Kevin Appleton Yusen 1

Kevin Appleton will remain with the business as chairman in a reduced-time capacity.

Kevin Appleton became UK managing director at Yusen Logistics back in April 2014 replacing Ian Veitch, who moved to become the first non-Japanese national to head up Yusen’s entire operations across Europe. Appleton’s credentials are rock solid too. He has spent the bulk of his career in or around logistics but has a wealth of experience from across the business world and isn’t shy in putting forward an opinion.

Now he has had nearly a year to get his feet under the proverbial table at Yusen’s HQ just next to the M1 in Northamptonshire. caught up with him to discover how that period had gone, and what we could expect next.

“I came in thinking all the stuff I used to think was really important, isn’t actually that important!” Appleton quips. “I really didn’t inform any ideas for about two months. I visited every site we have got. I got around pretty much all the customers of any size we have got and just wanted to listen to them.”

Strategy starting point

From that starting point there were a number of things that feed into Appleton’s strategy for Yusen: “What is the world you are living in? What are the specific requirements that your customers, or adjacent sectors, that they might have? And what are the capabilities of the business? It would be lovely to win an F1 race, but you’re not going to do it in a Mini Cooper. That means matching our expertise with what the opportunities might me. And, frankly, where our areas of expertise weren’t and we had a prospect of filling in within a reasonable period of time.

“I have yet to work in a place that is perfect. I don’t think that exists. Successful companies are unremittingly self critical,” he stresses.

Getting on board

Yusen Logistics Tamworth image

When joins Appleton he reveals that he had been working on the agenda for the next board meeting: “I must drive people crazy, because when we have board meetings we only work on the agenda of ‘what makes the boat goes faster?’ We’re not just going to get together and talk about what happened in the past month. We look at the key issues that are impeding us, or what we can do to go forward. So even on something as mundane as a board report you can be continually tweeking it to give a slightly better outcome. If you do that on the small things the big things can improve.“

Yusen, by any stretch, is not a small business; for the year-ending 29 March 2014 Yusen Logistics (UK) – which includes not just road freight, but ocean freight, air freight and freight forwarding had a turnover of £234.6m,up from £213.5m in the previous year. Pre-tax profit rose year-on-year to £3m, from £2.47m. That’s just the tip of the ice-berg. Yusen’s parent company is Japanese shipping giant Nippon Yusen Kabushiki Kaisha, which is one of the 642 companies that comprise the informal corporate conglomerate that is Mitsubishi.

From that heritage Yusen is a business that has a Kaizen culture. For students of business management literature that is, loosely translated, a ‘philosophy of continuous improvement’. Or as Yusen says in its annual report, it is engaged in “continuous assessment of all operating and administration procedures to maintain efficient activities and improved productivity”. That applies to board reports too.

Continuous improvement is difficult in an industry where the labour market is shrinking: “We’ve had, depending on estimates four to 10 thousand drivers gone out of the market in the last four to five months. That is putting some pressure on.”

But as the god of road transport taketh away, he also giveth: “At the moment we are on a good run in terms of fuel, and we might get two or three years of benefit from that. Although that tends to be a wash through with the way that contracts are structured. I think there will be upward pressure with costs in the market, partially because of lower emission vehicles and the costs associated with those.

Driver shortage

Yusen Logistics livery

“And partially because of the driver shortage and the need to turn this back into a career that people want to be in,” he says, bringing the debate back full circle. Appleton is a member of the FTA board and says that one of the stats that body has been horrified with is the percentage of drivers in the UK who are under 26 years old – which he puts at 1%.

He makes a good case for driving as a career: “It is really not uncommon for drivers these days to be earning a range between £28,000 to £50,000. It is a solid middle-class income. But how many school-leavers come out thinking that their aspiration is to be a truck driver? In terms of work-life balance, doing four-day on and four-day off you, yes, work very hard, but you have a four-day weekend where you can spend time with your family. You can take up hobbies.

Injecting the X-factor

“We have a huge job of work to do to make this an industry that is attractive,” he concedes. “The trouble is it is not seen as sexy, and for The X-Factor generation it misses something. Until we get that feed of young talent into the industry, that remains a very great concern.”

