UK Mail purchase represents a strategic shift for Deutsche Post DHL

The purchase of UK Mail by Deutsche Post represents a change in strategy for the Bonn giant. Previously Deutsche Post DHL Express had an extensive home-delivery parcel business in the UK but sold it, choosing not to be part of a cutthroat market segment where profits were scarce. Rather it pursued a strategy of focussing on higher margin business, serving international business e-commerce supply chains who were willing to pay a premium. It reduced its exposure to last mile delivery by relying on sub-contractors when needed.  

With the purchase of UK Mail this strategy has been reversed, driven it appears by the need to better serve the ‘B2C’ e-commerce market. It has to be presumed that the UK Mail business will be part of the ‘Post-eCommerce-Parcel’(PeP) division, as opposed to DHL Express, with Jürgen Gerdes, Deutsche Post Head of PeP outlining the rationale for the purchase as “the on-going expansion of our parcel network in Europe is driven by increasing demand within our e-commerce customer base for cross-border deliveries. Deutsche Post DHL, as the leader in the German parcel market, has already established a strong position in a number of European countries. UK Mail is a well-run business and an established provider of quality delivery services in the UK and offers a complementary fit with our integrated offering. With this acquisition, we will further extend our network and have a strong foothold in Europe’s three largest e-commerce markets, the United Kingdom, Germany and France, which account for over 60% of online retail in the continent.”

As Gerdes commented, UK Mail has been a well-run business. It carved out a significant market-share in the mail sector in Britain whilst remaining profitable. However, recently the project of building a new parcels hub had caused significant problems for the company and made it look vulnerable. The business is split between a courier/parcel delivery business and a mail business. The former is most exposed to e-commerce with a growing ‘B2C’ element although traditionally it was a B2B business. The latter is still gaining volume and market share, despite the fall in mail volumes, yet it should not be forgotten that for much of its mail business UK Mail uses the Royal Mail’s last mile delivery network.

In buying UK Mail, Deutsche Post is challenging Royal Mail. It is clearly attempting to create a Europe-wide e-commerce capability, which in turn will may complement DHL Express’ global network. The question is, can Deutsche Post run such a business successfully outside Germany. UK Mail grew because it was quicker and more focussed than Royal Mail. In being bought by a company as huge as Deutsche Post DHL, will it lose this agility?

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Source: Transport Intelligence, September 28, 2016

Author: Thomas Cullen