Rumours of DHL Global Forwarding sale have strategic implications

Deutsche Post DHL

That Deutsche Post–DHL is reported to be thinking of selling its freight forwarding business might be regarded as a surprise. The news agency Reuters has reported that “Deutsche Post is looking at the possibility of spinning off its ailing freight forwarding operation or making an outright sale, leaving the company to focus on its mail and DHL express freight business, according to two people familiar with the matter.” Whilst this is far from a definitive statement, Reuters does appear to have access to well-informed sources and so the rumour ought to be taken seriously.

Yet it should be remembered that Deutsche Post-DHL has a record of persisting with businesses that are under-performing rather than giving them up, the clearest example of which being the Express business. Whilst the expansion of the domestic US business was a disaster and was abandoned after around US$1bn of losses, the rest of the Express division was re-orientated around a new global network and a shift towards higher margin services. The result is a rapidly growing and increasingly profitable business reaping the benefits of a focus on internet retailing.

Is this what should be expected with DHL Global Forwarding and will DP-DHL work to turn-around the business? The numbers can hardly be described as inspiring. Whilst the losses on its mismanagement have been less than half of those experienced at the US Domestic Express business, they have been considerable. What is worse is that the business itself is doing little more than treading water at the moment with its sales, denominated in Euro and in nominal terms, increasing by less than 10%. Profits peaked in 2012, with an EBIT (Earnings Before Interest and Tax) margin of just over 3% and they have fallen heavily since. The number from the last 9 months of 2015 imply a loss for the year.

It is likely that DHL Global Forwarding is losing market-share in both air and sea forwarding, however such is the distressed nature of both the air and sea freight forwarding markets that it is hard to be unequivocal. For example, its nearest rival Kuehne and Nagel has seen sales growth limited to modest figure percentages, although the strength of the Swiss Franc complicates matters here. However, the Schindellegi-based forwarder has seen consistently higher profit margins.

DHL Global Forwarding is not a hopeless case but it will require attention. If the management of DP-DHL are considering selling perhaps it is not just motivated by poor performance. Rather, it might reflect a change in corporate strategy away from the economies of scale that have been the pillars of the Group since the days of Klaus Zumwinkel and towards a greater concentration on e-commerce driven business driven by DHL Express and the ‘PeP’ divisions.

Update 19/02/2016: According to a recent statement from DHL received by Ti, the company has denied any intention to sell DHL Global Forwarding.

Source: Transport Intelligence, 17th February 2016

Author: Thomas Cullen