Sunday, December 9, 2012

CEO notes UTi Worldwide’s Q3 earnings as “unsatisfactory”

The global economy is attributed to yet another poor quarterly earnings report from a logistics provider. UTi Worldwide’s earnings for the August to October period continued an ongoing trend in the logistics industry as the company recorded an almost 11% decline in revenue to $1,128.9m. CEO Eric Kirchner noted "Macroeconomic and freight conditions remained weak throughout our fiscal 2013 third quarter, and we see no real catalysts to drive increases in the foreseeable future. Global economies are slowing, consumer demand is weak and clients remain very cautious.” On its quarterly financial earnings call, Kirchner said the company continued to win new business through its sales efforts but at a pace that was unable to offset the decline in volumes from existing clients. Kirchner noted “we will not chase unprofitable business”.

Declines were noted in almost all of the company’s reporting segments: Air freight forwarding, the largest reporting segment, reported a 20% revenue decline; Ocean freight forwarding reported a 6.1% revenue decline; Customs brokerage, a 6.1% decline; Contracts Logistics, a 6.4%; Distribution, however, reported a 4.1% increase.

Currency changes, lower industry pricing and a 12% decline in volume were among the issues facing the air freight forwarding segment.

As the industry shift from air freight to ocean freight continues, the company plans to focus more efforts on ocean freight forwarding as noted by Kirchner, “Ocean is a larger focus area for us in the future. People try to avoid using airfreight on a programmed basis and it's more in response to supply chain disruption or emergencies, quality control problems and things like that.”

UTi will be in good company as other logistics providers, such as CEVA, have noted plans to focus more on ocean freight as well. Competition, capacity and other factors within the ocean freight market will likely play a role in keeping competition fierce and rates competitive.

The EMENA region proved difficult for the company. September’s airfreight volume decline of 18% was mostly due to this region. The company’s 6.4% decline in revenue in its contract logistics segment was also mostly attributed to the EMENA region. Lower volumes, the impact of the South African strike and site specific moving expenses in Taiwan, Hong Kong and its South African pharmaceutical distribution facility were to blame. UTi reported revenue growth in its contract logistics and distribution in Asia. It appears the company is also working towards bundled service offerings as it noted growth in its “connected services between Freight Forwarding and Logistics in the Hong Kong area”.

Finally, UTi is still undergoing its transformation process as it new Freight Forwarding operating system was launched in three more countries during the quarter with another added at the beginning of December. The system is now live and processing transactions in five countries.

Its new financial system is now operating in 12 countries with more to be added by the end of the year.

Looking forward, UTi does not see any improvement in the global economy in the near future as such, it is removing more costs from its cost structure and will continue to focus on controllable items.