Control tower to Heinz: Your box has landed
In late August, CEVA Logistics secured a massive contract with H.J. Heinz Co. to manage the food company’s global ocean freight transportation for five years.
The deal is noteworthy because of the contract’s length, compared to typical freight forwarding contracts of one to three years, or less, and the volume — 60,000 TEUs per year — placed under the exclusive control of a single logistics provider. Many shippers are consolidating the number of third-party logistics providers used, but often split their business among a few key partners.
CEVA is the fifth largest international freight management company, with transportation management representing about 46 percent of its gross revenues of $9.6 billion and net revenue of $6.3 billion, according to Armstrong & Associates, which bases its rankings on an average of several revenue and volume measurements. In 2011, CEVA moved 783,378 ocean shipping units and 550 million air freight metric tons.
The Heinz contract represents a 7.5 percent boost in CEVA’s TEU business.
CEVA, headquartered in Hoofddorp, The Netherlands, will ship all Heinz brands, including its iconic ketchup and packaged foods bearing the Weight Watchers label, to more than 50 locations around the world and handle associated services such as packing, customs clearance and track-and-trace, Chief Commercial Officer Inna Kuznetsova said in an interview.
Pittsburgh-based Heinz previously handled ocean transport itself and had direct contracts with 20 different shipping lines, but made a strategic decision to outsource to get better centralized management of its entire network and better pricing by taking advantage of a forwarder’s volume purchases, she said.
CEVA will manage Heinz’s freight procurement and execution through its “Smart End-to-End” service, Kuznetsova confirmed.
Smart End-to-End essentially acts as a lead logistic provider for large global customers by integrating CEVA’s global network of control towers to coordinate transport and other activities between different nodes in the supply chain. The control towers are information hubs staffed by supply chain engineers located in countries and regions who are globally linked through a common suite of software applications known as Matrix, including a transportation management system. Matrix serves as the platform for tracking shipments and analyzing performance data to optimize carrier and route selection, and make process improvements. The support specialists manage load tendering, monitor shipping transactions, look for delays, alert customers to potential problems and step in to make alternative arrangements, such as expedited shipping or arranging a charter, to meet customers’ delivery requirements. Over time, the control towers monitor the quality of service provided by carriers on each trade lane to use those that perform best. Depending on the situation, CEVA can handle the actual transactions or oversees the work of another logistics provider.
The 3PL has 15 global control towers, as well as several regional and national offices in places such as Italy, Turkey and Spain, spokeswoman Krissy Attridge said. Capabilities in the local hubs even include monitoring alarms and video feeds of high-value cargo during transport and warehousing to prevent theft.
Several domestic 3PLs offer freight transportation software combined with managed services, but that type of service is only offered in the international arena by some giant forwarders like DHL. C.H. Robinson’s TMC division offers a service similar to CEVA’s, but without the contract logistics management.
CEVA launched Smart End-to-End 16 months ago by taking lessons learned from several standalone-customer engagements and standardizing core processes in a single, repeatable playbook, or module, with optimal IT systems and best operating practices, leveraged on a global scale under one leadership team, that can be sold in the broader logistics market. The service is designed to integrate the best features of CEVA’s contract logistics and freight management capabilities. The standard processes can be configured to meet individual customer needs.
As Jan Martin Witbreuk, executive vice president of supply chain solutions, explained in an interview last year, Smart End-to-End overlays the existing infrastructure for managing carrier performance, orders, warehouses, transportation, customs brokerage and other functions with an expert team that can oversee the entire scope of operations.
CEVA, for example, manages all inbound and outbound operations for General Motors and for some large retailers it manages the flow of garments from Asia to distribution centers in northern Europe, officials say.
The company says it can average year-on-year savings of 5 percent to 15 percent through productivity improvement programs initiated through Smart End to End.
Heinz is phasing in Smart End-to-End by starting with comprehensive carrier management — including tracking of shipment milestones and managing costs — but plans to phase in other End-to-End functions such as central billing, inventory management, supply chain network design and vendor management in the future, Kuznetsova said.
Heinz was looking for a partner that could map its existing operations and recommended new improvements over time, and that’s why it signed up for a longer deal, she added.
According to industry experts, there is growing interest by shippers in having strategic relationships with their logistics providers rather than simply relying on them to move freight between two points.
CEVA’s second quarter revenue compared to 2011 grew 5.5 percent to 1.8 billion euros ($2.3 billion), but operating profit fell 13.6 percent to 70 million euros ($88 million). Freight management revenues led the way with a 9 percent gain primarily due to strong growth in ocean freight from Asia, while contract logistics revenue only grew 3 percent mostly because of the economic downturn in Southern Europe.
Officials said they have identified cost-reduction opportunities in the freight forwarding operation and certain underperforming warehousing contracts that should help future profitability.
CEVA, which is owned by Apollo Management, completed a refinancing earlier this year that lowered its debt load and interest rate, while pushing out debt maturity. — Eric Kulisch