DHL set to raise the stakes higher

DHL is mounting a concerted effort to establish itself as the leading global logistics provider.

It’s something of a bizarre challenge that it has set itself, given that the German mega forwarding, express, supply chain and mail combine already holds that lofty position. But, not to be dissuaded, it is intent on embracing a future strategy which, it believes, will establish beyond all doubt that it is truly top dog. As much has been outlined with what the company describes as its Strategy 2020, the springboard for its recently posted strong annual results for 2013, which saw the company generate revenues of more than US$75 billion (55 billion euros).

“With our new Strategy 2020, we are drawing on our past achievements and our strengths to seize new opportunities to generate additional organic growth in a changing marketplace,” CEO Frank Appel says. “We are ready to take our next growth steps and have many initiatives planned for the future.”

The main focus of this strategy, he says, will be the systematic growth of the logistics business in emerging markets and the international expansion of its express business, taking advantage of the global e-commerce boom.

As in the recent past, it is anticipated that the emphasis will remain on organic growth, rather than any further acquisitions. In particular, Appel is targeting emerging markets to help stimulate revenue growth.

“By 2020, we want 30 percent of our revenues to be generated by these dynamic emerging countries,” Appel says. “At the moment, our business activities in these countries generate 22 percent of revenues.”

But Deutsche Post DHL, as it is formally known, faces something of a problem in its sheer diversity. Not only is it a global forwarding, supply chain and express entity, it is also responsible for delivering German domestic mail.

Anyone listening in on the recent company annual general meeting in Frankfurt, heard Appel giving seemingly high priority to assuring its mostly German shareholders that the local mail service was in good shape.

Appel himself appears to recognize that he is juggling with an eclectic business mix, but outside of Germany strikes a different tone.

“Deutsche Post DHL views itself as a family of high-performance divisions,“ he says. “But logistics is and will remain our core business.”

With its new Strategy 2020, Appel says the company is expressing its aspiration to become the clear industry leader.

“The future belongs to logistics, and we intend to set the standards in the industry,” he says. “In the future when people think logistics, we want them to think Deutsche Post DHL.”

He left it until the end of his Frankfurt AGM speech, but Appel also took a political side swipe at the limitations hindering the growth of the logistics industry.

“Logistics needs free trade, which means trade barriers must be removed,” Appel says. “In particular, trade barriers could be eliminated by a transatlantic trade and investment agreement between Europe and the United States.”

DHL, he added, stood ready to make a positive contribution to the debate.

The company says it has also set itself ambitious financial targets within Strategy 2020. From now until 2020, DHL expects earnings growth of more than 8 percent per year on average, based on the US$3.9 billion (2.9 billion euros) earnings for 2013.

DHL may have recorded a strong year for 2013, but it fully admits that DHL Global Forwarding business did not share greatly in that glory.

The airfreight market, it says, stagnated in 2013, despite a slight volume increase in the second half of the year. Freight volumes were lower overall, it says, due to the decline in output in some industry sectors. Moreover, customers throughout the market increasingly chose other modes of transport.

But even in a stagnating market, DHL Global Forwarding transported more than 2.3 million tonnes of export airfreight in 2013, assuring its position as the market leader.

Indeed, its main rivals can barely reach half these tonnages. 

But it has hardly been an inspiring start to the year. Results for the first quarter, recently posted by the company, still show flat-lining airfreight volumes.

Revenues generated by DHL Global Freight Forwarding fell away by 2.2 percent during the three-month period, although after adjusting for what it describes as negative exchange rates, actually rose by 2.5 percent. But even this does not disguise the fact that volumes and revenues in the airfreight business remained at the previous year’s level, primarily due to weak demand from some major customers in the high-tech, engineering and manufacturing sectors.

DHL recognizes its supply chain business and within that sector, contract logistics, as a separate division, alongside its express, forwarding and mail counterparts. And yes, DHL is the also global market leader in contract logistics, with a market share of 8.2 percent.

It is a seemingly low share, but one which reflects the highly fragmented nature of the sector, where the top 10 players only account for a 22 percent share of the overall market.

It is surprising perhaps, given that contract logistics embraces the auto and pharma sectors, where one would expect only the major players being capable of providing global solutions. As it is, DHL’s successful penetration of this sector is reflected by the fact that its two closest rivals can only account for a 3 percent share of the market.    

Certainly, DHL remains undisputed global leader in the express, airfreight forwarding and contract logistics markets, but it still lags behind its rivals such as Kuehne + Nagel in the oceanfreight market and DB Schenker in the European road transport sector.

The world already recognizes DHL Deutsche Post as the leading global logistics provider, but one senses that DHL may not think it is quite there yet.