2014 Annual Report - Panalpina · Panalpina Annual Report 2014 ... As part of its Global Business...

2014AnnualReport

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2

Panalpina Annual Report 2014

2 Facts and Figures

Net forwarding revenue by product2014

11 %47%Air Freight

Logistics

42 %Ocean Freight

OFFICESWORLDWIDE

500COUNTRIESWITH DIRECTOPERATIONS

70

of gross profit in Logistics

16 000EMPLOYEES

serve customers of EnergySolutions in Ocean Freight to 1,606,500 TEU

7%VOLUMEGROWTH

2 200

6707

Net forwarding revenue

Gross profitMillion CHF

SPECIALISTS

857 800TONS OF AIR FREIGHTTRANSPORTED

1,750

1,600

1,450

1,300

1,150

1,000

2011 2012 2013 20142010

1,586

1,480 1,477 1,465

1,561

5%

MILLION CHF

GROWTH

Net forwarding revenue by region2014

20 %AsiaPacific

33%Americas

8 %Middle

East,Africa,

CIS

39 %Europe

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3Contents

CONTENTS

Facts and Figures 2

Letter to the Shareholders 4

Strategy and Results 6

Our Performance 8

Key Figures 12

Energy Solutions 14

Air Freight 16

Ocean Freight 18

Logistics 20

Highlights 2014 22

We have been dedicated to the individual needs of our

customers for decades and are considered pioneers of

modern end-to-end solutions. Our experience, expertise

and our motivated staff arewhat make us successful.

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Dear Shareholders,

This past year was decisive for Panalpina: in 2014, we delivered solid results and more than doubled our overall profitability. The strategic priorities set in 2013 are delivering the right results. In a challenging market environment, the company achieved an EBIT of CHF 116.7 million and a consolidated profit of CHF 86.5 million. While Air Freight grew slightly ahead of the market, Ocean Freight outperformed the market, enabling us to retain our position among the top five global players in freight forwarding.

The restructuring undertaken in the year 2014 has borne fruit and we made significant progress in the turnaround of the loss-making units. This was particularly noticeable in Logistics, where the reduction of losses meant that the turnaround is clearly ahead of schedule.

The newly established Middle East, Africa and CIS (MEAC) region achieved substantial growth in an unsteady economic climate. Panalpina set up two new country organizations in Kenya and Morocco (officially opened in January 2015) and plans to further enlarge its footprint in Africa.

In September, Panalpina merged its Panprojects and Oil and Gas activities to form Energy Solutions, a specialized service that designs tailor-made solutions for the energy sector. With a com-bined global team of some 2,200 people operating from 90 strate-gic offices in 50 countries, Panalpina is now in a better position to help customers mitigate the impact of the current low oil prices by helping them to control costs, reduce inventory and improve their supply chains. Although the current consolidation in the energy market may delay or cancel projects, it also creates opportunities for re-engineering and outsourcing.

Our ambitious global Operations Transformation Project (OTP), including a key objective of implementing an integrated platform based on SAP TM, is progressing well. Major milestones in 2014 include the global implementation of PanLink, the new HR informa-

tion system; the successful implementation of the pilot site for our ERP system; the integration of our business service center in Wuhan, China; and the expansion of our business service center in Prague, Czech Republic. The current year will be critical as we will begin the main implementation phase of the SAP TM project, rolling this system out in several key countries.

On the Executive Board, we welcomed Karsten Breum as Chief Human Resources Officer, replacing Alastair Robertson who decid-ed to take on a new challenge outside the industry.

We remain very focused on executing our strategy in 2015: imple-menting SAP TM and streamlining Ocean Freight operations to improve productivity will be crucial steps to ensure we have a solid platform for future growth. Since the currently strong Swiss franc and the low oil prices will likely impact our financial performance, it is even more important to carefully manage our costs.

Based on the improved results of our fiscal year 2014, the Board of Directors proposes a 25 percent increase of our dividend to CHF 2.75.

Once again, we would like to thank all our employees for their outstanding contributions to our company, our customers and suppliers for their continued cooperation and loyalty and our shareholders for their trust throughout the year. We look forward to another promising year for Panalpina in 2015.

Basel, Switzerland, March 2015

Letter to the Shareholders

LETTER TO THE SHAREHOLDERS

Peter Ulber Chief Executive Officer

Rudolf W. Hug Chairman of the Board of Directors

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5Letter to the Shareholders

Panalpina closedthe year under reviewwith a consolidatedprofit of CHF 86.5 million.