Outside of the talent pool the other major challenge for Yusen’s road transport activities is that logistics has become a commoditised activity. No customers are queuing up for rate increases or looking for opportunities to make life easier for the operator. “We are victims of our own success,” argues Appleton on this point. “There are a lot of competent companies, through to really strong companies, out there. The sense that you have to pay a huge premium to get quality out of the market is not there and, frankly, I am not sure that will ever come back.”

To that end Appleton is looking to make Yusen a more effective business (continuous improvement, after all). He says that the business has begun working on what he describes as “sensible resource collaboration”.

Complementary collaboration

Yusen Logistics Honda

“The industry has always been quite good at situational collaboration. We want to look at structural flows and ask who else is out there, as a supermarket or a retailer or whatever it may be, who is out there that has business that structurally is quite complementary? Be it the time of day or the natural direction of flow they are trying to manage,” he explains.

Appleton believes that the industry can move to three tiers of operation. Firstly, the core fleet with fairly reliable and solid close loop flows for logistics movements, where asset utilisation can be kept quite high. Then a second tier, the collaboration tier, working with the same partners day in day out. While the third tier is simply the movements that don’t fit anywhere, spot movements if you will.

“If you can make the second tier work you have a much more predictable infrastructure to operate. It also gives much more predictable levels of quality,” says Appleton. “We are in discussion with a few folk around that. But that is an area where I am really keen to be driving some progress in. In this industry cost pressures are up and price pressures are down. Where do you go? The only route is better utilisation and the only way to get that is by more sensible collaboration because most operators have optimised the Hell out of their own fleets.”

Appleton has spent 14 years away from hire and reward (for want of a better term). So what has changed? Firstly, he says, the industry is more conservative than it used to be. Secondly, and this will come as no surprise to many, it is harder to make money in.

“I went through the traditional NFC/ Exel/ DHL route, and then a chunk of time in Fed-Ex, where I was running their logistics operations in the Netherlands,” he says. “Then I spent 18 years on the other side of the fence running businesses that are users of logistics,” including being chief executive of Lavendon Group and, most recently, divisional chairman at Travis Perkins.

“The things that struck me when I came back in was when I left the industry the senior management was probably in a band of five years younger than me and ten years older than me. When I came back 14 years later the senior management in the industry was still in a band of five years younger than me and ten years older than me. It is just that everyone is 14 years older!

“As the industry has matured the pendulum has swung from innovation and dynamism to conservatism and safety,” he claims.

Appleton explains his reasoning behind such a statement. In the not too distant past, he says, it was not uncommon for contracts to be making contributions of 15% to overheads and profits and logistics businesses to be producing returns of six, seven, or even eight percent EBIT.

Reputation for dynamism

Safety in Operation Yusen l

“There are not too many doing that now, and that has been exacerbated by the economic period since 2007,” he says. “The industry has reacted to that by moving into a defensive mind-set that is all about cost avoidance and managing risk. All of which is understandable and some elements of that are good but the counterpoint of that is we have lost some of that reputation for dynamism that the industry maybe had. I am not saying that my departure from the industry during that period has had anything to do with it!”

There is another reason as to why logistics operators find it difficult to make money, and that, according to Appleton, is the growing trend for customers to be looking at the return on capital employed across their businesses. Thinking back to the 15 years ago that he was last in the industry, no customer, he says, was looking at the profit generated on the investments made in the business.

Move on underperformers

“Our customer base has really woken up to the relationship between what cash put in and the cash you take out. That is really important in a shareholder world that is looking at value generation and value creation. It has meant that our customer businesses have placed an increasing pressure on moving underperforming assets into somebody else’s hands - get some other sucker to go and invest in that!”

Appleton expands on that notion: “The other effect, as well as the economic effect, is that the people looking at efficient use of capital look at things like trucks and warehouses and think they are not shops, they are not showrooms, they are not manufacturing lines, they are not core to what we do. They will push those out, get the low returning assets off the balance sheet and we will also squeeze down on the providers that are running those.”

Or to put it another way, that shift is outsourcing. Appleton says that outsourcing – be it of a logistics operation or any other business function - happens when there is some sort of paradigm shift and some sort of structural change. Go back to the 1980’s, for example, and issues such as labour relations meant the impulse to change was strong but concerns over doing so were high. Today, Appleton believes, customers do not see outsourcing a logistics operation as an impending disaster: “What they see it as is something that will do exactly what they expect it to do,” he says.