What is behind the Schenker GLS agreement?

Deutsche Bahn Schenker’s (DB Schenker/ Schenker) “strategic partnership” with GLS Group poses a number of questions about Schenker’s ambitions as well as the future of Royal Mail, the owner of GLS.

At first the relationship looks fairly unexciting. GLS will expand its offer of freight services whilst DB Schenker Logistics will offer a Europe-wide parcel service and the two companies will undertake to “assist each other in their transport services”. The relationship is described as “non-exclusive cooperation”, which seems to suggest both parties can use other suppliers.

However, digging deeper it appears that the motivation for the deal on Schenker’s part is, in the words of Ewald Kaiser, Board Member of Schenker AG for Land Transport, “driven by e-commerce, the European parcel market offers excellent growth opportunities”. Schenker has had modest parcel operations for several years in Scandinavia and Poland, much of which appears to be aimed at ‘business-to-business’ customers as Schenker is not really set-up for ‘business-to-consumer’ traffic with little substantial last mile capability. A ‘less-than-trailer load’ network’s design of the type that Schenker operates is very different to that required to serve private customers. Certainly it may be able to handle pallet loads into distribution centres, however this is the easy part. What GLS has to offer is a more–or-less pan-European last mile capability with the type of hubs needed to sort the ‘Business-to-Consumer’ consignments that Schenker needs.

Rather than being a discrete service it appears the system will be a formal, possibly branded, operation with a formal “roll-out” that will begin in Germany and “then step by step across Europe”, starting on January 1, 2016.

It is less clear what GLS gets out of the arrangement. It already uses DB Schenker’s road freight network to feed product into its own operations, however it states that the attraction from the deal is to strengthen its freight offering. It might be suggested that the growth in conventional road freight is somewhat less than that in e-commerce driven home-delivery. Certainly an ‘end-to-end’ capability is attractive to clients wishing to create supply chains that seamlessly link production to consumers but is it necessary to have a formal arrangement with a road freight provider to do this?

What DB Schenker appears to be doing is attempting to re-orientate its business to higher growth markets such as e-commerce logistics. The senior management of Deutsche Bahn suggested recently that as a part of a wider re-organisation of the group DB Schenker could be partially floated and re-capitalized in order to resource a new corporate strategy. Is it possible that this may include casting its eyes over Royal Mail’s GLS subsidiary?