CEVA Logistics: Leaner and fitter

CEVA Logistics had an interesting birth, starting life in 2007 as a merger between the logistics business of TNT and brash American-based forwarder EGL. 
CEVA’s owners, Apollo Manage-ment, a US private equity firm, famously bought the latter in the teeth of opposition from EGL’s founder, Jim Crane.
It seemed an odd match. Crane was famous for flying across the world on his private jet to seal a deal, while TNT Logistics had a more technocratic European profile. 
The name chosen for the merged company was a tribute to Giovanni Ceva, an Italian mathematician from the 17th Century. It is probably fair to say most people in EGL had never heard of him.
For the current top management at CEVA all this is ancient history. 
Chief executive Xavier Urban joined the company in January 2014 and has appointed an entirely new management board, including Hakan Bicil, chief commercial officer.
Yet it is fair to say that the spirit of EGL may still be stalking the boardroom, as CEVA has just undertaken a complete reorganisation of its regional structure that has removed layers between top management and the customer, and given country managers the freedom to make their own decisions. 
Regions and regional headquarters have been abolished entirely. 
Instead, clusters of country managers now report direct to a board member. It is designed to be lean and agile and in general sounds very EGL-like indeed.
Bicil himself is “sponsor” to China, Spain, Italy and eastern Europe, in addition to his company-wide commercial officer duties.
“It means that all board members are engaged in the day-to-day elements of the company,” he says. 
“Every board member sees 15 customers a month, and the chief executive and myself see 25.
”The new structure, in place since January 1, has had a “dramatic effect”, he insists. “For example, in the past if Sao Paulo wanted to develop seafreight links with Shanghai, they had to contact their regional office in Houston, who contacted the Asia office, and they contacted Shanghai. 
“Now the Sao Paulo manager just gets in touch with Shanghai. That has been extremely powerful. We have seen a lot of growth in trade lanes where we are not top heavy.”
This is not to say that any form of centralised sales has been abandoned. CEVA, like other companies, has a key account structure for its top 100 customers, which make up 52% of turnover. 
It also has specialist teams in air, ocean, ground, contract logistics and supply chain services for each cluster.
“That ensures that the entrepreneurial spirit is not limited by the personal history of the country managing director,” Bicil says.
“It is entrepreneurial spirit with discipline. The how is set, but the what, we leave to the countries.”
When the reorganisation was announced, CEVA also pointed out the cost savings it would generate. Some might say that the company needs this, pointing to the deepening of its pre-tax loss from $64m in 2013 to $393m in 2014, a change principally driven by financing expenses.
The latter relate to the debts Apollo incurred in creating the company, which stood at $1.84bn in the 2014 results.
Bicil insists this is not a concern, however, saying the company was recapitalised in 2014 and is now investing in growth and expansion.
“The reorganisation was not done for cost-saving reasons, but to make the company more agile,” he says. 
“We are using the cash we have to build a proper growth path and in the second quarter of this year we even had positive cashflow.
“We are quite confident that we will generate enough cashflow to easily pay back our debts, the first tranche of which is in any case not due until 2018.”
He also claims plenty of executives are applying to join CEVA. “We are receiving a lot of CVs from senior people in our competitors. We are implementing a very interesting incentive scheme where per-sonal performance materialises into nice paychecks.”
One area in particular where CEVA is recruiting is for its small and medium (SME) customers sales force, which like regional multinationals are sold at cluster level.
The company is adding 700 sales people to an existing SME team of 1,400. The idea, says Bicil, is not to weaken the focus on multinationals but to grow the base of the pyramid.
He admits that SME customers tend to be more profitable, but adds: “It is all about the mix. Running 10 containers only works if you have 500.”
CEVA is also focusing on growing its forwarding business, though if one looks at the profit figures one might wonder why. In 2014 contract logistics made a margin of 5.2% and freight management 0.6%. Logistics is currently 54% of revenue, however, and the company would like to see a more even balance.
And Bicil does not give the impression that forwarding is a makeweight: “We are growing faster than we expected in freight management and we expect to continue to do so. We are very aggressive in the market and are building trade lanes where we did not have them before. Every bit of extra volume makes us more efficient.”
He has no time for gloom about the global economic outlook, either. “We are always confident,” he says. 
“If you want to grow you have to be attractive to customers. If growth is not there, then grab it from the competition. We are evenly balanced between Europe, Asia and the Americas and there is always a mini crisis somewhere. In the end they balance out.”
On the question of mode shift from air to sea, Bicil acknowledges that there is something of a trend in that direction, but says that it is not a one way street.
“A lot of customers who do switch are a little disappointed with the service they get,” he says.
One surprise beneficiary of such concerns seems to be sea-air, which Bicil says is seeing increasing growth between China and Europe, especially for fashion customers.
“Sometimes they can’t wait six weeks but ten days by ocean to Dubai and then four days by air to Germany is very competitive,” he says.
The main driver is not so much cost as a desire to avoid warehousing. “A lot of customers want to have the cargo on a specific day so it can go straight into stores. In the old days we flew it in and it sat in the warehouse for several days. Now customers want it injected just in time, not too early, not too late, and sea-air is ideal for that.”
CEVA has also joined other forwarders in running trains between China and Europe, but Bicil says this has its problems, not least that it is not possible during winter due to the Siberian weather.
“We tried part trains but that did not work, but we do regularly run full trains for fashion and hi-tech customers,” he says. Transit times are 10-14 days, similar to sea-air. But he sees this as competition for ocean lines as much as for airfreight.
On the pure airfreight side, CEVA, like many other forwarders, works with 10 core carriers for 80% of its volumes, and uses “a long list” of others for the other 20%. 
Bicil is generally happy with their performance, but says one area carriers outside the top 10 could improve is what he calls milestone management – keeping CEVA informed about where its cargo is. 
“We often have to call, when it would be nice to have it automatic,” he says. “Some carriers are very good at this but others are not.”