Looking Forward

John Patullo, CEO of CEVA Logistics, has plenty of winning strategies and plans to take his company forward

John Patullo, CEO, CEVA Logistics

At the end of 2005, TNT announced its intention to sell its activities in contractual logistics. At the end of 2006, they were yielded to the investment company Apollo Management, which immediately renamed them CEVA Logistics. Then, in August 2007, Apollo bought the American group of forwarding EGL. Four days later, John Patullo was named Chief Executive Officer of CEVA Logistics.

Was it difficult to reconcile two different cultures?

Fusion was remarkably easy. CEVA Logistics and EGL were perfectly
complementary. While CEVA from its antecedents as TNT Logistics profited from a particularly strong position in Europe, EGL had a solid base in the United States and gained more ground through technology whereas TNT advanced through the automobile industry. The two companies were complementary on almost all the points. Their fusion did not thus pose any problem. The central process of integration which was finalised in the meantime, proceeded without difficulties.

Even with complementary companies, it is not always easy to achieve success. How did you do it so quickly?

Several elements facilitated the process of integration. We applied the whole of the senior management in this operation. Concretely, that means that a groups of experts, that I directed personally, was first set up. Secondly, we were lucky to be able to advance relatively quickly on certain number of objectives. We gave priority to a proactive and fast approach. An example: the new name of EGL, CEVA Freight Management, was selected in the two weeks following the signature of the agreement of recovery. Lastly, we set up a system of intensive measuring.

How did the customers react to all these changes?

Very positively, but the issue of communicating all the modifications to them properly required quite a bit of our energy. Initially, our 15,000 customers had to familiarise themselves with the new name of the company. Then, the broad range of services was explained to them. They did not know that CEVA Logistics was able from now on to propose ‘end-to-end’ supply chain solutions. We cover the entire chain: from forwarding, to contractual logistics, to customs clearance, etc. It was also necessary to stress that we had preserved the best of the two companies: the discipline and knowledge of TNT Logistics and the direct client servicing we were providing in EGL. Our customers realised the advantages of receiving additional end-to-end benefits of services in transport and logistics. They are, in any case, satisfied with the supply chain solutions we propose. Since fusion, we haven’t lost even one customer.

What is the relationship between contractual logistics and forwarding within CEVA Logistics?

Our sales turnover increased by approximately 5 per cent last year. The growth accelerated even during the course of the year. According to early estimates, 2007 had a sales turnover of approximately US$9.48 billion, of which nearly 60 per cent were generated by contractual logistics and 40 per cent by forwarding. But because of the fusion and many other developments of last year, it is difficult to establish a relevant comparison between 2007 and the previous years.

Where do you bring the accent to the level of contractual logistics?

We cover all the grounds. The principal sectors are the automobile industry with a share of 32 per cent and high technology 22 per cent. We regard these sectors as the engines of growth of the company. But CEVA Logistics is also very active in the sectors of industry, health care, aerospace, oil and gas among others.

How does CEVA Logistics manage the geographical shift of production?

Our philosophy is to follow our customers where they are established. If they ask us to ensure the logistics service for example in Eastern Europe or elsewhere, we will not hesitate to do it. Our activities in the automobile industry in Eastern Europe and China, where we concluded a joint-venture with Shanghai Automotive, are already very apt. According to the needs for our customers, we succeeded in transferring, without paying too much attention to problems arising from new markets, certain automotive activities which were previously only concentrated in the United States and in Western Europe.

Does CEVA Logistics follow its customers blindly?

No, we know perfectly what we do. We negotiate with our customers with whom we have longer-term partnerships Their decision to move towards other markets is, in general, quite founded. The companies in the automobile sector delocalise their activities towards the markets where the economy is in full expansion. For CEVA, it is a question of being close to the customer and of including/understanding them in order to make the right decisions.

What are the consequences of a stock exchange crisis like that which occurred at the end of January for logistics activities and forwarding?

A crash landing always involves a deceleration of the economy. For our division Freight Management, an economic deceleration results in a reduction of the commercial movements, which is certainly not positive. But the market share of CEVA Freight Management is relatively small, so we were not too worried. As the forwarding market is quite small, we compensate for that by increasing our market share. For contractual logistics, things are somewhat different. At present, only approximately a third of contractual logistics in the world is subcontracted. During an economic recession, the companies often outsource to reduce costs. Contractual logistics thus benefits from an economic recession especially in certain markets where externalisation is still underdeveloped, the impact will thus be positive.

And which markets do you think are underdeveloped?

With 40 to 45 per cent, the UK has the highest degree of externalisation. All the other markets are located below this figure. Consequently, we consider them to have potential areas of development where we will be able to deploy our activities as regards contractual logistics for the periods of deceleration of the economy.

Why do companies want to keep their logistics to themselves at all costs?

There are several possible answers, each company having its own reasons. We respect this decision. Our task is nevertheless to convince them to subcontract the logistics activities for those things that are not a part of their basic activities. This is why we must create added value, offer good quality and formulate ideas specifically related to the sector in which the customer is active. One of the advantages of a company like CEVA is that we can transfer the ideas from one sector to the other.

What strategy does CEVA Logistics aim to follow for its future?

We will be stressing on three priorities: unit, growth and quality. By unit, I mean that I want our customers to feel that CEVA constitutes an integrated unit. Although we know that we are considerably smaller than our competitors, we cannot allow ourselves to waste time because of that. It is for this reason that all our departments and regional offices follow this same vision and strategy. To put ‘all noses in the same direction’, as the saying goes, is thus the challenge we like to take up.