Rudolf W. Hug (Chairmanof the Board of Directors)and Peter Ulber (ChiefExecutive Officer)

MILLION CHFEBIT

116.7

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6

STRATEGYAND RESULTS

Strategy and Results

BUSINESS STRATEGY

STRATEGY: FOCUSED WITH CLEAR OBJECTIVES

GROWTH MODELObjective: grow above market and improve EBIT/GP margin

PRODUCT MIXObjective: balanced and differentiated product mix

CUSTOMERSObjective: balanced customer portfolio, advanced IT

GEOGRAPHIC COVERAGEObjective: focus on growing economies, market share

Panalpina’s aim is to outperform the market in all segments and beone of the top five global players in freight forwarding. During 2014,Panalpina successfully executed on the corporate priorities it setout in 2013. This ambitious strategy is based on four dimensions totarget stable and sustainable growth while working toward a leanand efficient cost structure.

Product mixPanalpina’s core competencies in Air and Ocean Freight are thefoundation of the company’s business and continue to drive thegrowth that will enable Panalpina to retain its position amongthe global top five freight forwarders.

For Air Freight, continuing to expand both its commercial and con-trolled air freight business was key in 2014, as well as expandingits end-to-end offering. For Ocean Freight, Managed Solutionsmade a substantial contribution and growing the portfolio in bothFull Container Load (FCL) and Less than Container Load (LCL)remained a priority. A major milestone was achieved with theoperation of 485 dedicated weekly services for Panalpina’s globalLCL network. Logistics continued to strengthen its position as adifferentiator by expanding Panalpina’s value-added services andend-to-end offering for international customers, especially in thetechnology and fashion sectors.

Panalpina merged its oil and gas and project businesses to createPanalpina Energy Solutions, which increases the specialty offeringfor customers in the energy sector, as well as in the mining andengineering industries.

Geographic coverageThe creation of a fourth region to expand the company’s geographicpresence in the Middle East, Africa and the CIS (MEAC) achievedsignificant growth. While Africa shows good potential for freightforwarders and Panalpina has now established new country orga-nizations in Morocco and Kenya (opened January 1, 2015), otherparts of this region have suffered due to geopolitical unrest andfalling oil prices. Although Panalpina continues to strengthenits position in key European markets — particularly in the UnitedKingdom, the Netherlands, France and Italy — the overall economicconditions in many European countries have remained challenging.Even though the overall market environment in the Americasremained soft, with Canada, Mexico and Brazil growing modestly,the United States gained steam in the second half of the year.Despite a downward correction of GDP forecast in Asia, demandimproved in both Air Freight and Ocean Freight across the region.

CustomersIn 2014, Panalpina rebalanced its portfolio to focus more on com-panies with international cargo flows, allowing it to strengthen itsglobal account structure and offer customers more solutions spe-cific to their industry and particular needs.

Using its expertise to provide technology and automotive custom-ers with bespoke solutions for their entire supply chain, Panalpinamaintained steady growth overall. For automotive, the strongestgrowth regions were Asia Pacific and Mexico, while for technologythe focus was on helping customers expand their presence inLatin America and Africa.

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7Strategy and Results

BUSINESS MODEL: KEY ELEMENTS

CORE COMPETENCEAir and Ocean Freight forwarding arethe foundation of Panalpina’s business

AIR FREIGHT1 Among global top 5

2 Commercial and controlled capacity

3 End-to-end offering including customs services

OCEANFREIGHT1 Among global top 5

2 FCL, LCL and break-bulk

3 End-to-end offering including customs services

SPECIALTYProven expertise forenergy, mining andengineering customers

ENERGYSOLUTIONS1 Focused business

development

2 Focused geographic expansion

3 Expand solutions and product range

4 Leverage on proven business model

DDIIFFEFFERREENNTT--IIATATOORRGrowing competence tocomplement the end-to-end offering forinternational customers

LOGISTICS1 Value-added

services

2 Distribution solutions

The company has increased its focus on investment in healthcare,consumer and retail, manufacturing and fashion industry verticals,producing sturdy results. The healthcare sector had an especiallysuccessful year, showing double-digit growth. The fashion sectorcontinued to outperform the market and the consumer and retailsector showed strong growth in Logistics.

Panalpina’s IT capabilities provided sophisticated analytics andadvanced customer-facing information systems. Panalpina’s newonline sailing schedule gave LCL customers more visibility over theentire LCL network, allowing them to decide on the sailings thatbest suit their needs.

Growth modelThe implementation of the Operations Transformation Program(OTP), which ramped up in 2013, is progressing well and is expectedto increase productivity significantly by streamlining businessprocesses and simplifying the current IT landscape. The foremostcornerstone of this program is SAP Transportation Management(TM). In 2015, the target is to process 60 percent of all shipmentsusing this system by the end of the year, as it is rolled out in severalkey countries.

An important milestone in 2014 included the global implemen-tation of PanLink, the new HR information system. This systemprovides all employees with a single interface for performancereview, career development, talent management and successionplanning, recruiting and compensation review.

As part of its Global Business Services (GBS) model, the companyalso integrated the business service center in Wuhan, China, intothe GBS model and expanded the business service center inPrague, Czech Republic.

