News / Cost-saving still key for UTi Worldwide as declining volumes impact turnover in Q2

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US freight logistics provider UTi Worldwide is continuing to target further cost savings in its business after yesterday reporting second-quarter results which showed a drop in turnover.

The firm said air and ocean freight volumes had fallen.

The company’s executive management said it had deliberately shed some low-margin air freight forwarding accounts and had suffered modal shift, as shippers decided to transfer volumes to sea freight, while ocean freight volumes were also down due to “slowing business in certain regions”.

UTi executive VP of global operations Ed Feitziger said the company was refusing customers asking for 120-day payment terms, and was looking to reduce the number of shippers on 90-day terms.

“Frankly, from our side we’re not particularly interested in customers that don’t make a lot of margin with long payment cycles,” he told analysts during the results presentation.

The company reported revenue of $1.1bn, a 3.4 % decrease from the $1.13bn in the same period last year, while net income – which it defined as revenue  minus transport costs – was $401.2m, up 4% from $385.6m.

It reported an adjusted earnings before interest, tax depreciation and amortisation (EBITDA) of $30m, and said the decline in freight forwarding revenues had been offset by an increase in customs brokerage and contract logistics business.

In the post-recession period, the company has focused on a “top-to-bottom” cost reduction programme that, along with some pretty hefty staff cuts, was aimed at redesigning its cost base. At the heart of this is the implementation of its 1View freight forwarding system and the company-wide transition to an Oracle operating system. Both projects remain ongoing.

Chief executive Eric Kirchner said: “We continue to expect $95m in annualised cost savings by the end of fiscal 2015, and $50m of these savings were in place at the end of fiscal ’14. We told you last quarter that this was achieved primarily through organisationally alignment and staff reductions of just under 900 full-time equivalents.

“Similar reductions are planned later this year, along with additional productivity improvements. We plan to implement $45m and incremental cost savings before our fiscal 2015 year-end. In fiscal 2016 we expect to realise $10m in redundant cost savings in addition to the full $95m in run-rate savings.”

The company has forecast an EBITDA of $190m-$210m in fiscal 2016 – the crunch point when its restructuring programme will ultimately be deemed a success or failure.