Tag Archives: Contract Logistics

The CEVA Story – Part One – Origins and Establishment

CEVA Logistics logoCeva is undoubtedly one of the world’s leading logistics businesses but its history is one of the more unusual and, perhaps, controversial.  It is the largest private equity-owned 3PL and in 2013 it had to pull its planned IPO.  Its story also illustrates some of the strategic challenges European mail businesses face on deregulation and privatisation, and the mistakes that followed.  In this first article we look at the origins of the business.  Subsequent pieces will discuss its performance and the consequences of the failed IPO.

Background

Towards the end of the last century, as free market capitalism took firm hold in the developed world, a couple of themes started to have significant impact on the logistics industry.  The ideological idea was the Thatcherite belief of the evil of public ownership of businesses.  The economic trend was globalisation, which fundamentally changed the supply chain flows that logistics companies were looking to satisfy.

This isn’t the time or place to discuss public ownership but the trend to privatisation had long-term effects on the logistics industry.  In the 1980s the major national postal services were parts of large, state-owned organisations, the scope of which encompassed physical distribution, telecommunications and sometimes even banking services.  As a prelude to privatisation these were broken up.  For example:

  • In the UK the telecommunications arm was split off from the Post Office (previously the GPO, or General Post Office) as British Telecommunications in 1981.
  • Deutsche Bundespost was broken up into Deutsche Post, Deutsche Telekom and Deutsche Postbank in 1995 (Deutsche Bundespost had earlier been restructured on similar divisional line is 1989).
  • In the Netherlands Koninklijke PTT Nederland (where PTT stands for Posterijen, Telegrafie en Telefonie) ultimately became the telecommunications company KPN after TPG was demerged in 1998. TPG eventually became PostNL in 2011.

It is with this last example, the Dutch postal service, that our interest lies, because if it hadn’t been for this environment, Ceva probably wouldn’t exist.

Response of the mail businesses to privatisation and globalisation

In the UK the Post Office and Royal Mail were considered such national treasures that they were retained in public ownership (alternative view: they were basket cases of inefficiency, poor management and union-encouraged poor practices) and while the banking business (Girobank) was sold in 1990, the Post Office remains entirely in state hands.  Royal Mail was part-privatised in 2014.

By contrast our two other examples embraced the challenges of the fast-changing world and sought to develop the scope and size of their core mail businesses to encompass parcels distribution and broader logistics activities.  That’s a strategy that is likely to take deep pockets, as Deutsche Post has shown.

The Dutch Post Office buys a business

I like to support my many assertions with evidence where I can, but my access to archives and time to research are limited.  I can’t find financial statements for TPG prior to 2005, but I did find the following undated quote on encyclopaedia.com:

TNT Post Group’s mission is to achieve a recognized world leadership position in its three business areas—mail, express, and logistics—based on a strong market position in Europe.
“TNT Post Group N.V.” International Directory of Company Histories. 1999. Encyclopedia.com. 25 Oct. 2014 <http://www.encyclopedia.com>.

(TPG changed its name to TNT in 2005, so it clearly predates that, but TPG’s actions in 2005 make that obvious (see below)).

That mission statement is clearly consistent with the acquisition by KPN of TNT for AUS$ 2 bn (at the time about € 1.3 bn) in 1996.  The Dutch Post Office had decided to build a logistics business.

TNTLogo

TNT had been founded in Australia in 1946. It was listed on the Sydney Stock Exchange in 1961.  In the 1980s its focus was on growth in Europe. Although it did have logistics activities it was known principally as a parcels business.

After its 1996 acquisition by KPN a number of further businesses were bought and its air and road networks were expanded. In 1998 the mail, express and logistics business was demerged as TNT Post Group (’TPG’), becoming TNT NV in 2005.

A change of tack

Having a professed strategy of building ‘a … world leadership position in … mail, express and logistics’ (my emphasis) in December 2005 TPG announced a volte face and that it was looking to dispose of its logistics business.  The explanation given was that TPG was ‘successful at designing, implementing and running delivery network businesses. This is our core competency, lies at the heart of our business going forward, and offers us a sustainable competitive advantage and very compelling growth opportunities’ and the company would ‘focus on networks’.  It is possible, though, that this self-perception was influenced by the recognition of the enormous cost of trying to build world leadership in three markets.  Even Deutsche Post, with all its financial might, failed to break into the US express market, despite pouring billions of Euros down the proverbial t.

The logistics business at that point had revenues of € 3.4 bn.  TPG would retain the freight management business (turnover about € 800 mn) and certain logistics activities such as spare parts logistics, where there was clear synergy with the express business.

To complete the story of the Dutch Post Office’s dalliance with business other than mail, in May 2011 the TNT Express business was demerged and the mail business was rebranded PostNL.  PostNL retained 29.9% of TNT’s equity.  TNT has had an unhappy time as an independent company and was of course the subject of a 2012 bid from UPS which was stopped by the EU.

The birth of Ceva

TNT’s logistics business was sold in August 2006 for € 1.5 bn to Apollo Management LP, a private equity fund.  In December of that year the business was rebranded as CEVA Logistics.

EGL logo

In August 2007 Apollo bought EGL, a US-based freight forwarder which had been founded in 1984 and was listed on NASDAQ, and combined it with the TNT logistics business in CEVA.

Next: how the new company looked, and how it performed.

Product mix of quoted logistics businesses

Journalists tend to lump logistics businesses together but these show a wide range of product mixes.  This note analyses the service offering mix of selected players by revenue from their latest interim statements.