While the company’s short-term goal is to continue to growvolumes organically, in the longer term, Panalpina’s objective isto become fit for acquisitions. Successfully implementing SAP TMis a prerequisite for successful integrations of target companies.

The financial transparency measures implemented in 2013 enabledthe company to identify a number of underperforming operationsand business activities. Most of these operations have now beensuccessfully turned around and the focus during 2015 will be tostreamline the remaining operations to improve productivity.

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Gross profit by product2014

29 %40 %Air Freight

Logistics

31 %Ocean Freight

Geopolitical tensions in many parts of theworld, combined with a weak first half of2014, resulted in a disappointing overallrecovery of the global economy. In its Janu-ary 2015 World Economic Outlook Update,the International Monetary Fund (IMF)revised its 2014 world output downward to3.3 percent and world trade volume to3.1 percent. While financial markets wereinitially optimistic, this did not translateinto a pickup in investment, particularly inadvanced economies. Various events in the United States, the Euro area, Japan, Russia, Brazil and China all contributed to the lack-luster growth.

While the global ocean freight market grewby a predictable 4 to 5 percent, it showedsigns of supply-and-demand imbalance,which was driven by over-capacity. Theglobal air freight market showed cautioussigns of recovery with a growth of approxi-mately 3.5 percent, due to stabilized loadfactors and yields as well as increasedcapacity and demand. The logistics marketremained strong, while the energy marketcame under pressure due to political insta-bility and a sharp drop in oil prices.

OURPERFORMANCE

MARKET DEVELOPMENT

Our Performance

800

700

600

500

400

300

200

100

0

AmericasEurope

147

340

486

614

Gross profit by regionMillion CHF

2013 2014

MiddleEast,Africa,CIS

AsiaPacific

644

473

311

132

Gross profit by productMillion CHF

800

700

600

500

400

300

200

100

0

Air Freight

636

491

Ocean Freight

458438

Logistics

2013 2014

631

492

Gross profit by region2014

21 %AsiaPacific

31%Americas

9 %Middle

East,Africa,

CIS

39 %Europe

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RESULTS

Our Performance

Net forwarding revenue in 2014 amounted to CHF 6,707 million, a decrease of 1 per-cent compared to the CHF 6,758 million the year before. The translation of foreign currencies into the reporting currency (CHF) had a negative impact on the Group’s NFR to the amount of CHF 226 or 3 percent, organic growth amounted to 3 percent. The Group did not undertake any acquisitions during the reporting year.

At the regional level, net forwarding revenue in Europe − the Group’s largest region in terms of turnover − decreased slightly from CHF 2,607 million to CHF 2,597 million in 2013. In North, Central and South America (Americas), NFR decreased by 3 percent from CHF 2,310 million to CHF 2,251 mil-lion. Compared to 2013, Panalpina’s NFR in 2014 in Asia Pacif ic (APAC) increased 5 percent from CHF 1,266 mil l ion to CHF 1,327 million. The Middle East, Africa and CIS (MEAC) saw a decrease in NFR of 8 percent from CHF 574 million to CHF 531 million.

In 2014, the Panalpina Group generated 39 percent of its net forwarding revenue in Europe, 33 percent in the Americas, 20 per-cent in APAC and 8 percent in MEAC.

On a product level, net forwarding revenue in Air Freight increased 3 percent from CHF 3,056 million in 2013 to CHF 3,142 million in 2014. Likewise, in Ocean Freight, the company increased its NFR by 2 percent from CHF 2,781 million to CHF 2,835 million. In Logistics, NFR saw a decrease of 21 percent from CHF 921 million to CHF 730 million.

In 2014, the Panalpina Group generated 47 percent of its net forwarding revenue

with Air Freight, 42 percent with Ocean Freight and 11 percent with Logistics.

In the forwarding industry gross profit is considered a better measure of sales performance than net forwarding revenue as GP is less distorted by external factors such as movements in carrier freight rates and oil prices, which can materially inflate or deflate revenues.

Gross profit of the Group increased by 2 percent to CHF 1,586 million in 2014 (2013: CHF 1,561 million). The translation of foreign currencies into Swiss francs had a negative impact on the Group’s GP in the amount of CHF 51 million or 3 per-cent, hence organic growth amounted to 5 percent.

With respect to regional per formance, Europe remains the most important region for Panalpina in terms of gross profit gener-ation. In 2014, while gross profit in Europe decreased by 5 percent to CHF 614 million from CHF 644 million in the previous year, in Americas, gross profit grew by 3 percent from CHF 473 million to CHF 486 million, APAC increased in gross profit of 9 percent from CHF 311 million to CHF 340 million, in the MEAC, gross profit grew by 11 percent from CHF 132 million to CHF 147 million.

In 2014, the Panalpina Group generated 39 percent of its gross profit in Europe, 31 percent in Americas, 21 percent in APAC and the remaining 9 percent in MEAC.

