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DHL China to continue investment

By Lu Haoting and Wang Ying (China Daily)
Updated: 2009-07-01 08:06

Deutsche Post DHL CEO Frank Appel started his whirlwind visit in Beijing at 7:30 am on Monday shortly after flying 10 hours from Germany. After a long day of meetings with government officials, partners and employees, the 48-year-old looked his interviewer in the eye and said: "We are still committed to Asia, particularly China."

Unlike any of his previous visits to China in the heydays of booming business, this visit was made amid a global economic downturn that has seriously pounded the logistics industry. The economic crisis has had a direct impact on the business of the world's largest logistics company, resulting in a 13 percent drop in revenue and a 42 percent reduction in underlying EBIT (earnings before interest and taxes) in the year's first quarter.

But Appel said the company would continue to invest in China.

And he means it. DHL yesterday opened an eastern China domestic transportation hub at the Kangqiao Industrial Park in Shanghai. It also plans to open 10 more similar regional domestic transportation hubs in major Chinese cities by the end of this year.

The 25,000-sq-m facility in Shanghai houses 53 loading and cross docks and operates around the clock to provide cross dock operations, storage, multi-modal transfer and data management for customers. It is expected to strengthen not only DHL's supply chain management business in China but also its expertise in the domestic road transportation and distribution market in the country.

Supply chain management, or contract logistics, has become a shining star in the German company's core businesses. While freight forwarding and express delivery businesses shrank due to falling cargo volumes, DHL's contract logistics sector has seen smaller reduction or even slight growth, Appel said.

The pressure on companies to rationalize and control costs in supply chains in order to ride out of the economic crisis will accelerate the outsourcing trend, said Appel who spent seven years working at McKinsey Co in Germany in the 1990s.

To expand its supply chain business, DHL is focusing on multinational companies and major Chinese companies that are expanding abroad, Appel said.

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China's domestic market is also another focus for DHL.

"This is the last economic crisis where China is impacted by reduced demand from the US and Europe. Ten years from now, the domestic market will be so large that the impact on the Chinese economy will be much smaller than it is this time," Appel said.

For example, the total revenue of China's domestic road transportation industry grew 67 percent from $15 billion in 1998 to $25 billion in 2007 and is expected to reach $36 billion by 2013, according to a joint report by All China Marketing Research and IBISWorld.

DHL conducts domestic business in China under a 50-50 joint venture with Sinotrans, the country's largest international freight forwarding company.

Earlier media reports said DHL-Sinotrans would pay 300 million yuan to acquire A Plus Express, a Shanghai-based private logistics company, to expand its domestic business. A Plus, founded in 2000, mainly focuses on express delivery service and has about 300 outlets and seven distribution centers around the country.

Appel declined to comment on the result of the negotiations, only saying that "it is heading in the right direction."

"The Chinese market is fragmented. It is difficult to find the right target for acquisition. But if there is (a target), we will definitely consider it seriously," Appel said.

China recently passed a revised Postal Law, which will take effect on Oct 1 and bans foreign companies from delivering express letters in China. The new law means they can only deliver express packages domestically.

Appel said the law has limited impact on DHL's business in China as it has introduced all three core businesses into the country, namely freight forwarding, express and contract logistics.