Saturday, September 5, 2015

UTi AND FUTURE RATE INCREASES

I wonder how much of this UTi--and the industry--can actually make happen.

Bullish UTi Worldwide warns ‘tight-margin shippers’ to expect rate increases in 2016

By Gavin van Marle
09.04.2015 · Posted in Air, Loadstar posts, Sea, Supply chain FavoriteAdd to favorites
UTi tape
US freight forwarder and contract logistics provider UTi Worldwide yesterday claimed its financial rebound was continuing as it released second-quarter results.
But chief executive Ed Feitzinger sent a warning to major shippers that, after several years of procurement policies that simply focused on the cost of logistics and not its value, forwarders were getting wise to that and contract rate increases could be on their way next year.
UTi has spent much of its turnaround programme focusing on the particular cost and margin of each shipment, finding that many blue-chip clients often represent poor profitability.
“When I look at our larger clients, they have done a very good job of driving a lot of margin out of the industry in the past few years. A lot of the large clients that we, and our competitors, carry are not very profitable, especially in terms of smaller shipment sizes and the fixed costs of moving a single shipment.
“I believe that our industry is getting smarter from a competitive perspective, and I have seen several large clients say that they do not want to go to a bid next year because they are concerned about price increases, and are instead asking us to work creatively with them on how to improve service levels and cut-off times, and other things we can do to help them.
“Their objective is to lower transport costs, but I would say right now that despite an expanding yield environment the average mega-client is scared that their rates are going to go up… and there is evidence to support that,” he said.
Second-quarter revenues decreased 16.5% to $913.9m, down year-on-year from $1.09bn, while net revenues decreased 14% to $338.5m from $393.7m. The company said the decrease in net revenues was primarily related to lower air and ocean volumes in its freight forwarding arm, as well as the strengthening of the dollar against the euro and South African rand.
Adjusted earnings before interest, tax, depreciation and amortisation (EBIDTA) for the period was $11m, compared to $24m the year before.
Mr Feitzinger added that second-quarter volumes had been “unseasonably flat”,
“In a normal progression from the first quarter to second, we would expect to see about 5% seasonal increase in airfreight kilos, and about a 10% seasonal increase in ocean freight teu. The difference between these historic norms and what we saw across all forwarding product lines in the second quarter represents almost $10m in reduced net revenue in the quarter,” he said.
He admitted that UTi’s widespread IT transformation programme had seen “service levels deteriorate” and led to sustained market share losses.
“Our sales people were consumed by internal matters and unable to spend sufficient time with clients. Subsequently, it took about six to nine months for us to see the full impact of this in our market share.”
But he claimed that that trend had now been reversed.
“After a sustained period of market share losses, our forwarding volumes have stabilised and are coming back in line with the industry. The question now becomes when we will see freight forwarding growth return, both from a rebound in our existing client shipping patterns and our own efforts to take share?”
He said that the period had seen UTi win “two of the largest air and ocean contracts in recent memory”: one, a 25,000 teu intra-Asian ocean freight contract from a single client; and the other, 5m kg of new air business “in a recent global bid”.
He said both clients were new to its portfolio, but that “the brisk second-quarter headwinds have hindered the speed with which we expect to arrive at our previous fiscal 2016 target”.
Chief financial officer Rick Rodick forecast a full-year adjusted EBITDA of $75m-$100m.