In Air Freight, Panalpina increased its tonnage by 4 percent or roughly 33,000 tons to a total of approximately 857,800 tons (2013: 825,100 tons), hence grew slightly ahead of the market. Increasing

competitive pressure led to gross profit per ton of air freight decreasing by approxi-mately 3 percent. In total, gross profit real-ized through Air Freight services posted a small increase of 1 percent from CHF 631 million in 2013 to CHF 636 million in 2014.

In Ocean Freight, Panalpina’s volumes grew by 7 percent − well ahead of the market which grew by about 4 to 5 percent − to reach a new all-time high of approximately 1,606,500 twenty-foot equivalent units or TEU (2013: 1,495,400 TEU). Gross profit per TEU came in below previous year’s level and decreased by 7 percent. Gross profit generated through Ocean Freight services was CHF 491 million versus 492 million in 2013.

Gross profit in Logistics saw growth of 5 percent from CHF 438 million in 2013 to reach a total of CHF 458 million in 2014. The improved GP result was driven by a strong expansion of value-added logistics services. Furthermore, Logistics is in the middle of its por t folio transition and phased out nonstrategic locations.

In 2014, the Panalpina Group generated 40 percent of its gross profit with Air Freight, 31 percent with Ocean Freight and 29 percent with Logistics.

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Adjusted EBIT by productMillion CHF

140

120

100

80

60

40

20

0

–20

–40

–60

2013 2014

LogisticsOcean FreightAir Freight

–39

–8

13

112119

28

Our Performance

Management considers earnings beforeinterest and taxes (EBIT) a key performanceindicator for assessing the Group’s operat-ing performance. The Group’s EBIT in 2014amounted to CHF 117 million (2013: CHF48 million). Panalpina achieved an EBIT/GPmargin of 7.4 percent (2013: 3.1 percent).

The two main items included in operatingexpenses − personnel expenses and otheroperating expenses − developed as follows:- Per sonne l expenses amounted to

CHF 977 million in 2014 and showed anincrease of 2 percent from the previousyear (2013: CHF 960 million). The smallincrease was mainly a result of restruc-turing costs.

- Other operating expenses amountedto CHF 435 million in 2014 and thuscame in approximately 1 percent lowercompared to the previous year (2013:CHF 440 million).

Depreciation and amortization chargeschanged from CHF 53 million in 2013 toCHF 57 million in 2014. The increase ofCHF 4 million was mainly related to theamortization of previously capitalized costsin connection with the SAP TM project.The SAP TM rollout in 2015 will increaseexpenses further.

With respect to regional EBIT performance,EBIT in Europe decreased from CHF 13million in 2013 to CHF 7 million in 2014.EBIT in the Americas turned from CHF 23million in 2013 to CHF 31 million in 2014.The largest contribution to Group EBITcomes from APAC with CHF 68 million in2014 (2013: CHF 71 million). In MEAC, EBITimproved from CHF 1 million in 2013 to apositive result of CHF 11 million in 2014.

In the products, Air Freight delivered thehighest EBIT with CHF 112 million, a de-crease compared to the CHF 119 millionachieved in the previous year. In OceanFreight, EBIT decreased from CHF 28million in 2013 to CHF 13 million in 2014.In Logistics, the EBIT result improved froma loss of CHF 39 million in 2013 to a loss ofCHF 8 million in 2014.

80

70

60

50

40

30

20

10

0

–10

–20

2013 2014

MiddleEast,Africa,CIS

11

Asia,Pacific

68

Americas

31

Europe

7

Adjusted EBIT by regionMillion CHF

1

23

13

71

Overall developmentMillion CHF

120

100

80

60

40

20

0

EBIT EBIT excl. nonrecurring items

9.0%

7.5%

6.0%

4.5%

3.0%

1.5%

0.0%

EBIT/GP margin EBIT/GP margin excl. nonrecurring items

2013 2014

7.47.4

2013*

48

108

2014

117 117

6.9

3.1

*In 2013, Group's reported EBIT of CHF 48 millionincluded 60 million nonrecurring items for fines(CHF 40.9 million) and goodwill impairment(CHF 19.1 million).

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11Our Performance

GLOBAL NETWORK

Europe

5,012

2,597Net forwarding revenue in million CHF

Full-time equivalent employees

Middle EastAfrica

CIS

531Net forwarding revenue in million CHF

Americas

Full-time equivalent employees5,125Net forwarding revenue in million CHF2,251

Head Office

447Full-time equivalent employees

AsiaPacific

3,968

1,327Net forwarding revenue in million CHF

Full-time equivalent employees

Full-time equivalent employees1,628

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KEY FIGURESFive-year review

12 Key Figures

IN MILLION CHF 2014 2013 2012 2011 2010

Forwarding services 8,172 8,175 8,066 7,926 8,676

Change in % (0.03) 1.35 1.78 (8.64) 18.19

Net forwarding revenue 6,707 6,758 6,617 6,500 7,164

Change in % (0.75) 2.13 1.81 (9.27) 20.25

Gross profit 1,586 1,561 1,465 1,477 1,480

Change in % 1.60 6.55 (0.81) (0.21) 7.49

in % of net revenue 23.65 23.10 22.14 22.72 20.66

Consolidated (loss) / profit 86.5 11.7 (71.8) 127.4 (26.0)

