a major IT overhaul in 2009. Complicating the situation was the decision in 2011 by Kirchner to start anew on the IT overhaul. The company is still extricating itself from the damage done by that clunky set of moves.
   The layoffs earlier this year were not all forced, and the company has been aggressively hiring sales staff to bolster its forwarding business.
   In interviews, Feitzinger has defended the decisions made around IT investment, if not necessarily in the sequence they were executed.
   More broadly, Feitzinger compared the customer service-vs.-capability decision forwarding customers face to the banking industry, and said UTi is still in a good place to meet both those sets of expectations.
   “I like working with my credit union vs. a large national bank,” he said. “But my national bank has a nice online system. So the key is to maintain the feel of a credit union, but with the same IT capabilities of a bigger player.”

IT Issues. Back to the IT conundrum. Feitzinger insists that the bulk of UTi’s forwarding technology overhaul went well, saying in the April interview with The Loadstar that 90 percent of the implementation of 1View went well, while the other 10 percent is what hit margins and affected customer relationships. Those issues are beginning to pass. Stifel’s Ross wrote in an April note on UTi that forwarding customers were returning, even as he cautioned that “it is simply too early for us to tell how much improvement is happening.”
   “There’s a period of time where people get used to the system,” Feitzinger said. “Then they say there’s a couple things where we can make this run better and that’s where we are right now. We have a good roadmap of things where we think we will make it better. The big ticket item is the client portal. It lets clients have access to the underlying data we have.
   “For most folks, the client portal is simple. The average forwarder wants to provide a report that’s filtered. But we’re giving the client access to raw data so they can create the information views they want without checking with us to make sure there are no issues. We have one customer who told us six months ago he used to think it would take three days to generate a report, but now he gets it quickly, so he said ‘it’s clear your IT is improving,’” he said.

Profit Focus. Part of the lure of building 1View was that it was intended to provide UTi with a deeper understanding of the profitability of its customers. It’s a key issue across the forwarder/non-vessel operating common carrier landscape. Off-the-shelf solutions providers have aimed specifically at this target to help smaller forwarders and NVOs—those without the will or money to build such a system internally—better understand the profitability of each piece of business.
   “Older systems made it difficult to measure profitability of clients,” Feitzinger said. “The institution was good at the file-level, but the industry has changed in the last three or four years. Procurement has started to get a seat at the table at large businesses.”
   That means forwarders have to make tough decisions, often in a short period of time, about whether to accept a piece of business.
   “The old school world was, ‘get the business, we’ll make money somehow,’” he said. “But look at the volatility on Asia-Europe volatility. It’s a race to the bottom. That doesn’t work when your customers are switching out every six months.”
   Feitzinger told The Loadstar that return on invested capital would be examined for each piece of business, and that many of the contracts it readily accepted with long-term customers had actually become commoditized and unprofitable.
   He explained further to American Shipper that many shippers have become so efficient at procurement that they actually “over-procure.”
   “Historically, service wasn’t important as price,” he said. “Suddenly the bid process is a real pain. If your provider’s not making money, your cargo is going to get left on the dock. Procurement’s ultimate goal is to keep everybody apples-to-apples so the bid tool can make decisions. But there’s often not a way to incorporate something like, ‘well, it actually helps to come at 7 p.m.’”
   He said there’s a high correlation between client size and the use of automated bidding tools for transportation. But those tools often don’t let shippers build more productive, long-term relationships with forwarders that only blossom after a few procurement cycles.
   “All forwarders need larger customers to balance out the mix,” he said. “They use the bidding process to keep everyone honest. That’s important, but it’s also important to understand the client’s business. There’s a huge amount of information that a forwarder can learn from the client over time. But it takes time to learn that business.”

Difficult Markets. Feitzinger emphasized that UTi’s strength remains its ability to help customers deal with difficult markets where it has strong historical ties, like when fuel was scarce in Egypt following the Arab Spring revolution.
   “If you want to go to Zimbabwe, you probably want to work with us and the carrier wants that, too,” he said. “I’m happy with our footprint. India is a market where we’re growing on the [contract logistics] side very fast, so I’d like to ride that out and expand to more states there. We see continued opportunity in the Middle East. It’s challenging, but that’s our strength. We sell well to companies looking to meet [the U.S. Foreign Corrupt Practices Act] and U.K. anti-bribery compliance. I’m not saying everyone else doesn’t do it, but that’s a selling point for us.
   “Some global clients need a service relationship, and that’s great. But almost all companies need help in some markets. So that’s how we position ourselves from a geographical standpoint,” he added.
   Feitzinger also stressed that UTi’s forwarding business was where the lack of customer focus occurred and the company’s contract logistics business was largely unaffected.
   Ross concurred, saying Stifel expects margins to improve through 2015 on the contract logistics side.
   Whether the same can be said about UTi’s forwarding business depends on how successful Feitzinger’s two-pronged approach to rebuilding the company’s brand is. It’s about customer engagement, but it’s also about profitability, two messages somewhat lost over the years amid an avalanche of technology investment and change in management.

This article was published in the September 2015 issue of American Shipper.