UTi still struggling with coherence

UTi Worldwide has been struggling for some time. A forwarder and contract logistics provider with a portfolio of businesses around the world including a heavy presence in Africa, the company has wrestled in the past to impose coherence on its variety of operations. This ought to be a strength as it has the potential exploit some difficult to enter but fast growing economies and market segments. Yet so far this is happening rather slowly.

The most recent results for the first quarter 2014 (ending April 30), released last week show that the company’s fortunes deteriorated, falling into an operating loss of US$3.24bn as compared with a profit of $3.98bn over the same period last year.

Whilst there were some negative currency affects they were not sufficient to fully account for the downturn. Unsurprisingly one of the main problems for UTi is its freight forwarding business. Although volumes are up, revenue is down with operating profits also declining from $13m to $3m. The reason is familiar. Freight rates in both air and sea are weak and customers are demanding that these are passed on, squeezing forwarders margins.

The picture in contract logistics is better, if not brilliant. Year-on-year net revenue edged down and operating profits fell before exceptional items, although UTi state that after exceptional items profits increased by $2m, to $13m.

Geographically the picture is not uniform, with the Americas and Europe falling into loss whilst business in Asia Pacific appears to be both growing and highly profitable.

UTi’s problems are not unique. Many forwarders are suffering from a squeeze in the market, possibly exacerbated by shipping lines aggressively marketing capacity directly to customers. However, UTi may be suffering more than most due to its problems with strategic focus. The management of the company made it clear that in areas such as freight forwarding it was struggling to evolve coherent pricing and purchasing systems, with CEO Eric Kirchner suggesting that the rolling-out of the ‘View’ IT operating system will be key to imposing better processes and thus a tighter grip on costs.

Leveraging IT for greater operational and tactical coherence is obviously important, however for UTi strategic coherence is also necessary if it is going to achieve a higher rate of growth.