Air Transport World

Pushing the envelope: Deutsche Post expands its global reach as a logistics/express integrator.(Profile)

In Frankfurt

What does $6 billion buy? If you are Klaus Zumwinkel, the visionary management board chairman of Deutsche Post AG, which runs the German post office, it buys you entry into the global express delivery/logistics field at a time when your monopoly profits from Germany's mail delivery business are coming under increasing pressure from government-driven liberalization and tariff regulation. But a scat at the table is not a license to print money, as Zumwinkel is learning.

Since 1997, Deutsche Post has embarked on a 40-company buying spree, acquiring not only such name brands as Switzerland's Danzas, the DHL family and, most recently, the ground-based express delivery operations of Airborne Inc., but also dozens of smaller freight forwarders and delivery services including the European operations of Dutch firm Nedlloyd, Sweden's ASG, US-based Air Express International and Canada's Loomis express company. Through DHL, it even has become a 40% owner in Air Hong Kong, the cargo airline formerly 100% owned by Cathay Pacific Airways. Today, more than 50% of annual turnover is generated by the company's express and logistics businesses.

Yet, although mail delivery services represented only 30% of 2002 revenues of 39.2 billion [euro], they provided more than 68% of the 2.4 billion [euro] in profits from operations, according to the company's annual report. Meanwhile, the express delivery business, which means primarily Brussels-based DHL International Ltd. and its US sister, DHL Worldwide Express Inc., provided turnover of 12.5 billion [euro] but paltry EBITDA of 243 million [euro], while the Danzas-led logistics business, with 2002 revenues of 9.15 billion [euro], managed just 224 [euro] in profits from operations.

It's numbers like those, and the challenges posed by the $1.05 billion Airborne deal completed in August, that caused Moody's Investors Services to attach a "negative ratings outlook" to Deutsche Post at the end of September. According to Moody's, "The main challenges facing Deutsche Post ... include turning around DHL's current loss-making US domestic operations at the same time as integrating Airborne, and leveraging Danzas' extensive global logistics network to improve its current low profitability through increased utilization and a strengthening of its position in higher-value-added contract logistics. …

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