Change in % 639.50 (116.30) (156.37) (590.06) (348.94)

in % of gross profit 5.46 0.75 (4.90) 8.63 (1.76)

EBITDA 174.0 119.8 34.2 212.1 62.4

Change in % 45.26 250.29 (83.87) 240.09 (21.78)

in % of gross profit 10.97 7.67 2.33 14.36 4.21

EBITA 142.1 85.5 3.1 183.6 23.5

Change in % 66.15 2,658.06 (98.33) 682.11 (44.77)


EBIT 116.7 48.0 (39.6) 174.2 15.4

Change in % 143.19 (221.21) (122.74) 1,033.97 (48.64)

in % of gross profit 7.36 3.07 (2.70) 11.79 1.04

Cash generated from operations 152.9 73.8 (39.6) 229.1 75.3

Change in % 107.19 (286.36) (117.27) 204.35 (75.86)


Net cash from operating activities 123.0 42.5 (71.5) 193.5 37.0

Change in % 189.48 (159.44) (136.92) 422.45 (85.74)


Free cash flow 87.0 (5.5) (81.9) 41.9 6.2

Change in % (1,681.84) (93.28) (295.43) 570.94 (97.24)

in % of gross profit 5.49 (0.35) (5.59) 2.84 0.42

Net working capital 191.3 174.6 134.0 85.2 143.0

Change in % 9.59 30.29 57.28 (40.42) 8.20

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13Key Figures

IN MILLION CHF 2014 2013 2012 2011 2010

Capital expenditure on fixed assets 48.1 49.8 84.2 51.2 40.0

Change in % (3.49) (40.86) 64.45 27.87 (4.31)


Net capital expenditure on fixed assets 45.1 48.5 83.9 108.7 28.5

Change in % (6.96) (42.19) (22.79) 281.81 (3.24)


Depreciation and amortization (incl. impairment losses) 57.3 71.9 73.9 37.9 47.0

Change in % (20.27) (2.71) 94.99 (19.37) (5.65)


Personnel expenses 976.9 960.0 957.2 892.4 890.9

Personnel

Number of employees at year-end (world) 15,639 16,010 15,224 15,051 14,136

Number of employees at year-end (Switzerland) 682 754 759 775 749

Yearly average (world) 16,180 15,925 15,782 15,286 14,223

Productivity ratios (CHF)

Net sales per average employee 414,521 424,364 419,272 425,226 503,703

Gross profit per average employee 98,018 98,022 92,826 96,624 104,062

Personnel expenses per average employee 60,372 60,283 60,650 58,380 62,641

Personnel cost in % of gross profit 61.59 61.50 65.34 60.42 60.20

Leverage (liabilities / equity) 1.66 1.78 1.65 1.31 1.46

Net interest-bearing liabilities (363) (332) (390) (562) (546)

Gross gearing (interest-bearing liabilities / equity) 0.01 0.01 0.00 0.01 0.01

Net gearing (net interest-bearing liabilities / equity) (0.50) (0.48) (0.53) (0.61) (0.68)

ROCE (EBIT less tax / capital employed) in % 24.01 6.71 (19.42) 42.32 (5.40)

Current cash debt coverage ratio (net operating cash flow / average current liability) 0.11 0.04 (0.07) 0.19 0.04

Cash debt coverage ratio (net operating cash flow / average total liability) 0.10 0.03 (0.06) 0.16 0.03

Return on equity in % 12.2 1.6 (8.7) 14.8 (3.1)

Change in % 662.50 (118.39) (158.78) (577.40) (360.81)

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14


ENERGY SOLUTIONS:COVERING THE ENTIRE LIFECYCLE

In September 2014, Panalpina took the step of merging two of itsmost distinctive services — Panprojects and Oil and Gas activities— into one specialized product. With an extensive global networkand a team of 2,200 professionals in 50 countries, Panalpina EnergySolutions now has the capacity to serve the energy industry’s larg-est and most demanding logistics projects.

Well-versed in compliance, planning, execution and monitoring,the combined team shares their broad range of experience,resources and knowledge. The team can put together tailor-madetransport solutions to meet their customers’ unique needs, fromexploration to decommissioning. Additionally, the new servicewidens the company’s reach, strengthens operations, increasesefficiency, improves service for customers and takes advantage ofsynergies, as the two segments have often shared a customerbase in the past.