We talk and write about logistics businesses in general but of course when we generalise we run the risk of obscuring details that distinguish between competitors.  One important trend over the last fifteen years or so has been consolidation of the industry (although it is still very fragmented) and the combination of what were separate contract logistics and freight forwarding businesses into conglomerates aiming to become soup-to-nuts supply chain service providers.  The structural models of the big players probably doesn’t help to bring these services together, but let’s look at that some other time.

In the chart below I compare the proportions of our chosen sample of companies’ turnover which are reported in certain segments.  A clear problem is that although international and national accounting standards require segmental information, interpretation is often up to the boards of the companies and they are inconsistent.  For example:

  • Kuehne + Nagel shows Air-freight, Sea-freight, Overland and Contract Logistics.
  • DP-DHL naturally enough shows Mail (or as it is now called Post-eCommerce-Parcel) and Express, with Global Forwarding, Freight as a division plus Supply Chain.  They are good enough to disclose Freight (European road transportation) separately.  Similarly Williams-Lea is in Supply Chain but disclosed.
  • Expeditors shows customs brokerage, which no other of our sample does.  I have included that revenue in forwarding.
  • Panalpina discloses Air-freight, Sea-freight and Logistics.
  • Wincanton distinguishes between contract logistics and specialist businesses.

So ensuring comparability isn’t straightforward but I have done my best.  The major adjustment I have made is to exclude Mail and Express from the DP-DHL numbers.  These constituted 50% of the group’s turnover and masked the story in which I am most interested: the balance between contract logistics and freight forwarding.

For all companies other than Wincanton I have used the first-half 2014 published results.  For Wincanton the full year results to 31st March 2014 were the latest available.  I have also, where possible, excluded non-margin earning revenue such as duties.

Turnover analysis by product or service for major logistics companies that disclose such information
Turnover analysis by product or service for major logistics companies that disclose such information

You can draw your own conclusions from this, but what it tells me is:

  • Expeditors is still essentially a pure forwarder; Panalpina isn’t far behind.
  • K+N’s contract logistics business is still quite small, although combine it with Overland and they represent some 39% of revenue.
  • Ceva and DP-DHL have a close to 50:50 split (for the latter, excluding Mail and Express and grouping Freight (road transportation) with forwarding).
  • Norbert Dentressangle has come from a transportation background but has built up its contract logistics business so that it is now of equivalent size; the forwarding business is minimal.
  • Wincanton is 85% contract logistics, 15% specialist business.

None of that will come as much of a surprise, but it does confirm that really only Ceva and DHL have built businesses of comparable size in forwarding and contract logistics.  The others all have a particular strength (forwarding or contract logistics) which dominates.

 

The decline and fall of the UK logistics industry

Fifteen years ago, as the world partied because it was 1999, the average stock analyst following logistics companies on the London Stock Exchange (‘LSE’) had some choice.  In the Support Services, Shipping or Transportation sectors (or whatever they were at the time) there were at least the following players (in alphabetical order):

  • BOC (logistics business BOC Distribution Services became Gist in 2001)
  • Christian Salvesen
  • Hays (Hays Logistics)
  • NFC (including Exel Logistics)
  • Ocean Group (MSAS and McGregor Cory)
  • Tibbett and Britten
  • Transport Development Group
  • Unigate (Wincanton)

This collection of operators considered themselves to be amongst the global industry’s leaders.

Depending on ones definition of logistics, one could throw P&O and Bibby in the mix too.

The logistics industry has flourished on the globalisation phenomenon and this has surely contributed to the consolidation the industry has witnessed.  And that consolidation has affected the UK logistics industry more than most.

So what happened to the UK’s players?

Where are they now?

  • BOC    – acquired by Linde 2006
  • Christian Salvesen    – acquired in 2007 by Norbert Dentressangle
  • Hays (Hays Logistics)    – Hays Logistics spun off as ACR 2004 to Platinum Equity Group; acquired by Kuehne + Nagel 2005
  • NFC (including Exel Logistics)    – merged with Ocean Group 2000 to form Exel
  • Ocean Group (MSAS and McGregor Cory)  – merged with NFC to become Exel 2000; acquired by Deutsche Post 2005
  • Tibbett and Britten    – acquired by Exel 2004
  • Transport Development Group    – acquired by Laxey Investment Trust 2008; sold to Norbert Dentressangle 2010
  • Unigate (Wincanton)    – Wincanton spun off 2001; still independent

So of the eight businesses in our 1999 list (to some extent of course an arbitrary selection), four (BOC/Gist, NFC, Ocean Group and Tibbett and Britten) are now in German hands, two (Christian Salvesen and TDG) are French-owned and one (Hays Logistics/ACR) is Swiss, leaving a solitary remaining independent British player, Wincanton.

Of course the nationality of the ultimate holding company might not mean anything (witness how Jaguar Land Rover has thrived under Indian ownership), but a group does not need two head offices, so one suspects that Bracknell and Windlesham have suffered and when push comes to shove decisions are made in Bonn. Munich, Saint-Vallier or Schindellegi.  It probably does not reflect a diminution in British influence, but both the new DHL Supply Chain CEO and the post’s previous holder came from Exel in the US.

And who’s around now?

The Motor Transport Top 100 is a useful if flawed summary of the UK industry and that reveals the growth of parcels operators.  A significant new entrant to the quoted ranks is Royal Mail and Wincanton has been joined on the LSE by Eddie Stobart (in 2007) and Clipper Logistics (June 2014).

And that’s your lot.  A somewhat different picture to that at the end of the last century.