Strategy into action
2018 was our year to consolidate capabilities from the strong platform we created through the merger in 2017, and that we did. The merger synergy target was lifted by 20% to USD 120 million for the full year and we achieved that within the third quarter. We then established a USD 100 million performance improvement programme to maintain momentum in countering the challenging market forces. Equally importantly, we took decisive steps towards our strategy of full lifecycle logistics through the acquisition of Syngin, stimulating new thinking and digital capability in our group. Continuing our drive to increase our digital capability and speed, we established Raa Labs – the digital accelerator for the maritime industry – as a 50% equity partner.
On sustainability, we took a stand as one of the founding partners of the Ship Recycling Transparency Initiative (SRTI), exemplifying our decades long practice of green and responsible vessel recycling. With the 0.5% sulphur cap coming into force from 2020 and the resulting uncertainty around quality, quantity and price of new fuel, we opted to install scrubbers on a further 20 vessels in our fleet to mitigate some of the risk. Contractual clauses were reviewed and adjusted with clients where needed, ensuring we achieve natural hedges through fuel cost increase recovery over time. Lastly, we established our new corporate visual identity, launched new values across the group and initiated two major IT operating system change projects. These steps, and many more, are proof of how we are smarter and stronger together and are continuing to deliver on our strategy and build value for investors.
Our market remains tough
At a macro level, general market sentiment regarding the global economy, slowdown in China, trade wars and Brexit uncertainty created a volatile environment in the vehicle segments we serve throughout the year. While trade wars brought limited real volume effect, the negative sentiment left investors with concerns over the robustness of forward volumes, which naturally had an effect on our share price. Global light vehicle sales saw a 4.6% decline year-on-year, however exports saw 2.5% year-on-year growth. Overall export growth was still not enough to absorb excess shipping capacity in the market, resulting in continued rate pressure in all ocean corridors and a relentless margin squeeze. Full year volumes for our ocean business remained flat compared to 2017, although cargo mix improved. These factors also impacted our share price as investors were not seeing the growth in volumes and earnings expected. Landbased earnings developed well, particularly through the acquisition of Keen Transport in the US and the expansion of the MIRRAT terminal in Australia.
Despite the tough market, we remain strong and have weathered the storm well. Our single fleet approach has enabled us to adjust and redeploy capacity rapidly across our broad network. We have secured a very high degree of all the contract business sought on land and sea, with re-affirmed confidence from our client base. We’ve been able to renegotiate contractual terms for better operational efficiency and through that have been able to drive real bottom line improvements. Internal consolidation and efficiency of all our business units remained a strong focus and thanks to the incredible work of our employees we can comfortably state that our results were USD 120 million better than they would have otherwise been.
It has been said that jobs of the past were about muscle, jobs of today are about brains and in the future, they will be about hearts. Throughout, it’s about people and – as we move through Industry 4.0 – even more so. Technology has changed tasks in our group since the first industrial revolution, given our long and proud heritage, and will continue to do so. Without our people we cannot apply technology, serve our customers or deliver returns to our shareholders. Safety is paramount to us as a global enterprise with scores of land-based operating sites and hundreds of vessels in our control. In addition to our strong focus on lost time incidents, in 2018 we placed deeper emphasis on reporting near-misses to boost learning, and continued to develop preventative measures across all our sites.
A safe working environment goes beyond physical safety; it’s also about emotional safety and embracing diversity. We introduced new values to the organisation early in the year: Imagination, Courage, Candour, Speed and Trust. With these, we want to continue building a working environment where we can speak up, dare to generate ideas, be willing to move quickly and trust each other. These values and the leadership training we run are core to our ability to attract and retain the talent we need. We were very proud to have been listed on the She Index as one of the leading companies in Norway in gender equality. As a global organisation, inclusion in all forms is a key focus area that we will continue to emphasise and work with over the coming years. Our people have done amazing things during 2018 and will continue to do so as we move into our next phase as a company.
Defining logistics for a world in motion
Looking to 2019 and beyond, using our stronger and smarter strategy platform created since the merger, we can lean in to Industry 4.0 and move towards our purpose. We firmly believe new opportunities lie in the vehicle supply chains of the future. Disruption continues around us and will certainly have an impact on our industry and the value chains in which we serve and operate. Our focus is on transforming ourselves and seeking the opportunities that technology offers, as we’ve done successfully for more than one and a half centuries. The availability, accessibility and now relatively low cost of digital technology is unprecedented. Embracing the possibilities that exist will bring us improvements in three key areas: it will drive further efficiency in our operations, generate new revenue pools, and reduce the environmental impact of vehicle supply chains by removing inefficiencies and taking out waste. We will continue to invest in technology and human resources to boost our digital capabilities and drive improved financial performance.
Our Lean:Green strategy demonstrates our commitment to social and environmental progress in our areas of influence – within vehicle value chains. Sustainable business practices go hand in hand with financial performance of the company – these are not ‘either or’ matters for us – it’s ‘both and’. As we lean in and exploit the opportunities Industry 4.0 offers us, we will be able to bring value to all stakeholder groups that are engaged with our company and perform above our peers. Our shareholders are an important part of our journey to create the platform needed to achieve our ambitions, and we thank them for their support.
President and CEO