UTi stands at a crossroads

UTi has always been a little unusual. Much of it was created through acquisition by a company with its background in South Africa and it has gone-on to grow businesses in South East Asia and the Middle East, as well as North America. The consequence is a corporation that might be described as more global than its bigger rivals. It may have a corporate HQ in the US but it is composed of a string of business around the world run by local staff. This sounds impressive but it can bring problems.

Indeed UTi has had problems over the past couple of years. The company fell into a loss in 2012 and sales have been declining since 2011. This has been primarily driven by its weak performance in freight forwarding but also by heavy investment in IT systems designed to pull the various bits of the company together into a more coherent whole; that and redundancy costs.

The situation became so unstable last year that the CEO, Eric Kirchner, resigned thrusting Ed Feitzinger into the leadership of the Long Beach based company.

Judging by the immediate past this might appear to be a poisoned chalice. Yet the potential of UTi remains.

Speaking to Transport Intelligence, Ed Feitzinger admitted that there was “no question that UTi has under-grown the market” however much of this was caused by being “too focused on developing internal systems” in order to finally solve UTi’s long-standing issues of coherence.

Yet UTi is sticking by its distinctive approach, combining local knowledge with global size. In terms of its geographical exposure the company has an unusual split, with Europe and the Middle East together accounting for a quarter of revenue, Asia-Pacific another quarter and North America a third, the final 18% of sales are drawn from Africa. By segment freight forwarding is 58% of sales- split between ocean and air- while contract logistics and distribution count for most of the rest.

Freight forwarding remains a tough market for UTi as it is for many of its competitors, with Feitzinger observing that customers have become more aggressively focused on price before service. This is despite oversupply in markets such as container shipping. UTi’s response to this is to leverage its local presence. With local staff running its offices around the world, UTi can draw upon a deeper level of knowledge and contacts particularly in emerging economies. An example cited by Ed Feitzinger is Egypt. The political instability in the country has led many of the largest forwarders to scale back or even withdraw from many aspects of Egypt’s forwarding market, yet UTi’s Egyptian staff have been able to circumvent the disruption by accessing local transport providers, enabling to UTi to move to a leading position.

This example typifies the potential that UTi’s particular business model offers. However the downside is the inability of local offices to exploit economies of scale in purchasing services. This requires a strong centre that can negotiate with shipping lines and airlines at a global level. Getting this mix right is key to making the business model work and is what UTi’s senior management has been struggling with over the past couple of years. Feitzinger asserts that having spent both time and money on getting the “pendulum swing between centralised and decentralised management in the right-place” the company’s forwarding operation will reap the rewards.

UTi’s contract logistics business is similar in terms of its disproportionate approach to emerging markets and having suffered volatile profits over the past few years. That said, it has had a history of good profitability, comparable with some of the best performers amongst the larger LSPs.

With a heavy exposure to the automotive sector, UTi is expanding into the market for automotive logistics in growing production bases in South East Asia and India helped by its relationship with big OEMs such as Ford. This tends to be a combination of inbound consolidation and warehousing as well as ‘land transport’ management. This is an entirely logical strategy, if it can be delivered. It demands the ability to conduct operations in specific locations which is not always easy. As Feitzinger comments “contract logistics is about being local” and UTi is aiming to exploit the localised characteristics of business on the ground in select emerging markets to replicate the sorts of capabilities found in Europe and North America.

In terms of geography UTi has to be selective. Its contract logistics business is focussing growth in Egypt, Taiwan, North America and Southern Africa, with industrial sectors of pharmaceuticals, energy and project cargo in addition to automotive being its targets. Retailing is only of interest in Southern Africa, which has always been a particularly strong location for UTi.

In terms of market strategy these ideas appear sound and are aspirations shared by many rivals. The key element for UTi is if its particular mix of resources can be flexed to give it a competitive advantage.

If it cannot then the option of acquisition hangs over the company as the recent interest shown by the highly acquisitive Danish LSP, DSV illustrates. There are no shortage of big logistics companies that are potential targets for take-over, however UTi’s particular geographical positioning makes it particularly attractive. It really is up to Ed Feitzinger to deliver.

To find out more information about UTi Worldwide and its position in the market you can take a look at the company’s profile on Ti’s Global Supply Chain intelligence (GSCi) portal. To learn more about GSCi and subscribe to the database please contact one of our team here.