The new service comes at an opportune time in the industry: thetraditional oil and gas landscape is in flux, the demand for energyis increasing and the discovery of unconventional resourcesis booming, with enormous volume potential and a growingnumber of supply sources f rom countr ies that haven’tpreviously been players in the energy industry. The surge in shalegas exploration in North America is a major development in theindustry, as is deep-water gas discovery in Israel, Cyprus, Braziland Australia. Mining, wind energy and nuclear energy are alsogrowing steadily in importance.

1

1 A fertilizer plant crosses theocean: Transfer of the equipment fromvessel to barge at the port.

2 Heavylift: Equipment for a product-loading jetty is discharged from avessel in Darwin, Australia.

3 Energy Solutions at work: Truckingof flotation cells in Chile for the largestcopper producer in the world.

Energy Solutions

THE FUTURE OF ENERGYNEW SPECIALIZED PRODUCT

2 3

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15

TRANSMISSIONCHAINPanalpina offers energy expertise across theentire transmission chain, both upstream anddownstream and is actively engaged in the distri-bution of processed products, including petro-chemicals and plastics. The company has alsoprovided logistical support and project expertiseto customers building liquefied natural gas (LNG)plants and transport engineering solutions forwind and solar companies.

Still, there are some challenges for the company, particularlyin the oil and gas industry: low oil prices could lead to less invest-ment in exploration. Already, with production costs growing fasterthan oil prices, a number of projects have been canceled ordelayed worldwide — a trend that could continue into the comingyears. However, the customers’ focus on costs will also createopportunities in reengineering supply chains, outsourcing andshifting transport modes.

Energy Solutions

CHALLENGES AND OPPORTUNITIES

PROJECTMANAGEMENTPanalpina’s distinct advantage in thisindustry is in the scale of its globaloperations and its capabilities.The company can offer logisticssolutions throughout the entire lifecycle of an energy project. Not onlycan the team assist customers withtenders, it also manages the entireproject, takes care of marshallingand export customs procedures atorigin and assists with customsclearance and import regulations.

COUNTRIES WORLDWIDE

GLOBALOPERATIONSOf course, Panalpina Energy Solutions isequipped to take care of major transportationmoves outside the energy sector and in areasof the world that are remote or politicallyvolatile. Panalpina Energy Solutions operatesall across the globe, be it in West Africa,Kazakhstan, the Middle East, Australia, LatinAmerica, or the US and Europe.

“WE AIM TO BE THE TOP PLAYERIN THE ENERGY FIELD AND,COMBINING THESE TWO SER-VICES, WE CAN PROVIDE BETTERPRODUCTS THAN EVER BEFOREFOR OUR CUSTOMERS.”Hans Toggweiler Global Head of Energy Solutions

50

2200SPECIALISTS

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AIR FREIGHT: ANYTIME AND ANYWHERE

As the world’s fourth largest air freight forwarder, Panalpina offerscomprehensive air freight solutions in close collaboration withcarefully selected carriers and through its controlled air freightnetwork. In addition, Panalpina provides charter and emergencyservices to overcome any critical issue that could cause costlyproduction downtime or other problems for its customers. Toachieve this, Panalpina deploys on-board couriers, part and fullcharter aircraft, helicopters, or any combination of transportmethods for urgent shipments. Panalpina’s experienced team andglobal network ensures that crucial cargo arrives on time whereverit is needed.

CHARTER AND EMERGENCY SERVICES

Air Freight

1

1 Every minute counted: A charteredhelicopter took over the freightdirectly from the jumbo.

2 Sophisticated airport groundhandling: Loading a steam drumweighing 30 tons.

When one of the world’s biggest car manufacturers called andused words like “urgent” and “downtime” Panalpina’s charter andemergency services department got to work immediately. Automo-tive parts, including 600 car keys were needed to keep productionmoving at one of the company’s US factories.

The crucial parts were flown from the hub in Luxembourg acrossthe Atlantic on one of Panalpina’s controlled full freighter flights.As soon as the Boeing 747 was parked on the tarmac in the US, the parts were transferred to a chartered helicopter which had arrivedat exactly the same time as the jumbo jet. A little over an hour later,the helicopter landed right on the factory’s doorstep to deliver theparts on time.

FOR AN AUTOMOTIVE FACTORY

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17

On the other side of the world, a time-critical cargo of biggerproportions called for a different approach. Because of the lack ofrainfall and access to groundwater, Kuwait relies on desalinationfor drinking water. When a critical steam drum weighing 30 tonsbroke down at a desalination plant, Panalpina quickly had to fly in anew one from the manufacturer in Düsseldorf, Germany.

The best airlifter for the job was the Russian-built Ilyushin 76 (IL-76).The IL-76 is ideally suited to transport outsized cargo within the 30to 35 ton range when it doesn't fit into a Boeing 747 freighter. Afteran eight-hour loading process where two 50-ton cranes took careof the heavy-lifting, the steam drum was flown to Kuwait and swiftlydelivered to the desalination plant.