And growth?

When they were still independent companies, neither EGL nor TNT Logistics progressed at the same rate/ rhythm in the market. We want to break this tendency. We want to grow at the same rate/rhythm in our industry. This is why our objective is to carry out a sales turnover of US$15.8 billion from here until 2010. This is purely our desire and is not driven by the financial objective.

How do you hope to achieve this goal?

Several detailed scenarios can be elaborated upon on this subject. Among them the CEVA Century Program appears which, in my opinion, is the most important scenario. For our 100 most important customers in the world, we have a ‘total account leader’ along with a virtual team which manages the relations with these customers. These 100 customers represent more than 50 per cent of CEVA’s business, so it is hardly surprising that they are crucial for the future growth of the company.

What about quality?

We are convinced that in logistics and forwarding, it is possible to reach and sustain a permanent level of high quality. It is not difficult to have several good establishments, but to reach the same level on all sites is not very possible. Nevertheless, we want to carry out this objective from here until 2010.

How do you want to arrive there?

Our strategy is articulated around four shutters: lean, smart solutions, zero defect start ups and a system of measurement total and uniform.

Can you give details on this strategy?

‘Lean’ is Toyota’s method which aims at eliminating waste. During nine weeks, we will subject all our sites to a ‘lean audit’ and will develop plans to improve the services. ‘Smart solutions’ is standard products which we offer on a worldwide scale and which we can easily transfer from one market to the other and from one customer to another. ‘Zero defect start ups’ is a technique which gives a new orientation to the projects not fulfilling the requirements of performance initially envisaged. Lastly, we want to evaluate all the sites in the same way thanks to a system of measurement total and uniform, which will enable us to reward the best sites and to organise courses and formations within the less powerful establishments. The coordination of all these efforts falls on a team of 50 experts. ‘Lean’ will be carried out under the direction of a person who was formerly with Toyota.

When will all this be carried out?

That depends on the specific shutter. The program ‘Lean’ should be entirely implemented from here until 2010. At present, we’ve already carried out one of the points on 200 sites. The ‘Zero defect start ups’ was already carried out for half. We would like to enclose this stage from 2008. With regard to ‘Smart solutions’, we’ve already sold four of them to our customers. The objective is to gradually increase this number during the coming years.

An example of a ‘Smart solution’?

Global Material Handling is an example of a ‘Smart solution’. For General Motors, one of our customers, we manage all the deliveries of inbound materials. That is done from three control points – Antwerp, Singapore and Jacksonville, USA. The materials are sent from more than 200 suppliers. The techniques, processes of work and methods used for GM and some other customers were gathered in a standard product, which we can apply to any other customer. When a customer needs a system of ‘inbound materials management’, we have a product ready with employment. We take again the know-how and the systems of an existing contract for us and make it useful for a new project.

Is that enough to face the increasingly complex supply chains?

No, more needs to be done. In order to solve more complex chains of provisioning, CEVA has an excellent dataprocessing package called Matrix. This comprises of nine different complementary systems, which facilitate the management of events and the design of SCM. The alignment and tracing of all that is held within the supply chain plays an important part. Secondly, we operate in world sectors with producers offering their products on a worldwide scale. That gives us a good idea of the activities of our customers in various markets and allows us to create beneficial relations with our customers. Lastly, we recently also launched our group of products International Logistics Solutions, which offers ‘end-to-end’ supply chain solutions such as that from the ordering of the product to the delivery at the point of sale. In this context, the stress is more particularly laid on products – primarily retail and to consume – coming from Asia and other emerging markets and in general intended for America and Western Europe.

What can we expect from CEVA?

We are concentrating on organic growth. If we continue to develop good programmes and if we continue to benefit from the complementarity with EGL, we will be able to grow substantially in an organic way. That does not mean that we are done with acquisitions. We can build on small strategic acquisitions and they fit perfectly in our wallet. So they are not excluded, but our principal objective is and remains organic growth.

Is the wave of concentration in logistics finished?

I do not believe it. This market is still very fragmented. If the world market of logistics and forwarding is taken at 100 per cent, then the major players in that market only comprise of a 16 to 18 per cent of the entire market. So, small and medium-sized undertakings share the greatest part of the market. Hence, on such a split up market, new fusions and acquisitions should not be excluded. Which tendencies currently dominate logistics? More and more customer integrated solutions suggested by only one logistics service provider. He must thus be in control of the supply chain from the beginning till the end. The time of the multiple service providers, the local conveyor, the local brokers in customs or the small maritime lines also proposing some logistics services, is definitively completed. The customers want logistics service providers who control the entire chain well.

Another tendency is the increase in ocean freights because of the developments in Asia. The supply chains between Asia and the West have become a reality and they are more and more under control, so there will be more goods transported by sea than by air. The customer now also requires measures to be taken in the field which includes the last kilometre. He wants that the product is delivered to its final destination. For us this then becomes a ‘home delivery’ or ‘high street delivery’. The logistics service providers must from now on also control this last stage of the transaction.

Considerable logistics service providers currently offer a total package? What can differentiate them?

The quality of services. Certain people receiving benefits are better than others. The extent at which the systems and the organisation of the company are at, determines success. And as regards the organisation, it is imperative that the various subsidiary companies of a logistics service provider in various countries are on the same wavelength. If that is not the case, it is quasi-impossible to correctly manage a transaction between the subsidiary companies in two different countries.

First published in Transport Echo, translated by Neha Varma