Logistical Problems

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As DHL Unit Flounders on Freight, Deutsche Post Struggles to Deliver Results

Deutsche Post CEO Frank Appel needs to get better results from his DHL unit. Source: DPA
Deutsche Post CEO Frank Appel needs to get better results from his DHL unit.
  • Why it matters

    Why it matters

    A focus on creating new revenue streams at Deutsche Post cannot conceal serious problems with its DHL division, where sales are dropping and costs are rising.

  • Facts

    Facts

    • The shipping and freight division is the only one of four corporate divisions of Deutsche Post not carrying its weight.
    • While company officials blame a weak economy for the problem, competitors have seen increases in business and profits.
    • Financial forecasts have been thrown into turmoil by the impact of the problems with DHL.
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    Audio

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Frank Appel, Deutsche Post’s chief executive, was crystal clear when he proclaimed the Bonn-based logistics company would enjoy massive growth under his “Strategy 2020” plan by focusing on parcel deliveries and its own online shops.

Additionally, he said, to become a major player in the markets of the future, Deutsche Post would introduce letters with electronic postage, organize long-distance bus tours with the German automobile club ADAC and use drones to deliver parcels from the company headquarters along the Rhine River.

His focus on high-flying, high-tech projects apparently caused him to lose sight of Deutsche Post’s slowest business sector. The shipping and freight business acquired in March 1999 with the purchase of Switzerland-based Danzas Group is faltering. Sales have dropped by 2.1 percent in the first half of 2014, compared to the same time period last year, while pre-tax and pre-interest earnings dropped precipitously by 30 percent to €149 million ($199.1 million), a troubling development for the company, which is one of 30 German firms that make up the DAX index on the Frankfurt Stock Exchange.

Shipping and freight is the only one of the four corporate units not carrying its own weight. In the first two quarters of 2014, the operative cash flow was at minus €55 million after generating positive cash flow €167 million during the same period last year. This is an enormous headache for company executives since the unit, which includes DHL Global Forwarding and DHL Freight, generates a fourth of the firm’s earnings.

Mr. Appel blamed the flagging global economy for the poor results, but analysts see it differently.  “DHL’s shipping and freight problems are of their own making,” said one expert, who requested anonymity.

There is, in fact, little evidence of a cyclic crisis based on market conditions in the freight business.

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