FOR A DESALINATION PLANT

Air Freight

SPECIALIZEDAD-HOCCHARTERSERVICES,WORLDWIDE

“WHATEVER THE CUSTOMER’SREQUIREMENT IS, WE MAKE ITHAPPEN WITH OUR CHARTERAND EMERGENCY SERVICES. WE FIND THE RIGHT SOLUTION,FOLLOW THROUGH ANDENSURE FINAL DELIVERY.”Lucas Kuehner Global Head of Air Freight

2

AVAILABLE24 HOURS A DAYAND 365 DAYSA YEAR

WAS THE HEAVIESTCARGO LOADTRANSPORTED

145TONS

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OCEAN FREIGHT: MAKING THE INVISIBLE VISIBLE

Supply chains tie up significant net working capital and as theybecome more complex, the need to orchestrate supply chainsbecomes more pressing. Panalpina’s Managed Solutions serviceprovides greater visibility for ocean freight customers throughoutthe supply chain − from order to final delivery. Enhanced visibilityenables customers to have the right product in the right place atthe right time.

With Managed Solutions, Panalpina has added order and freightmanagement, as well as origin and destination handling to its coreoffering. Under the direction of a team of supply chain experts,Panalpina provides a tailor-made solution to proactively managecustomers’ supply chains. By doing so, Panalpina takes over workfrom customers that they typically would have done themselves inthe past.

MANAGED SOLUTIONS

Ocean Freight

VISIBLITYAND CONTROL+INBOUND ORDERMANAGEMENT+OUTBOUNDFREIGHTMANAGEMENT=THE SUPPLY CHAINAT YOURFINGERTIPS

“AT THE END OF THE DAY,IT IS ALL ABOUT ADDING VALUEFOR CUSTOMERS: BUILDINGMORE EFFICIENT SUPPLY CHAINSAS WELL AS REDUCING COSTSAND HASSLE.”Frank Hercksen Global Head of Ocean Freight

1

1 Future opportunities in sight:Panalpina covers the whole supplychain from order to delivery.

2 Port of Shanghai: Every month,2.75 million TEU depart by OceanFreight, making it the busiest portin the world.

ACROSS THESUPPLY CHAIN

20-30% SAVINGSPOTENTIAL

Managed Solutions puts the entire supply chain at the customers’fingertips via a new inbound order management and outboundfreight management application. The system provides end-to-endsupply chain visibility on purchase order and article level as well ascustomized reporting. The application’s dashboard displays theentire data and shipment flow from all suppliers in one easy-to-useinterface − making what was previously invisible visible.

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A POWERFUL PLATFORM

Ocean Freight

The system regulates what has to happen when and where in thesupply chain. If anything is about to deviate from the plan, alertsare triggered. In this way, workflows can be better managed andPanalpina can communicate and work more easily with customersand their suppliers as well as other involved parties in thesupply chain. Managed Solutions acts as a powerful collaborationplatform for companies in the automotive, consumer and retail,technology, manufacturing and chemical sectors.

With detailed visibility and control, customers benefit fromreduced overall supply chain costs, best-in-class service quality,improved inventory management and, ultimately, better sales.The new service continued to see rapid growth in 2014. Most ofPanalpina’s current customers work in the automotive or retailindustry. These are usually − but not exclusively − customers inEurope and the US shipping from Asia to the rest of the world.

One example of Panalpina’s success in Managed Solutions is witha leading automotive component manufacturer that ships in largevolumes. The manufacturer lacked consistent visibility of its globalsupplier and distributor base. As a result, inventories were notmanaged ideally and sales were underperforming.

By diving deep into the customer’s supply chain and installingthe Managed Solutions application as the central platform forcompany supply chain data and operations, Panalpina provided thecustomer excellent visibility of its inventory flows across the globe.Today, a dedicated team works closely with the customer tomanage the supply chain and resolve any issues that might arise.

Managed Solutions demonstrates Panalpina’s continuing commit-ment to becoming an integral part of customer supply chains andproviding end-to-end solutions that go beyond traditional freightforwarding.

2

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Logistics

LOGISTICS:REDEFINING THE SUPPLY CHAIN

Changing end-user expectations are driving fundamental shiftsin global supply chains; increased personalization, demand forshorter lead times and access to new technologies are pushingmanufacturers to move production closer to the end-user. This,coupled with underlying macroeconomic factors and governmentincentives, has allowed Panalpina to successfully add LogisticsManufacturing Services (LMS) to its business portfolio as adistinctive offering that adds value to the customers’ products.

Panalpina created LMS as an alternative to the traditional tech-nology supply chain model, which has a clear division betweenmanufacturing and logistics. Typically manufacturing is carried outin specialized facilities, normally in low-cost geographies. Finishedproducts are then shipped for distribution, perhaps with somesmall levels of final configuration in the distribution center.

