Managing what we can control
Providing services around the world opens many opportunities for us. But it also means we can be affected by things going wrong in the global economy – such as trade wars, pandemics or falls in the oil price. In 2019, we continued to focus on managing the factors that we can control or influence, so we could adapt well to the market. With a strong track record of delivering on synergies, we launched a USD 100 million performance improvement programme towards the end of 2018, with a reaffirmed target to complete it by the end of 2020. The great imagination of our people and better use of data and technology helped us to reach about USD 74 million by the end of 2019. These improvements, combined with our operating teams’ relentless efficiency and dedication, delivered improved results on falling volumes.
Global auto markets softened overall this year, accounting for roughly half of the reduced volumes we experienced in our ocean segment compared to the previous year. Other volume reductions were due to our commercial priorities, opting not to continue servicing unprofitable cargo in certain corridors. These planned events helped us to operate flexibly and improve our service to clients, as well as improving EBITDA even as volumes and income decreased. The general softening also had an impact on throughput of volume in our landbased segment, but we retained similar margins through our variable cost model.
The softening auto markets and minor vessel overcapacity meant ocean rates remained under pressure throughout 2019, resulting in certain ocean business becoming economically unviable. We will continue to strive for rates that reflect the true cost of servicing the market’s demands. At current rate levels, investment activity in new vessels stayed low across the industry and is expected to be similar in 2020. Acquisitions made for our landbased segment have continued to contribute positively and ahead of our original plans. Land activities will continue to be an area for growth and expansion as vehicle value chains face disruption and we seek opportunities to adapt to the changing needs of the future.
Delivering in a tough market
In 2019 we operated within a shaky global economy. Trade wars, the oil price, Brexit – all contributed to a year of low confidence in the market. General market sentiment was negative. Changing tariffs on goods, slowing economies and new environmental regulations on vehicles in various markets led to a decline in consumer confidence, impacting auto sales. We were not immune to trade wars causing volatility in the stock markets and saw a weakened and fluctuating stock price throughout the year.
But by managing what we could control, and through the dedication of our 9 400 employees, we were able to improve profitability despite the tough environment. With better margins and improved cash flow, we paid a dividend of USD 12 per share. Several major and important contracts were renewed during the year, including the Hyundai Motor Group contract in December 2019. The share price strengthened towards the end of the year because of our ability to improve results in difficult market conditions and our customers’ confidence in us, displayed through their commitment.
The year ended with the shipping industry’s preparation for the 2020 sulphur cap. We were pleased that customers accepted the increased costs and proud of the preparations our teams made in readying the fleet, which resulted in a smooth transition into 2020.
Climate change raises its voice
The world woke up to the impact of climate change in 2019 and we saw young people everywhere take a stand. Increasing abnormal weather events and further scientific proof that we’re not meeting the temperature targets of the Paris Agreement have prompted a far broader and visceral debate among politicians, business leaders and the population at large. These developments have given us pause. It’s clear that sustainability can no longer just be how we do business, but for the future it is our business.
Sustainability has been part of our DNA for decades and we focused on it extensively this year. But we knew it had to be at the heart of our purpose and not just one of the ways in which we did business: Sustainable Logistics for a world in motion. Sustainability is now central to providing our services to the world’s vehicle and equipment manufacturers. We firmly believe that not only will supply chains of the future be disrupted, but also that there is significant room for emissions reduction across vehicle value chains. We can reduce the environmental impact of vehicles in the supply chain just by removing fragmented logistics KPI inefficiencies in the outbound logistics chain, in dialogue with our customers. This will also stop money being wasted, which is good for business and ensures balance between financial and sustainability targets.
We are supporting our new purpose by continuing to embrace zero-emission deep sea shipping. This bold and audacious aspiration is certainly a challenge and we believe partnerships are central to the industry’s progress in this area.
Exploring the most viable solutions with many partners is the way forward. One example is joining the Zero-Emission Coalition to get a zero-emission deep sea vessel on the market by 2030. We are also working with customers, academia and industry partners on developing a responsibly sourced carbon neutral biofuel – LEO. Together with Wallenius Marine, we aim to have the first wind-powered deep sea RoRo vessel ready in service by 2022. Importantly, we see this as a journey. What may be viable for the next ten years may not be viable in 20 years. We embrace that uncertainty and continue our pursuit for sustainable solutions.
Digitalising our way to sustainable logistics
Industry 4.0 continues to offer businesses across the globe unprecedented access to data and the ability to analyse that data to improve. We see digitalisation as a key enabler for us: towards our customers, for our employees and how we achieve sustainable solutions in vehicle value chains. Through our Digital Accelerator team established during the year, we have embarked on several promising projects together with our customers, partners and start-ups – exploring the future of logistics in an industry heading for a new business model.
To be a service partner of choice across the new vehicle lifecycle as it takes shape, means leveraging technology for the supply chain of the future. But our people will continue to be at the heart of serving our customers and our engagement with the community. Preparing ourselves for a digital future requires training and reskilling and we are delighted with the efforts so far and the speed in which our employees have embraced new working methods and digital tools. Equally, technology will support us in areas of safety – physical and psychological – as we apply data to identify and remove risks and create healthy workplaces.
We aim for a diverse and inclusive workforce, and as a global enterprise operating in 29 countries, we continue to seek diversity in its broadest sense. Being an attractive employer means engaging with our employees throughout their time with us and providing an environment where imagination is not curbed, courage replaces fear, and candour and trust are key enablers. Speed to market will only increase in the future and we believe these attributes will support that need.
Ultimately, everyone in the company sharing a clear purpose – delivering Sustainable Logistics for a world in motion – is paramount to giving us all direction and meaning in our work, and digitalisation will be key to enabling us all on that journey.
President and CEO