APL Logistics Operations Review
APL Logistics' total revenues climbed
20% in 2004, up from US$975 million
to US$1,167 million. Core EBIT
(Earnings Before Interest, Tax and
Exceptional Items) was US$24 million,
representing a 243% improvement
on the US$7 million reported in 2003.
APL Logistics' talented and motivated team has
been crucial to the success of the Company in
2004. The improvement in performance reflects
their strong focus on growing our business and
assisting our customers as well as driving down
our costs.
By delivering expanded capabilities with a strong
focus on companies with complex international
supply chains, we produced US$831 million in
contract logistics revenue during 2004, up
17% from US$711 million in 2003. Revenue
from international logistics services was
US$336 million, up 27% on the US$264 million
a year earlier.
Our international focus and long-term growth
strategy was reflected in double-digit revenue
growth in all the regions in which we operate.
In the Americas, which accounted for almost
three-quarters of our turnover, we grew 19%,
in Europe, revenue growth was 28%, and in
Asia, 16%.
During 2004, we sharpened our focus on
customers in specific industry sectors that have
the most potential to benefit from our international
supply chain capabilities. In particular we have
expanded our service offering in the automotive,
consumer electronics, retail and consumer
goods sectors.
The automotive and electronic sectors
increased as a proportion of our business,
with auto/industrial contributing 35% of
total revenue and electronics/high tech
contributing 16%, compared with 33%
and 14% respectively in 2003.
Integrating Services
With proven capabilities in origin logistics
management as well as warehousing and
transportation/freight management at destination,
our emphasis is on integrating these origin
and destination services to allow our customers
to achieve greater flexibility, responsiveness,
and efficiency as they move internationally
sourced products to markets around the globe.
In this regard, we have been particularly
successful in leveraging our origin infrastructure,
information and supplier management capabilities
to help our customers gain a greater degree
of control over product as it enters the supply
chain. In doing so, we create opportunities for
our customers to reduce the amount of inventory
required to support their business by executing
against smaller, more frequent purchase
orders and optimising their use of international
transportation services.
In addition, we are able to look for ways to
move away from the one-size-fits-all approach
to inbound supply chain management and
develop more flexible options for routing product
based on its unique characteristics and
profit margins.
As inventory accelerates, we are then able
to work with our customers to rationalise
downstream distribution infrastructure and
achieve additional cost savings by reducing
the amount of handling required to deliver a
complete order to their end customer.
APL Logistics' ocean and airfreight forwarding
business also enjoyed strong growth during
the past year. We will continue to scale these
capabilities for our customers going forward to
ensure that we can take advantage of a complete
portfolio of transportation service options in
developing international inbound logistics
solutions for our customers.
Customer-based Solutions
Many of the customers in the sectors we target
share common traits, including the challenges
of managing increased overseas sourcing,
dealing with a fragmented supplier/factory
base, and co-ordinating increasingly complex
product-specific supply chains. They face
intense pressure to compress the amount
of time, and cost, required to move their goods
through the chain. As a result they need and
want greater control over, and flexibility in, their
supply chain operations.
One of our priorities has been to deepen
relationships with customers so that we can
deliver greater synergies across the origin and
destination services we offer. Key to this is
effectively linking these services through robust
IT applications and operational processes.
For instance, leveraging our warehousing and
freight management at origin and destination with
our international forwarding capabilities gives us
the ability to deliver significant game-changing
global solutions.
Our focus on developing processes and
applications linking origin and destination services
that can be replicated is a departure from typical
3PL customised implementations. By investing in
the capabilities that link our services we are able
to more quickly deliver an inbound supply chain
solution for the customer, while at the same time
achieve operational efficiencies in supporting
that business.
We had some early wins in developing a business
solutions practice with selected customers in
2004 and the NOL Group is further investing in
this capability to leverage the expertise of both
APL and APL Logistics in order to create new
solutions and products for customers.
This is an exciting, fresh approach to deepening
the services we offer our customers.
APL Logistics continues to invest in expanding
and strengthening our core capabilities.
For example, in 2004 we worked with customers
to integrate further upstream with purchase
order management tools and processes, thereby
creating capable, standardised and effective
ways to flow, track and manage goods.
We have also made investments aimed at helping
our customers implement RFID (Radio Frequency
Identification) technology in their businesses.
While we are early in the adoption cycle of this
new technology, its benefits appear compelling
and our customers are looking to us to help them
find ways to use RFID to create efficiencies in
tracking and distributing their goods. Partnering
with Sun Microsystems, we have opened two
US-based laboratories to test and implement
RFID technology and adjacent processes for
our customers. A third is opening in Singapore
in 2005.
Sourcing Shifts
Our customers continue to increase their
Asia sourcing, and China is a major driver
of this growth. In addition, we are also seeing
increased interest in Southeast Asia and the
Indian Subcontinent. With APL Logistics'
well-developed infrastructure and information
systems and extensive experience on the ground
in Asia, we are well-positioned to capitalise
on opportunities in these emerging markets.
One of the consequences of the current rapid
growth in volumes - port and infrastructure
congestion - presents new challenges for our
customers and opportunities for businesses
like ours. The challenge is to help our customers
flow their goods through the supply chain, in
some cases helping preserve the gains they
have made tightening their supply chains over
the years. This fits with our ability to assist our
customers in implementing flexible, contingent
supply chain solutions that mitigate risk and
choke-point dependencies.
Outlook
In 2005 our focus remains firmly on growing
our business by helping our customers develop
and implement efficient and flexible international
logistics services and solutions. We will continue
to invest in and expand our key capabilities
while focusing on increasing our returns through
ongoing reduction of our operating costs.
We will work closely with our customers to help
them increase efficiency, contain costs and
improve their flow of information. This is much
more important going forward, as infrastructure
constraints increase the challenge of managing
international supply chain operations.
Our long-term growth will be based on
strengthening our portfolio of logistics services,
and continuing to deepen partnerships with
our customers.
Our regional management teams are now well positioned
to respond to these objectives, having
integrated their organisations to deliver against
the operational capabilities of both APL and
APL Logistics.
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