DP DHL CEO Frank Appel has played down the competitive threat from Amazon as a direct competitor, the online retailer having launched a same-day parcel delivery service in Munich.
Speaking at a media conference earlier this week during which he was asked about the prospect of increasing competition from Amazon in its home parcels market where it achieved revenue gains of 9.5% last year, Appel said.
"I think it's good when other companies seek to gain a foothold in our market because it shows that our market as such is very appealing. E-commerce and e-tailing companies are partners, even customers of ours.
"And I will even say that we have looked into different scenarios in terms of further expanding our delivery base. Of course, there are other players who come up with new ideas and that doesn't take us by surprise. We know our margins, we know our costs which is why we know what is happening right now. We have a fair idea of what is going to happen in the future.
"We will stick with our guidance in the Post-eCommerce-Parcel (PeP) division for now. We look at it as a sportsman. If companies wan to gain a foothold (in our market) then fine. We provide excellent quality, based on our fantastic workforce who are providing magnificient services which enabled us to gain additional market share last year. That's why we have confirmed our guidance in this segment because we are very confident that we will be able to continue the positive trend."
Asked to comment on a report on an Amazon strategy paper which stated that sellers will no longer book with DHL, UPS and FedEx but will book directly with Amazon and that Amazon will partner with third-party carriers before gradually squeezing them out of the market, Appel replied:
"Let's put this into a broader perspective. If you look at the different parts of e-commerce and what happens: We definitely had a disruptive approach in retail through on-line trading. We probably had a disruptive approach in software, such as cloud computing. I can't see at the moment the disruptive approach in our industry. We create a lot of visibility to our customers. The complexity of a global network is quite intensive.
He underlined that any new market entrant would have to invest heavily in manpower, facilities and network capability in order to compete on a level playing field with incumbents.
"The idea that an intermediate (like Amazon) will operate as a 4PL came from Accenture a few years ago but this didn't materialise. We should remember that 90% of our business is B2B. So I think we have to take a realistic perspective (on e-tailers becoming competitors). We take any new market entrant seriously but on the other hand, we believe that high quality standards on a global scale (such as DP DHL provides) is always something people will buy and work with."
At the conference call, Appel also highlighted the turnaround in the operating performance of the group’s Global Forwarding, Freight (DGFF) division in the final quarter of last year.
“Our selective market strategy has been successful. We witnessed a significant (upwards) trend in our gross profit in the second half of the year. We did accept that this was at the expense of volumes, which slightly decreased. But now we are ready to grow again.”
He said ocean freight had performed particularly well, the gross margin improving considerably in the context of a market that had barely grown over a period of six months. The selective market approach in air freight was starting to pay off too, he added.
“Costs are getting better and better under control and the service quality, and we have seen the positive impact of that in the final quarter.”
Commenting on the IT renewal plans in the DGFF division, following the abandonment last November of the ‘New Forwarding Environment’ (NFE) modernisation programme, Appel said:
“We are currently working on a proof of concept for a transportation management system. There are also other projects that we are going to roll out within the company. Therefore, we will not only witness a major improvement in our operating performance (in DGFF), but our IT renewal will also come a long way.
“In the past, we had an old system and a SAP system in parallel. And now we are going to have something that will certainly help speed things up in the IT segment. So we will continue with the turnaround here and we are very confident we will see the first positive effects of IT renewal as early as this year.
“We believe we have a much clearer picture now of what we should do (in terms of IT). It will be a ‘best of breed’ approach of systems we already have in house which we’ll roll out globally, and also some off-the-shelf products which we’ll include in our ‘road map’,” he said.
“So I’m optimistic we are on the right way going forward and that we will see in 2016 a continuation of the improvement of the operating performance at one end and the starting of the execution of our new IT road map (at the other).”
Appel described recent rumours of a possible sale of DGFF as “absurd”, underlining that its future lies firmly inside the German post, express, and logistics group.
His comments were prompted by a question at a conference with analysts and media earlier this week following the publication of the group’s 2015 financial results when he was asked why it had taken DP DHL two weeks to dismiss speculation that the group was in negotiations to sell DGFF to Japan Post.
Appel replied: “Simply because it was wrong. There have never been such talks. There are no such talks and there never will be any such talks because DGFF is a strategic division of our group.
“We decided at some stage to comment, though it is not our policy to comment on such rumours. I do not know how this rumour came into being.
“I do not know who spread it and who even had the idea… it’s absurd. Let me underline that: we thought it was so absurd we didn’t comment initially.”
He declined to comment on the process of finding a permanent successor to Roger Crook who quit his post as DGFF head in April 2015, but said he was “happy to be responsible for this business” in the interim “because it’s fun to see that the turnaround is taking traction.”
Asked about where DP DHL stood on potential mergers and acquisitions, Appel replied: “There are no plans for any major acquisitions right now. We don’t need to do any major acquisitions. We may choose to perform minor acquisitions some time in the future, but that remains to be seen.”
Responding to a question on the macro-economic outlook and its impact on the group's global business, DP DHL CFO, Larry Rosen, pointed to a continuation of the slow growth rate prevalent in the second half of last year.
"In particular, we've seen some slowdown in the forwarding business and volumes which were probably the most sensitive in our portfolio to the economic cycle.
"Our other business are less directly affected by the economic cycle. We continue to think global GDP growth will be about 3% this year and that global trade growth will also only be within the 3% range this year. This is far below historical averages and is below what the forecasts would have been a few months or a couple of years ago for 2016.
"So from that standpoint, it's disappointing. On the other hand, we think we can continue to thrive and be successful even in that lower growth environment and that's factored into the guidance for this year."
