Record revenue emboldens CMA CGM’s transformation

Record revenue emboldens CMA CGM’s transformation

CMA CGM reported record revenue in 2018 and has improved its profitability. Photo credit: Shutterstock.com.

After record revenue on market-beating volume growth despite trade and fuel pressures, CMA CGM is emboldened in 2019 to speed up its transformation from an ocean shipping company to a larger global logistics force.

In reporting a 9.3 percent rise in container volume in 2018, to a record of more than 20 million TEU, the Marseille-based container line said the technology-focused strategic developments made last year, and its friendly public offer to CEVA, position it to become “a world leader in both transport and logistics.”

At the same time, CMA CGM said it was pursuing a $1.2 billion cost-reduction plan after the margin of earnings before interest and tax (EBIT) weakened from 7.5 percent in 2017 to 2.6 percent in 2018. Net income fell from $701 million to $150 million.

Despite a 33 percent increase in bunker fuel prices cutting into the company’s EBIT, the carrier’s revenue rose to 11.2 percent to $23.48 billion in the same period, with revenue growth accelerating in the fourth quarter by 14.9 percent, to $6.3 billion, compared with the same period in 2017.

As CMA CGM works to expand its freight management business, the company has invested in Internet of Things (IoT), artificial intelligence (AI), and blockchain through various initiatives, ranging from its smart container offerings via Traxens to functioning as an incubator for 15 startups. The company has also rolled out products tailored to liquid-in-container and refrigerated goods shippers.

CMA CGM’s effort to transform itself into “a world leader in transport and logistics,” hinges on its full acquisition of CEVA and integration of the company. CMA CGM holds 33 percent of CEVA and is making its public offer of 30 Swiss francs ($30) per share as part of a new strategic plan that was developed jointly with CEVA.

CEVA’s board of directors earlier recommended shareholders turn down the offer from CMA CGM — a recommendation made in agreement with the container line — believing the growth inherent in the company had increased the valuation above the offer price. Bringing CEVA into the group will allow the merged entity to offer customers integrated logistics solutions and reduce the volatility within its ocean transport business.

In a interview with JOC.com, CMA CGM chief financial officer Michel Sirat stressed CEVA Logistics will compete for the container line’s business along with other forwarders. No special provision will be granted to the service provider, Sirat told JOC.com.

“We are not going to give CEVA better rates than we give Kuehne + Nagel, for instance,” he said. “Our plan is to protect our existing customer base of forwarders. Those forwarders will not gain anything from our acquisition of CEVA, but they will not lose anything, either.”

CMA CGM’s strategic plan is to improve commercial synergies by proposing the CEVA offer to CMA CGM customers, and vice-versa, integrating CMA CGM’s logistics activity — 1,200 people and $650 million in turnover — into CEVA to increase the logistics provider’s footprint in ocean freight forwarding and allow economies of scale and to provide cost reduction with pooled operations, such as purchasing and shared services.

CEVA in 2018 managed to reduce its net debt levels by 43 percent and grow revenue by 5.2 percent to $7.3 billion, and the company has ambitious growth plans tied into its partnership with CMA CGM.

The logistics provider has set a 2021 target of exceeding $9 billion in revenue that reflects a 5 percent average annual organic growth and the contribution of CMA CGM Logistics of $630 million.

Xavier Urbain, CEO of CEVA Logistics, said he was confident in the company’s ability to meet the enhanced medium-term targets with the support of its strategic partner.

“The organization is on track to accelerate its transformation and turnaround action plan in the next three years and beyond,” Urbain said in the CEVA earnings statement.

Comments

Record revenues - and a massive reduction in profits - adding a company that is loosing a significant amount of money, combining it with your own entity that is also losing money. The Billion dollar cost reduction is a necessity.