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Deutsche Post banks on emerging markets, e-commerce

By: | at 12:03 PM | Air Cargo   | Transport Intermediaries  

Deutsche Post, the world’s biggest postal and logistics group, is betting on emerging markets and an e-commerce boom to boost profits through 2020, it said in unveiling its new medium-term financial targets.

The company, which grew into a global logistics conglomerate after going public in 2000, forecast its annual operating profit would increase by an average of more than 8 percent annually through 2020, driven mainly by its DHL logistics businesses.

DHL - comprising express, freight and supply chain divisions - has been a main pillar for expansion abroad as Deutsche Post’s traditional mail business is hit at home by a growing trend toward correspondence via email and social media, weak advertising revenues and a slump in newspaper sales.

It already accounts for three quarters of group profit, and is set to grow further. Deutsche Post forecasts DHL’s annual operating profit - earnings before interest and tax (EBIT) - will increase by an average of 10 percent every year between 2013 and 2020, outpacing 3 percent growth at the mail division.

Chief Executive Frank Appel said the group’s main focus would be on organic growth, with some smaller acquisitions.

“The new targets for 2020 imply an EBIT of about 1.58 billion euros ($2.18 billion) for mail and about 4.9 billion at group level. Hence, the targets are a significant positive surprise for us,” Equinet analyst Jochen Rothenbacher said.

Shares in Deutsche Post were up 3.7 percent by 0842 GMT, making them the biggest gainers on Germany’s blue-chip DAX index , which was 0.3 percent higher.

Asian Investments

DHL grabbed market share from rivals UPS, FedEX and TNT last year and has invested in expansion in Asia, where it is already market leader with about a 30 percent share.

It added a new hub for its express delivery business in Shanghai in 2012 and plans to invest $50 million to expand in Indonesia, where petrochemical and electronics firms increasingly want to outsource supply chain logistics.

Developing countries accounted for 22 percent of Deutsche Post’s group revenues last year, and the group expects that figure to climb to 30 percent by 2020, as it expands in Africa, Latin America and Asia-Pacific.

One analyst, who declined to be identified, cautioned though that expanding in emerging markets was generally fraught with regulatory risks such as sudden increases in the minimum wage, which affect costs not just for logistics companies but also for manufacturers.

Meanwhile, the Mail division’s parcel business will seek growth by expanding outside Germany to benefit from growing demand for shipment of consumer products ordered online.

Last year, the parcel business, whose customers include fashion online retailer Zalando, Amazon and EBay , saw its revenue increase by 7.9 percent.

It has now bundled its DHL parcel business in the Czech Republic, Poland, Belgium, Netherlands and Luxembourg with its German parcel operations and aims to enter markets in Asia and the Americas as well.

Deutsche Post, which holds a 42 percent market share in Germany’s 8.2 billion euros parcel delivery market, said it aimed to become the biggest provider of cross-border e-commerce services on the most important international trade lanes.

In Germany, the business competes with DPD, majority owned by France’s La Poste ; Hermes, owned by Germany’s Otto group; UPS; FedEx; and General Logistics System of Britain’s Royal Mail Group.

Deutsche Post faced criticism from Germany’s antitrust regulator last year over its pricing for major customers in its letter business, prompting the regulator to launch an investigation into whether the company cut prices to force competitors out of the market. (Reuters)