Interview - DHL wants to share e-commerce logistics capacity with retailers

Logistics operators and retailers could share warehousing capacity to get goods closer to customers for rapid last-mile deliveries and help cope better with “challenging” seasonal B2C volume surges, DHL’s Chief Commercial Officer Katja Busch told CEP-Research in a wide-ranging interview.

All DHL divisions are currently seeing “strong demand for e-commerce solutions” and the group is talking with many traditional B2B customers about B2C solutions, she said at an international media briefing in New York.

But with this year’s online shopping festivals such as Singles Day in China and Black Friday/Cyber Monday in North America and Europe generating record sales, Busch admitted that these “massive spikes” in volumes are “a challenge” for delivery companies by putting heavy pressure on operations and increasing costs over a peak season that now stretches from early November until the end of December.  

“Our main challenge is that you cannot build a network for eight weeks but you have to make sure you have the capacity in place,” she declared. The main problem, however, is not the sorting capacity itself but rather the last mile, where delivery companies have to take on large numbers of temporary staff for just a short period.

“You need to have really good people in place. The whole industry is facing a shift towards how we evaluate these guys. They are the sole face (to the customer). It’s time that everybody really sees that and recognises how important the job of the driver is,” declared Busch, who took up the DHL CCO post at the start of 2018 after 12 years as sales chief for DHL Parcel Germany.

In its new white paper on ‘shortening the last mile’, DHL highlighted the need for delivery companies to have flexible last-mile networks that can be scaled up and down according to needs in order to keep costs under control. “This is where we can burn a lot of money,” Busch commented.

Flexible delivery solutions include diverse home delivery services, parcel lockers and parcel shops but there is no ‘one size fits all’ solution, she underlined. For example, DHL’s Packstations lockers “work well” in Germany and other parts of Europe but not in the US; home delivery is rare and parcel collections are common in the Nordics; and there is no delivery to neighbours in Poland, she noted.

Capacity-sharing and regional fulfilment to shorten the last mile

Another trend is that some retailers in Europe are relocating distribution centres from regions with rising labour costs, such as Poland, to cheaper locations like Ukraine, thus increasing the physical distance of the good from customers.

Yet, goods actually need to be closer to customers in order to shorten the last mile and meet increasing demand for rapid “localised deliveries”, she pointed out. “The challenge is to get the right inventory in the right place at the right time,” she said.

However, there is often a shortage of available retail warehousing space close to where consumers are located. As a result, DHL is now actively looking at offering available warehouse space to retailers on a ‘capacity-sharing’ basis, Busch said.

“It’s a good idea for logistics companies and retailers to team up and share space,” she said. “We are in discussions with retailers regarding sorting (time) windows, we can do additional sorting for retailers. That makes the middle mile cheaper for them. During the day, for example, in a mechanised delivery depot you can use the time to do some sorting. We have our huge supply chain facilities where we could free space for small retailers for doing their 2C stuff.”

One eye-catching partnership is with Amazon at DHL’s Americas air hub at Cincinnati Airport where DHL processes Amazon shipments through its otherwise idle sorting system during the day and sorts its own shipments during normal night-time operations. “This is up and running. We don’t utilise this facility during the day but it costs the same money. So this decreases our fixed costs and makes the customer happy,” she commented.

Another example is short-term events. For example, DHL has a deal with the German Football Association (DFB) to store, sort and distribute sports merchandising items from DHL facilities. “It’s just a short period of time where they need somebody who has capacity to pick and pack a thousand items a day and ship them,” she explained.

“Omnichannel will win the e-commerce game”

As Chief Commercial Officer with responsibility for DHL’s 100 largest accounts, Busch has a good overview of customer trends, including online and traditional retailers.

Asked about the company’s relationship with Amazon, she commented: “Amazon is still a valuable customer for us. We have learned and developed a lot together. Yes, they are developing their own capacity and we see that. But I believe we will always have a relationship (with them).”

However, SMEs also play a vital role for DHL, both due to higher average prices and their sheer quantity. “You need this broad base to ensure that you fill your capacity. SMEs are a very important target group for us. We are not just focusing on big brands. That would be a huge mistake.”

Meanwhile, another “exciting” area is traditional retailers, especially “huge fashion brands”, who are growing their online sales very rapidly, Busch said. “They missed the e-commerce train a bit but they suddenly woke up and realised ‘We need to do something’,” she commented.

Busch said she is “deeply convinced” that omnichannel retailers “will win the game” in e-commerce. “What they now have to fix is to get the synergies from online and offline. This is really the state of the art in e-commerce, to connect real-time availability of goods.”

Another large-scale potential growth area is B2B e-commerce, the long-serving sales expert pointed out. “The online B2B market is still untapped. B2B will change massively,” she predicted. “This does not mean volumes will increase but they will be different. For example, there will be different order cycles.”

In its white paper on how urbanisation and e-commerce are changing logistics and last-mile deliveries, DHL identified four main trends: localised delivery, flexi-delivery networks, seasonal logistics and evolving technologies. It concluded that Flexible transport networks, Automation and Data (F.A.D.) will be key success factors for logistics players in future.

* CEP-Research will publish a second part of the interview on Monday, focusing on innovations.