DHL Express targets profitable B2C business and digitalises more

DHL Express will target profitable B2C growth, invest €1 billion a year in network, technology and people, and digitalise more services and operations under its new Strategy 2025, CEO John Pearson said yesterday.

In 2020, the Deutsche Post DHL subsidiary again expects mid-single-digit volume growth in the 5 -6% range and hopes for a ‘post-Brexit’ pick-up in the UK, he told CEP-Research at the DHL Innovation Center in Troisdorf, near Bonn.

Presenting the express operator’s Strategy 2025 (entitled ‘Delivering excellence in a digital world’) to international journalists, Pearson, who took over as CEO from Ken Allen at the start of 2019, made clear that DHL will essentially continue its existing successful strategy over the next five years while driving ahead in areas such as digitalisation.

“Our profitable core (business) is and remains Time Definite International,” he declared. DHL claims to have increased its TDI market leadership by 7-8 percentage points to 39% over the last few years, ahead of FedEx on 30%, UPS at 22% and others with a combined 9% of the market.

For customers, DHL wants to become the ‘Provider of Choice’ by selling its services “from a buyer’s perspective”, using “very sophisticated” pricing and yield management tools. “We want to win the business we want to win and walk away from the business that we don’t want,” the express chief commented.

“E-commerce is getting easier”

Explaining DHL Express’ approach to e-commerce and B2C business, Pearson emphasised the need for controlled ‘profitable growth’ through a selective mix of premium customers and cost-efficient deliveries.

B2C shipments have grown at high double-digit rates in recent years and now make up 30% of its total global volumes compared to just 10% in 2013, but the operating profit margin has also risen from 9% to 12% in that period. “E-commerce is accretive to our profit margin,” he made clear, commenting that “a lot of people are not making money with e-commerce”.

Pearson explained: “E-commerce is getting easier. Five or six years ago we only had several very large e-commerce customers in a few countries, but now we have a much longer tail of customers, with many more small customers at higher price points. Our customer profile is much more balanced than it was. We are in a very good position.”

Moreover, last-mile deliveries have become more cost-efficient thanks to digital services such as the On Demand Delivery service, enabling recipients to select delivery options and avoiding costly failed first-time delivery attempts.  

Asked about a potential threat from big e-commerce players such as Amazon, Alibaba or JD.com expanding their own logistics operations, Pearson commented: “Amazon is a partner and a customer first and foremost… No one (of them) is offering a TDI service. They may be expanding their logistics but TDI is quite different.”

€1 billion a year for technology and network

Pearson said DHL Express will continue to invest about €1 billion a year on average in its operational network (including technology and people) over the coming years, with current investments running slightly higher due to the arrivals of new freighters. The company has so far taken delivery of four out of its new 14 B777 freighters, with six to follow next year and four in 2021, but Pearson made clear that “there is no big fleet investment coming up” afterwards.

Asked about the impact of the US-China trade dispute on business, Pearson remained optimistic, saying: “Global trade is too big to fail. There are still multilateral deals being agreed.”

Regarding Hong Kong, where DHL Express has its Central Asia air hub, he underlined that airport operations have not been affected so far by the escalating protests in the territory. But he pointed out: “We are building up contingency plans if we cannot get flights in or out.” Flights could be diverted to the smaller regional hubs in Shanghai, Singapore and Bangkok if necessary.

In terms of digitalisation, DHL Express aims to achieve “the next level of excellence” by using customer-facing tools such as the ‘myDHL+’ shipping management portal, its employee engagement app Smartr, and real-time operations management through its Advanced Quality Control Centers.

Moreover, as an employer with a workforce of about 100,000 people worldwide, DHL Express wants to continue improving its Great Place to Work ranking, having gradually moved up to fourth place, invest more in training some 9,000 supervisors (who manage front-line staff) and motivate all staff through diverse programmes and activities.

Post-Brexit business bounce in 2020?

Speaking with CEP-Research, Pearson said that during 2019, after unexpectedly flat volumes in January and February, DHL Express had returned to growth in March and has since been growing at about 5-6%. Over the first nine months of 2019, the express operator increased revenues by 6.3% to €12.5 billion with average daily TDI volumes up by 5.8%, the recently published Deutsche Post DHL Q3 results showed.  

Describing 2019 as “the hardest year” of the last decade due to ongoing US-China trade tensions and Brexit uncertainty, he said: “We are growing at 5% or 6% when our competitors are growing at zero. We’ve continued to grow and position ourselves fantastically well in e-commerce. And we are on track to deliver our best quality ever. Last year, with 96.1%, was our best year ever, and we look to be north of that (this year) assuming nothing really goes wrong in December.”

Operationally, the October 2018 decision to stop accepting most of the bulky non-conveyable heavyweight shipments over 300kg was paying off by simplifying operations and reducing costs even though it had also impacted on revenues, Pearson said. “The heavyweight campaign has proven to be the right thing to do. We’re getting the worst packages out of our network. It takes operational cost out of the business, it’s a cost and efficiency story,” he explained.

Looking ahead to 2020, he said volumes are likely to continue growing at the same 5-6% rate, adding: “I’m not anticipating the top line to be that much more exciting than the top line this year.”  

However, Brexit could deliver a boost next year once it is clear when (and how) the UK will leave the EU, prompting companies which had delayed decisions and investments to start moving again. “If Brexit gets done in one way or another in the early part of next year, Europe will have a natural bounce,” he predicted. “Once it’s clear when we are going, people will say ‘OK, it’s happening, we’ll move our warehouse to Holland – or we won’t.”