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.
