Contrary to UPS’s view that sea freight will benefit from the volatile trading environment, DHL Group expects that air freight will benefit. One thing the two logistics giants agree on – the immediate future is very uncertain. At a Group level, revenue improved by 2.8% y-o-y to €20,809m and EBIT improved by 4.5% to €1,370m.
Express – profit improves despite volume falls
Operating profit improved by 4.8% y-o-y to €662m on revenues that increased by 2.0% to €6,27m. The company stated that effective capacity management and price adjustments contributed to the improved profitability, even as volumes fell in line with expectations.
CFO Melanie Kreis explained, “It’s a combination of pricing, mix and cost management leading to good capacity utilisation. With the expected volume dynamic in Q1, we continued to drive higher weight per shipment, higher yield in terms of revenue per kilo, and we have managed our capacity so successfully that we were able to turn year over year lower volume into a year over year higher weight load factor.”
Global Forwarding, Freight hit by European road freight recession
EBIT at the Global Forwarding, Freight division was down 23.2% y-o-y to €202m on revenues that grew by 3.2% to €4,764m. Volumes and revenues in Air and Ocean remained quite stable but the hit to earnings came from the European road freight. CEO Dr Tobias Meyer said, “The core industrial markets in Europe have been quite challenging. It’s demand weakness, which causes high competitiveness.”
Supply Chain – strong and steady
New contracts and productivity improvements through automation helped EBIT at DHL Supply Chain improve by 4.8% y-o-y to €268m on revenues that increased by 1.1% to €4,380m. Kreis said, “The Supply Chain Q1 financials reflect the smooth operating performance driven by our high quality service offering and operational excellence agenda.”
Investments and depreciation hit profits at eCommerce
While revenue increased by 7.5% y-o-y to €1,756m at DHL eCommerce, EBIT fell 9.2% to €52m. This fall was caused by deliberate strategic investments that should yield better results into the medium and long term. Kreis said, “We continue to see good organic top line growth at plus 6% even in an environment of somewhat more cautious consumer spending. This top line growth drives EBITDA growth, which is, however, currently not translating into EBIT growth due to our ongoing investments exactly as expected for the current investment phase”
Post & Parcel Germany benefits from parcel volume growth
Though e-commerce parcel volumes and revenues aren’t growing as quickly due to the weak German economy, the division still reported EBIT up 44.6% y-o-y to to €281m on revenues that grew 3.8% to €4,428m. Among the data, daily parcel volumes grew 11.9% y-o-y to 7.6m and Parcel Germany revenue grew 9.8% to €1,891m. Kreis continued, “On the trading side, similar to DHL e commerce, we see continued volume growth at higher pricing in Parcel Germany, although on a somewhat slower than usual growth level, reflecting consumer uncertainty.”
Air to sea or sea to air?
In UPS Q1 earnings call, DHL Group’s rival forecast that Asia-US trade will switch from air freight to sea freight. DHL’s leadership think the opposite. Meyer’s understanding is this: “If there is volatility, if there are deadlines looming, then there’s obviously a different consideration, and that’s what we have been seeing and do expect in this environment of changing elements, changing regulation with substantial financial impacts to our customers, that that pressures volume into higher quality, faster modes of transportation. That is what we have seen historically over many decades, and that what we would also would see in this situation. So if you expect smooth constant type of environment, cost pressure, you see this in automotive again and again, moves from air to sea. If you see volatility, you will see a higher share of air freight and also express.”
Because DHL is Europe based it is not as heavily exposed to the fast moving trade politics affecting the Asia-US trade lanes as UPS, though it still has a strong interest. As with UPS it is canvassing its customers for their views, if only to get some clarity on the immediate weeks and months ahead. Meyer explained that they see several decision making scenarios emerging among their customers: “Quite strong is wait and see, especially on the industrial side. We see that customers just don’t know whether things really come into effect and basically keep their current setup for the time being while recognising that if those tariffs would come into effect or stay in place, that would bring them into an economically disadvantaged situation.”
Meyer continued, “There is still the belief with many of our customers also in the US that this environment is going to evolve and move back to lower tariff levels as those negotiations, much talked about, unfold. So that’s why wait and see is actually something that we see rather skeptical. It delays certain investment decisions, and we also see some weighing on consumer confidence. Adjustment of pricing, obviously, in space like e commerce, an absolute necessity, but we’ve seen it also in automotive and electronics. Paused delivery is something that we do expect now in April, May to affect heavily e commerce, especially the front loading of deliveries, and that’s coming to those effects that are rather positive for a logistics player like us, who has a strong global footprint and a disproportionately high market share in non direct US trade lanes, that the front loading of deliveries, especially in electronics, took place. Some later and different than we expected based on historical experience. Again, this shows that some of our customers don’t act before a deadline because they’re not sure whether the policy stays in effect, but we’ve seen some front loading and shifting of inventories and also thereby higher demand for air freight, for warehousing, especially in Asia.”
Where uncertainties affect the Asia-US trade lanes, DHL Group has the advantage of being more of a global player than UPS, thus being less exposed to the unpredictable trade policies of the US government. As such, even with these uncertainties it will not be so strongly affected by those issues. It is not however, a problem to be entirely ignored.
Author: Richard Shrubb
Source: Ti Insight
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