By Thomas Cullen / www.ti-insight.com / June 11th, 2018
As indicated in the first quarter results issued by Deutsche Post DHL Group last month, the Post – eCommerce – Parcel (PeP) division has encountered some problems.
Over the first three months of 2018, the division’s parcel volumes rose by 7.4%, but EBIT fell by 9.9%. The company issued a statement on Friday detailing the nature of the problems, its approach to overcome them and the implications for future profits.
The various explanations are complex. The issues appear to cover both the rapidly growing parcel business and the slowly shrinking mail operations. The statement describes “Parcel Germany” as seeing “unchanged structural volume growth, but costs inflated with more FTEs (full time employees) and transport capacities needed in unusually tight labour and transport markets.” In addition, the mail operation has “unchanged structural volume decline with stable stamp prices since January 2016 and a high fixed cost base”.
All this appears to suggest that PeP is facing higher wage costs in its last-mile and sorting depots. It has not invested in increasing worker productivity and now finds it impossible to pass these costs on to its customers.
The impact on profits will be substantial, with ‘operational expenditure’ being €100-150m a year higher than previously forecast with a further need for €500m of capital investment. The implication will be a hit to the Group’s profits, which in 2018 are now predicted to be around €3.2bn, down from over €4bn.
Just two months ago (April 2018), a change in the leadership of PeP was announced, with Jurgen Gerdes leaving to take “charge of the newly created board mandate for Corporate Incubations, effective immediately.” Group CEO Frank Appel has temporarily taken over PeP, replicating his reaction to the problems at DHL Global Forwarding two years ago.
Why Deutsche Post DHL Group did not foresee PeP’s problems is not outlined, however that last-mile operations in internet retail operations are under constant cost pressure is hardly a surprise, as is the fact that demand for traditional mail is falling. This episode is all the more disturbing as PeP has been consistently profitable over the years.
At least Frank Appel has a good record in fixing these problems, judging by his performance at DHL Global Forwarding. It does, however, suggest that Deutsche Post DHL Group is a difficult company to manage.
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