The advantage of the traditional model is the simplicity of main-taining all manufacturing in one location and all finished goodsin another. However, the disadvantages of the existing model arebecoming more acute and commercially critical as product lifecycles decrease. The traditional supply chain model inhibits theability of manufacturers to get products to market, providecustomers with the very latest hardware and software and person-alize products and deliver them quickly once ordered.

In today’s markets, products can become obsolete in a matter ofdays or hours as new technology becomes available. The shorterthe product life cycle and the longer the elapsed time betweencustomer order and delivery to the end customer, the higher thelikelihood that the product no longer matches the customerrequirement at delivery.

MEETING NEW EXPECTATIONS INNOVATION VERSUS TRADITION

99%ON-TIME DELIVERY

LEAD TIME REDUCTION

1

90 TO 17 DAYS

FULL OWNERSHIPOF THEWHOLE PROCESS

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21Logistics

FOCUS ON PANALPINA’S LMSLMS addresses this problem. It completely revolutionizes thetraditional technology supply chain model by decoupling themanufacturing process and moves the final configuration to thelocation closest to the end customer. When Panalpina took overthe logistics operations of a telecoms company in Latin America,the logistics team, with its experts in high-tech manufacturing,identified the opportunity to completely redesign the traditionaltechnology supply chain model for this customer.

At the facility, Panalpina now handles order management, finalassembly, quality control, material management, warehousing andoutbound distribution of telecoms equipment. The 32,000 m2facility replaces four warehouses and a manufacturing facilitythat the customer used to operate.

Panalpina configures products that are shipped in a semi-knocked- down (SKD) state, (i.e., partly assembled). Panalpina staff configureand test modules and then assemble cabinets to customer orders.Finished products are inspected, packaged, labelled and stagedfor outbound delivery. Panalpina has full ownership of the wholeprocess from planning to order delivery and it uses its leanmethodology, LogEx, to continue to drive and innovate its workingpractices.

The service has proved to be a market enabler for the customer.By holding products in a semi-knocked-down state, closer to thecustomer demand point and continuously improving processes atthe facility, Panalpina has managed to reduce overall lead time forcustomer orders from 90 to 17 days.

As a result of shorter lead times, on-time delivery has improvedfrom 20 percent to over 99 percent. Faster time-to-market andreduced inventory levels have resulted in a significant cash flowimprovement for the customer.

“WE WANT TO SET THEBENCHMARK FOR FULLYINTEGRATED, VALUE-ADDEDLOGISTICS AND RAISEEXPECTATIONS OF WHATA LOGISTICS SERVICEPROVIDER CAN DO.”Mike Wilson Global Head of Logistics

1 Logistics Manufacturing Services(LMS) put in place: Assembling,configuration and testing area at alarge telecoms company in Brazil.

2 Final assembly: Base station boardsand cabinets, software updates andtests.

2

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LEANTRAININGThe Lean Competency System(LCS) accreditation developed inpartnership with Cardiff University,UK, means that Panalpina’sin-house training program is onpar with the university’s own renowned practices.

Highlights 2014

HIGHLIGHTS2014

Panalpina introduces a new advanced CO2

calculation tool for customers.EcoTransIT World produces accurate ecoimpactreports − providing the necessary data toreduce energy consumption, the greenhouse gas (GHG) emissions and the particulate matterpollution caused by freight transportation.

No.1

Panalpina receives top honors forair freight and heavylift forwardingby Lloyd’s Global Freight Awards.

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Publisher Panalpina World Transport (Holding) Ltd.Concept and design Ramstein Ehinger Associates AG, ZurichLithography Blue Horizon, UrdorfPrinter Gmähle-Scheel Print-Medien GmbH, Waiblingen. Printed in GermanyPaper Tauro Offset whiteCover Courtesy of Boeing

Panalpinaintroduces anannual globalenvironmental dayPanalpina officesworldwide launchinitiatives andawareness campaignto support PanGreen,Panalpina’s globalprogram to extendenvironmentalcapabilities.

Panalpina fliesEbola reliefTogether with theUnited NationsChildren’s Fund(UNICEF) Panalpinasupports the world’songoing fight againstthe Ebola crisis.A donated charterflight has helpeddeliver nearly 80tons of essentialsupplies and equip-ment to communitycare centers inSierra Leone.

80TONS OFVITALSUPPLIES

OUREXPERTISEUnderstanding the planning andoperations involved in bothlogistics and manufacturing allowedPanalpina to add LogisticsManufacturing Services (LMS) toits operations for a large telecomscustomer in Brazil.

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Panalpina World Transport (Holding) Ltd.Viaduktstrasse 42P.O. BoxCH-4002 BaselPhone +41 61 226 11 11Fax +41 61 226 11 [email protected]

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2014 Annual Report - Panalpina · Panalpina Annual Report 2014 ... As part of its Global Business...

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