News / CMA CGM unveils billion-dollar cost-cutting plan as profits tumble

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CMA CGM is to attempt to shave $1.2bn off its costs as it consolidates its position following acquisitions.

The French carrier announced the plan as it revealed its 2018 results, which saw record revenues of $23.48bn, up 11.2%.

This, however, translated into a pre-tax profit of $167.7m, down from $800.7m a year earlier.

Operating expenses rose from $18.9bn to $22.3bn, while core ebit was $610.4m, down from $1.57bn, following a 33% increase in fuel prices.

Volumes in teu were up 9.3% and the line added: “Despite an increase in oil prices, our recurring ebit margin remains considerably above the industry average.”

But the key announcement was the $1.2bn cost reduction plan – although there was little detail on how it would be achieved.

In fact, the only detail was that the reduction would be achieved “through the optimisation of lines and brands, and by further streamlining processes”.

The target follows a year in which the line invested in both Ceva Logistics and Containerships, an intra-European regional service. It spent some $963m in cash for investment activities, while its free cashflow for the year fell from $1.6bn in 2017 to $237m.

It expects to see a cost reduction via its stake in Ceva, through “pooled operations and cost synergies, such as cooperation for purchases and the implementation of shared services”.

It also sold its logistics arm to Ceva, enabling the “integration of CMA CGM’s freight forwarding activity into Ceva to increase Ceva’s footprint in ocean freight forwarding and to allow economies of scale”.

It said: “The group will be able to offer a complete range of logistics services, covering the entire logistics chain, from production logistics to last-mile delivery, and including air, sea and land transport services as well as warehousing services.”

Meanwhile in a Q&A last week, chief executive of Ceva Logistics Xavier Urbain expanded: “In my opinion, [Ceva’s] competitive edge will be amplified with the services CMA CGM is giving us access to, like rail connection between China and Europe, alternatives to air like transpacific fast vessels, etc. We therefore expect very positive reaction from our customers and increased competitiveness for Ceva in the marketplace.”

Costs are also likely to be reduced as the shipping line continues its “digital transformation”.

CMA highlighted some of its digital changes last year, noting its use of AI to support crews’ on-board decision-making; its investment in start-up BuyCo, to develop of an electronic bill of lading secured by blockchain; its investments in Nyshex, the first digital marketplace for sea freight contracts to propose space protection, and e-dray, a software platform designed to improve container handling operations in terminals.

It has also become the first shipping line to be featured  on the Freightos platform.

Rodolphe Saadé, chairman and chief executive of the group, said: “In 2018, in a difficult environment, the group posted a sharp rise in volumes and a record revenue of nearly $23.5bn. Despite an increase in oil prices, our recurring ebit margin remains considerably above the industry average.

“We are pursuing our strategy of innovation and digital transformation in order to continue to offer excellent service to our customers and strengthen our performance.

“In 2019, despite persisting geopolitical tensions, trade perspectives are positive. We will continue our development with the objective of improving profitability. That is why we are launching a new $1.2bn cost reduction plan.

“In addition, through the friendly public tender offer we are conducting on Ceva, our ambition is to become a world leader in both transport and logistics, thereby providing a complete and efficient service offer to our customers.”

You can see CMA CGM’s full results here