DHL Express service levels have recovered from various challenges this summer and the company is now adjusting rates to reflect higher costs and ongoing investments, Europe CEO John Pearson told CEP-Research in an exclusive interview.
To a backdrop of strong shipment growth, Deutsche Post DHL CFO Melanie Kreis told a Q2 conference call with analysts last month that DHL Express was “really feeling the volume” at key network points, such as the Leipzig air hub, and emphasised that DHL was “focusing very intensely on making sure this extra volume is not leading to a deterioration in our service quality”.
She also referred to an increase in volumes, mostly in Europe because of TNT’s “difficulties”, an allusion to the cyberattack of 28 June.
Pearson revealed that DHL Express had not only had to cope with higher volumes – including those from the transfer of traffic related to the cyberattack, during the summer, but also disruption caused by the transition to the company's Brussels hub and severe weather. “These issues have been resolved and we're now back at our normal service quality levels,” he affirmed.
Commenting on the impact of “the situation at one of the other integrators, one of our competitors” (TNT) on DHL's own business, Pearson said: “There is no doubt that when the volume of four integrators went into three or the volumes of three into two, whatever way you want to couch it, in an almost overnight situation, there was enormous pressure put on our network.
“There were some customers who normally shipped everyday with one carrier who very quickly had to find another. On the other hand, a number of customers were shared ones (with TNT) so it was quite easy to make the switch.”
Pearson noted that some of the shipments (from TNT customers) were non-conveyable or certain heavy and outsized ones which DHL didn't typically carry on its network.
“This exerted additional pressure as there was very little time to plan for that. And it happened at a time when we were moving our Brussels hub which was a major network transitional situation rather than an expansion of a large hub and it (the network) was under pressure for some time.”
Another factor during the summer that had weighed on service quality had been “the extraordinarily high levels of thunderstorms in Europe which had affected flights.
“The air corridors in Europe are so narrow that as a rule you don't get diverted but are told to sit on the ground,” Pearson revealed.
Summing up, he said: “Our volumes are currently moving in the normal, cyclical way they do and the other service issues of the summer are behind us too.”
Pearson declined to go into detail on the size of the volumes DHL found itself handling as a result of the cyberattack and how much of this business had become permanent.
“There was actually quite a lot of 'different shades of grey' in this because as I've said, some of the customers we were getting (from TNT) were shared (with them). I think that for two, three, four weeks after the incident there was a high level (of transferred volumes) but which over a similar period, dissipated to some extent and went back to the carrier from where it came.
“I'm sure there are some (TNT) customers who are still with us but in the scheme of things and given the rate of our shipment growth such business would just blend into the overall volumes really.”
Asked about the announcement last week of rates increases (GPI) from January 2018 for most markets in Europe, Asia Pacific and parts of the Americas and in particular, a request for clarification on the decision to split increases between lighter and heavier shipments, Pearson replied:
“Some of the substance in our GPI is a little bit of a clean-up of the legacy of the past where some of these heavyweight shipments simply hadn't been priced correctly. On top of that, they ultimately bring a higher risk of exception and failure within our service environment. Anything big makes more 'noise' than anything small and we are now pricing them more fittingly with what they are and one opportunity at this time of year is in the GPI.”
Commenting on the scale of the increases, Pearson said that “up to a point they reflected the nature of the investment – not in any one market – but generally that we're putting into our network. Our annual shopping list, so to speak, is €800-900 million a year of capex globally. That's for things like planes, trains, vans and facilities. I'm not talking about anything particularly special there.”
As for the differing local increases from one country to another, Pearson said that by and large this took into account the inflationary environment.
“There are always some 'outliers' in very high inflation markets so we need to make a rather bespoke arrangement in these particular countries. To be fair, there's not too many of those in Europe.”
Quizzed on why DHL was not implementing GPI in Germany and Italy and had gone for local individual customer agreements instead, Pearson remarked: “Really, what we're doing in these countries is pretty similar to what we're doing everywhere. Let's say the ability to stage a headline rate with any degree of clarity to the customer is a little bit more difficult in Germany and Italy than it is in other markets. Nothing more should be read into this.”
He concluded: “Getting a fair yield for the service we deliver and the shipments we move underpins these shipping rate increases.”
