Deutsche Post DHL sees good potential to grow its e-fulfilment business in the coming years and will expand B2C activities to major markets around the world but without over-reaching itself.
Those were some of the key messages from CEO Frank Appel and CFO Melanie Kreis to analysts at a ‘half-time report’ on the company’s Strategy 2020 in London last Thursday (May 11), accompanying the first-quarter results.
In its Q1 results announcement, Deutsche Post DHL Group said it had achieved “good results” and reached “key milestones” in its ‘Focus.Connect.Grow’ Strategy 2020, which was launched in 2014.
DP DHL stated that “all four divisions have been positioned to leverage growth opportunities, particularly in the e-commerce sector. The company has successfully expanded its Parcel business into international markets, and has also introduced new solutions in its Express business to continue capitalizing on the booming online commerce sector. The Global Forwarding, Freight and Supply Chain divisions are more streamlined and efficient today and therefore positioned for sustainable growth.”
CEO Appel declared: "Our team has managed the first half of Strategy 2020 very successfully. Our strategic measures are already clearly paying off. At the same time, we continue to work hard to expand our global market leadership. We are developing trend-setting innovations, moving into new fields of business and leveraging the opportunities presented by digitalization. Our company is already ideally positioned to achieve its strategic and financial targets for 2020."
In an in-depth 3-hour presentation, Appel told analysts: “We’re well on track and have delivered as expected. We have a very clear strategy and we are very confident that we can deliver.”
In terms of operating profits, the PeP division (including Parcel and eCommerce) had improved EBIT by 3.9% a year on average between 2013 and 2016, outperforming the 3% target. DHL Express, with 12.6% CAGR, and DHL Supply Chain, with 9.1% CAGR, were also both outperformers but Global Forwarding, down by 15.6%, was holding back the overall group.
Outlining key trends, Appel said global GDP had grown slighter slower than expected from 2013 – 2016 at about 3%, with mature markets below the expected 2% growth and emerging markets close to the expected 5% average annual growth rate.
This meant the B2B markets (freight forwarding and contract logistics) had more slowly than expected, while problems in the DHL Global Forwarding business (DGF) and a selective strategy by DHL Supply Chain (DSC) meant these businesses were behind market growth, the CEO admitted. But he stressed that DGF should catch up in future while DSC would remain focused on margin improvement.
In contrast, e-commerce was driving stronger than expected growth in the B2C market segments and supporting express growth, Appel said.
In the PeP division, “we have reached the inflection point where Parcel growth outstrips Postal decline and we resume absolute EBIT growth while investing in international expansion”, Appel told analysts. In the 2017-20 ‘second half’ of the Strategy 2020 period, DHL Parcel Germany aims to grow “as least in line with” expected market growth of 5-7% a year.
DHL Parcel Europe, which has expanded to 22 countries, is “working as one network, with one label and the same products”, he underlined.
Outside Europe, DHL eCommerce is currently offering cross-border day-definite delivery (and returns) to 220 countries worldwide from 11 origin markets (US, Canada, Mexico, Hong Kong, Singapore, China, India, Australia, Japan, New Zealand and Malaysia), which have large outbound flows.
In addition, it now offers domestic B2C deliveries in 5 countries (US, Chile, India, Thailand, Malaysia). Appel said the domestic B2C volumes are “significantly above our best case scenario”, showing that “there’s a market for quality products”.
Describing international parcels as “the growth engine for the next decade”, Appel made clear that the top priorities in the ongoing international parcel expansion are to increase revenues and market share on a sustainable and profitable basis, although profits from the business would not be “huge”.
During the Q&A session, Appel stressed that DHL does not need to have parcel businesses everywhere. “You don’t have to be in 100 (countries) to be successful.” But it was too early to say whether domestic B2C services would be expanded to “20, 50 or 100” (markets)”, he added.
CFO Melanie Kreis said the criteria for deciding whether to enter a domestic B2C market included the market structure, competitive situation and possible USPs for DHL. Appel commented that DHL tended to be competing with local parcel operators, and he was “surprised” that not more European parcel operators had expanded internationally.
On the other divisions, Appel described DHL Express as the group’s “star performer” with higher volumes, revenues, margins and profits, and stressed that B2C is a fast-growing profitable premium product for the division.
DHL Express was outgrowing the market which had remained below the predicted 5-6% average annual growth. In 2017-2020, DHL Express would continue to balance TDI volume growth, including B2C shipments “as an additional growth engine”, with “disciplined” yield management.
Looking at future growth potential, Appel told analysts that e-fulfilment, covering B2B logistics management, warehousing and shipping, was a “completely uncaptured market” and represented “a huge opportunity” for DHL Supply Chain.
On other topics, the DP DHL chief hailed the business opportunities from digitalization, and predicted that using robots and other technology could improve productivity by 10% in the long term. On the DHL Parcelcopter drone (UAV), Appel said, however, that regulations are not yet in place for flights in public areas meaning that the drones cannot be used yet.
