The past year has been a particularly strong one in the automotive sector for Ceva Logistics, with some significant business wins in fast growing regions such as China, India and Brazil, as well as in markets with otherwise stagnant volume, such as the UK. And while Ceva has lost some Fiat business in Italy, traditionally one of its largest customers, it has recently gained contracts with the carmaker and its Chrysler affiliate in China, Brazil and the US.
Ceva sees this new business as something of a return to form for its strength in automotive. Representing about 25% of its record €6.9 billion ($9 billion) revenue in 2011, including the leading position in China through its Anji-Ceva joint venture, Ceva reckons it has a cautious claim to be the largest third party logistics provider to the automotive industry.
But it was only four or so years ago that Ceva’s automotive revenue split was substantially higher, at around 32%–and it was higher still in its TNT Logistics days. Reducing the proportion of automotive revenue was no accident, according to CEO John Patullo.
“We deliberately changed our focus but it was not by taking the pedal off of automotive, but by pushing harder elsewhere,” he said. “We now have a good split in three sectors–automotive, consumer retail and technology–and that makes us stronger.”
But Ceva is once again emphasising its pre-eminent position in the automotive sector and the company appears to be well placed to grow further. It has automotive business balanced across all major regions and growth markets (except Russia, from which it has so far largely abstained); its business is split 50-50 between inbound and (more stable) aftermarket logistics, while it also has a good mix between freight management and contract logistics.
Patullo noted the major trend of “old market” global OEMs moving strongly into “new markets” and taking their suppliers and logistics providers with them. To this end, Ceva is also well covered, according to Stefan Brunner, vice president of automotive and tire for Northern Europe.
“For our four top OEMs, two are based in Detroit, one is in northern Germany and the other is in Turin,” said Brunner. “The second tier customers are based in Stuttgart, Paris and Munich, so we are well balanced among the growing players, although we would like to do more with Japanese and Korean OEMs.”
The relationship with one of its most important customers, Fiat, appears also to have found stability. Last year, Fiat discussed plans to turn its iFast Container management division into a kind of in-house freight forwarder that would take over more of the business typically handled by the likes of Ceva. But Patullo said Ceva has worked very well with iFast so far, for which it is also handling services: “We have a very good relationships with iFast, which for inbound operates more as a 4PL-type provider.”
Ceva has set an objective to double the size of its €1 billion Chinese business between 2011 and 2013. For more stagnant markets in Europe, the company will be gunning for automotive market share. “Some parts of Europe, notably the UK, are great reminders that we have a relatively small share of a complex market,” Patullo said. “Even if the market is stagnant, you still have opportunities if you only have a 2% market share.”
With profits up 10% to €321m in 2011–despite stable revenue–the company appears on the right track, even if 2012 could prove more difficult. Patullo acknowledged some stagnation in the air and ocean freight market, which is putting pressure on carriers, while the low rate levels over the past year could prompt a price spike. “But it is our job as a provider to find ways to manage that situation and we have taken some proprietary steps,” he said.
While high exposure to automotive just a few years ago could have been seen as a weakness, it looks again be a badge of honour for logistics providers, something Ceva is using to its advantage.
“From Ceva’s point of view, being the number one in automotive really helps us in other sectors and keeps us at the leading edge of professionalism in the eyes of other sectors,” said Patullo. “When we go to the technology sectors, companies are impressed [with our automotive credentials].”
He added that Ceva has recently been replicating some services from the sector’s primary strength–inbound logistics to manufacturing–in other sectors. For example, several consumer retail companies have recently started to look at controlling inbound deliveries rather than leaving them in the hands of suppliers, as had traditionally been the case. “By bringing in a company like Ceva to manage the inbound process, they are beginning to see real value in that,” said Patullo.
However, Brunner said Ceva is also trying to learn from services in other sectors which may be applicable to the automotive industry. He pointed in particular to simultaneous global launches in the technology sector.
“For the past 20 years, automotive has often been considered the most advanced. But if you look at the Apple or Microsoft launches, which we supported last year, we think there are elements that can be applied to the spare parts business, for example,” he said.
Becoming supply chain designers
Patullo also admitted that Ceva was working on improving supply chain visibility, following the lessons learned from recent disruptions including the volcanic ash cloud in 2010 and the Japanese and Thai disasters last year. “If you talk to the supply chain officers of our customer base, their biggest, unfulfilled need is controlling visibility of international shipments,” he said. “For Thailand, we did a good job of communicating and helping customers to move stock. We also developed a central clearing team for automotive and high-tech, which our customers found very helpful.”
Brunner said that, beyond technology, Ceva was learning to anticipate and communicate in advance of disruptions. “If you look at the volcano incident, the information was at least a day late. It’s difficult when your customers are calling you in the middle of the night asking where their freight is.”
He also gave an example relating to the communication of information about the strikes at Frankfurt airport that took place in February and March. “But you have to handle the information in the right way. In a global supply chain, if you alert your customer to every potential problem, you might make them too nervous,” Brunner said.
Despite considerable talk about the rise of near-sourcing, Patullo believed that the impact of the recent disruptions would not be an end or significant reduction in global sourcing. “The economic fundamentals of sourcing in high quality, low cost, developing economies are so strong that it is unlikely to lead to a global reshuffling of the supply chain deck,” he said.
Instead, he anticipated an increase in the awareness of supply chain risk and contingency planning in the sourcing and production decisions. The next step for firms like Ceva, he added, would be to play more of a role in influencing those decisions, including supply chain design, something that he said was already happening in the technology sector more than in automotive.
“It makes sense from our end-to-end service offering to move a half-step further to supply chain design. There is evidence, particularly in the technology sector, of customers wanting to bring in companies like Ceva to do this on a 4PL or ad-hoc consultant basis.
“It’s a trend that will continue,” he said, “and if you get to the point of no longer managing the supply chain in silos, then you want to design how that supply chain should execute as a whole.”
Patullo stressed that Ceva has taken some internal steps to deal with its high debt levels, which he hopes will settle any doubts that current and potential automotive clients might have regarding the future of the company. Earlier this year, Ceva’s private equity owner, Apollo, converted around €850m of Ceva’s debt into shares. “It means that Ceva no longer has to pay interest on it and it means a lower overall debt level. It moves us towards a more conventional balance sheet that our customers tend to appreciate and which in some cases might have been a barrier to working with Ceva,” he said.
As a private equity investor, Apollo’s eventual exit or selling of the company should clearly be anticipated. Patullo pointed out that Apollo is a longer-term investor than many private equity firms– its average ownership lasts five years, around the same amount of time it has owned Ceva–and that it has not tried to micro-manage the company. “It’s likely that Apollo’s exit will at some point be an IPO, but I do not know when,” he said.
Most important for Ceva and its automotive offering, he said, would be to improve its internal processes and reach a higher standard of operational performance, acknowledging that the logistics industry’s performance in general had not always been the best. “The logistics service industry has not delivered consistently. That’s what we’re trying to do now. If we succeed, it will be game-changing,” he said.
