As customers continue to source offshore, their international supply chains are becoming more complex. APL Logistics is well positioned to serve their growing needs.
The logistics business continued to deliver speed, reliability and flexibility to customers.
Total logistics revenues in 2006 rose year-on-year by 2% to reach US$1.31 billion.
In 2006, margins were compressed by the continuing investments we made in enhancements to our sales organisations with the aim of achieving improved business integration. Core EBIT was US$54 million – 5% lower than the prior year. The Core EBIT Margin was 4.1% in 2006.
2006 was a year of continued investment for the future and realignment of the business around customers’ end-to-end supply chains.
We see a growing market opportunity in serving companies which are increasingly investing and sourcing products offshore – particularly in Asia. As their supply chains become longer and more complex, we help them to achieve delivery certainty and consistency in markets that demand fast and seamless supply chain fulfillment.
Also, our strategic shift towards fulfilling end-to-end supply chains, means we now have a model in place to maximise the potential of our Contract Logistics segment.
In 2006, market conditions in Contract Logistics were tougher, particularly in freight management and warehousing – where we exited some contracts, and made a write-down against our warehousing business.
International Services revenues grew by 3% over the prior year, on strong volume growth in ocean-based services such as forwarding.
Alignment of the business around the apparel, high tech/electronics and automotive segments continued.
The company achieved its aim in 2006 to develop innovative solutions such as OceanGuaranteedSM that reduce supply chain variability and increase visibility and delivery certainty.
The company also continued to provide a range of value-added services, including information and payment management; advising customers on where to source products economically; identifying local suppliers; and providing guidance on international trade regulations. We also leveraged IT to provide supply chain event exception management – to assure customers that the process is working.
REGIONS IN REVIEW
In line with the trend towards sourcing from lower-cost, higher productivity
markets, Asia was the key operational driver of the logistics business in 2006.
The Asia-Middle East region registered strong year-on-year growth.
We continued to develop and leverage our presence and capabilities in key sourcing markets such as China, India and, increasingly, Vietnam. We recently completed a new warehouse project in Vietnam taking our network in the country to more than 40,000 sqm.
As well as our rail joint venture in India, we also opened a 120,000-TEU capacity inland container depot and a 7,000 sqm container freight station at Dadri near New Delhi.
In Greater China, there was a successful listing on the Hong Kong Stock Exchange of CMA Logistics Co Ltd (CMAL), the China automotive logistics joint venture we formed in 2001.
Factors such as growing personal incomes, the relaxation of restrictions on financing and reduced car prices, following China’s accession to the WTO, have led to growing demand for automobiles and CMAL has established a strong niche in China’s automotive logistics industry.
We also became the first international logistics provider to obtain a licence to operate in Taiwan’s Kaohsiung Free Trade Zone.
Going forward, we will continue to expand our presence across the Asian continent.
The Americas continued to be our largest revenue contributor in 2006 and is home to a 2.25 million sqm warehousing network – one of the top-five networks in the Americas. We are also expanding into South America, for example, by developing warehousing capacity infrastructure in locations such as Chile, where we are scheduled to open a new facility in late 2007.
We also continued to deepen our presence in Europe by opening new operations in fast-growing markets such as Spain and Turkey.
Holistica, our alliance combining APL Logistics’ international reach and strength in Asia with partner Christian Salvesen’s European warehousing and distribution capabilities, began providing logistics management to Europe-based companies, which are demanding better control and consistency for their extended supply chains.
PROGRESS THROUGH INNOVATION
Product innovation was focused on the rapid supply chain fulfillment needs of
our customers in our core vertical segments.
When US-based businesses begin sourcing from China, their supply chains grow in length and complexity. However, in many cases, they also encounter demand for faster product-to-market cycles. We identified an urgent need for a highly reliable, expedited service for less than container load (LCL) shipments – a service that provided shippers with a premium, but cost-efficient alternative to airfreight. Our answer was an entirely new service category called “OceanGuaranteedSM” (See Service Concept, below).
OceanGuaranteedSM is an industry first. The alliance between APL Logistics, and US less than truckload carrier Con-way Freight combines premium ocean carriage with high-performance land transportation. It provides fast, day-definite, guaranteed port-to-door delivery from Asian origins to destinations across the US.
Shipments that do not meet the delivery-day commitment receive a 20% discount, subject to the terms of the service guarantee.
OceanGuaranteedSM also offers customers a simple, per kilo, zone-based pricing structure, so customers pay the same price from any of the seven origin ports.
Originally operating between Hong Kong, Shanghai and Shenzhen in China, and the US, the service has expanded to include four more ports in Japan, Korea, Singapore and Taiwan.
In the US, our leadership in reducing the emission of air pollutants and greenhouse gases in freight transportation was recognised by environmental protection agencies. APL Logistics was one of only three logistics services providers selected of 24 companies that received SmartWay Excellence Awards in October 2006.
We were also the only third-party logistics provider listed in the 19th annual CIO 100 Awards, which recognises organisations for their ability to leverage IT effectively to maximise business value.
RAIL BEGINS TO ROLL
The NOL Group has considerable expertise in operating rail services, based on
our pioneering work in developing double-stack trains in the US back in 1984.
We are seeking to leverage this in new geographies.
As more businesses become aware of India’s manufacturing potential, that country’s infrastructure is coming under increasing pressure. Land transportation has become burdened by chokepoints. The only way to ensure smooth, seamless services is through direct involvement.
Following intensive work during 2006, our India rail venture is set to begin delivering greater supply chain control and seamless service for our customers moving cargo in India. The investment will complement and differentiate our liner services in India, while generating a new stream of logistics income for the Group.
We plan to run trains from mid 2007 under the APL IndiaLinx™ brand.
Our licence allows us to run unlimited container trains on all India routes. While the venture will initially service the crucial Mumbai-New Delhi freight route, it will expand to include other corridors in India.
For our customers, the investment in India’s landside facilities will allow better access to the fast-growing Indian manufacturing sector, offering seamless end-to-end services. The venture is also in line with NOL’s first mover strategy, giving us deep, early exposure to a country that is expected to become Asia’s next manufacturing hub.
LOOKING AHEAD
In 2006 we made progress in diversifying our portfolio of business and service
offerings around complex international supply chains. This has positioned our
logistics operations well for the future.
Macro-economic forecasts and increasing offshore investment and sourcing suggest global demand for logistics and supply chain services will continue to be strong into the future.
At 2.25 million sqm, we manage one of the top-five warehousing networks in the Americas.
Dadri, India: Following intensive work during 2006, our India rail venture will in 2007 begin delivering greater supply chain control and seamless service for our customers moving cargo in India.
