CASH MANAGEMENT, TRADE FINANCE, FLOW CASE STUDIES
Delivering the world
27 November 2020
While the Covid-19 pandemic has stimulated international delivery demand, fulfilment has been tough within a dislocated transportation network. flow’s Clarissa Dann reports on how Deutsche Post DHL Group has stepped up in a crisis, walks the sustainability walk – and optimises its treasury
“Everything and nothing has changed,” are the opening words of Deutsche Post DHL’s (DPDHL) global trade video, as the voiceover continues that “connecting people, sharing ideas, solving problems, keeping doors open and business flowing “will always be in our DNA”.1
It is this message of consistency in the face of the Covid-19 pandemic that underpins the reflections of the company’s Head of Corporate Finance, Henrik Hänche in a Behind the Headlines podcast interview with Deutsche Bank Research’s Strategist Jim Reid.
When introducing the new podcast format by Deutsche Bank’s Group Relationship Manager Christian Plewe, Henrik was immediately "in". "It was obvious that Henrik’s intention was beyond just marketing their successful development during the crisis and was focused on their strong commitment to global trade", Plewe reflects.
Once the podcast was published, DPDHL’s corporate media team promoted the interview via its own channels, providing access to all 550,000 of its employees.
Navigating dislocated international transport networks, and with increased costs from coronavirus safety procedures for staff and customers, delivery companies have had their work cut out. While the sector is seeing strong parcel growth driven by B2C e-commerce with consumers locked down at home, pricing in global air and sea freight, notes Reid is “at elevated levels given the constraints in capacity”. This reflects intercontinental airline fleets being largely grounded – belly space accounted for around 50% of global air freight capacity in the past.
A report from the Boston Consulting Group published in July 2020 (Can delivery companies keep up with the e-commerce boom?) points out the pandemic’s mixed impact on delivery companies, “with many struggling to keep up with increased volume amid major challenges to their operations”. To benefit from the shift away from physical retail to e-commerce requires them to be ready for a different world and “expand their operations, improve logistics technology, and increase their efforts to boost efficiency through automation,” note the authors.2
Hänche is proud of how DPDHL has coped. “We are the one and only making sure that the supply chains don't break down, and this is what our customers are telling us. They were – and they still are – admiring what we are doing; it’s really one of a kind. If we were to break down, the whole supply chain would break down – because we are the backbone of globalisation,” he explained.
Most evidently, the company has been instrumental in delivering Covid-19 solutions. “In Q1 and Q2 2020, managing the PPE supply chain was the major challenge across regions given the spikes in demand, factory lockdowns and a highly centralised production footprint. By summer 2020, the global PPE supply chain was running smoother again, due partly to increased local production. And once all major economies ramped up testing capacity, the once-limited supply of testing kits was, with some exceptions, no longer as critical,” reports DPDHL in Delivering pandemic resilience, its helpful white paper setting out the pain points and solutions in these logistics.
The next challenge identified by the company is delivering the vaccines when “the exact logistical requirements for transport and storage differ between different vaccines and/or technology platforms, as well as between the different supply chain steps”.
More than a postal service
Tracing its history back to the foundation of the Prussian state postal service in 1646, which established regular deliveries between Berlin, Münster, Osnabrück, Kleve and Königsberg,3 Deutsche Post today provides an international service portfolio consisting of letter and parcel dispatch, express delivery, freight transport, supply chain management and e-commerce solutions.4
Despite the crisis, the company saw year-on-year growth of 4.4% in the third quarter of 2020, with revenues at €16.244bn.5 Operating profit (EBIT) rose by almost 50% to €1.4bn over the same period.
Not surprisingly, the strongest performance came from the DHL Express division, which has, according to the Q3 investor report, “made B2C e-commerce into its biggest and fastest end market vertical versus other B2B verticals”. Other areas that did well were its Parcels eCommerce Solutions businesses. Industries with sharply increased volumes and demand were not just the retail and fashion sectors, but also “historically less penetrated industries such as life sciences, healthcare, consumables and technology”. Commenting on the Q3 results, CEO Frank Appel said, “We had a successful third quarter thanks to our 550,000 employees and to our outstanding portfolio of e-commerce logistics solutions benefitting both small and large customers globally.”
"As a global logistics company we made an important contribution to the management of the Covid-19 crisis"
The company’s culture of resilience and service delivery, selected core businesses and long-term strategy have helped Deutsche Post DHL not only weather the pandemic but embed itself in each sector’s recovery. “As a global logistics company we made an important contribution to the management of the Covid-19 crisis,” says Hänche. “Worldwide we delivered the day-to-day goods as well as vital goods to hospitals to pharmacies. So, overall, we came through the crisis very robustly.”
DHL employees in DHL Supply Chain warehouse. Source: © Deutsche Post DHL
With a workforce of more than 550,000 across 220 countries and jurisdictions, adapting to the constraints imposed by the pandemic was an operational challenge for DPDHL. While 400,000 of employees work in operations, at least one in three – equal to the population of a mid-sized city – could work efficiently from home.
However, the company was already well positioned to support this transition, with working from home policies and processes already in place (as also was Deutsche Bank with its own workforce6). Almost overnight, the shift was made in mid-March for more than 100,000 employees to work remotely, with most of them still doing so.
Yet while DPDHL, along with many organisations, handled this transition admirably, the employee engagement aspect special to physical co-working is tough to replicate, notes Hänche. “The work is getting done […] there is no lack in efficiency,” he explains. “What is lacking is definitely the social interaction – the casual chats, an occasional beer with colleagues after work.”
Although some employees will be keen to get back to the office full-time, others will want the flexibility to work part of the week from home. “What is of utmost importance is to align with the team leaders and align with their colleagues. But then it's do-able. It's been proven, and I think these will be permanent changes,” says Hänche. “Satisfied employees mean increased employee engagement, which means better service,” in line with DPDHL’s mission of “connecting people, improving lives”.
Taking environmental responsibility
Already a major focus before the Covid-19 crisis, managing environmental, social and governance (ESG) responsibilities has risen to the top of the corporate governance priority list.
“The transportation sector is responsible for roughly 7.5 gigatonnes of carbon emissions – about 14% of greenhouse gas emissions worldwide, states DPDHL in its 2019 Group Sustainability Report.7 The company takes full ownership of its contribution to this figure. “0.4% of this figure can be attributed to our business operations, which is why we have been designing and implementing climate and environmental protection measures for more than 15 years and have helped lead the way towards a green, sustainable future for logistics,” explains the report.
- Reducing dependence on fossil fuels and promoting the use of alternative fuels/energies in DPDHL’s fleets and buildings.
- Designing and implementing policies to reduce emissions, improve fuel efficiency and increase the use of alternative fuels as part of its group-wide ‘GoGreen’ programme.
- Deploying innovative pick-up and delivery solutions to reduce the impact of its operations on air quality, especially in urban areas. “This also reduces energy costs, anticipates possible legislative changes, and helps ensure the stability of our business in the future,” says the report.
- The DPDHL CarbonEfficiency Index (CEX), defined “a management indicator under GAS 20 and calculated on the basis of specific emission intensity figures for each business unit”. Greenhouse gas emissions are calculated using internationally recognised standards such as the Greenhouse Gas Protocol (GHG Protocol).8 When calculating the CEX, DPDHL also includes emissions generated by its transportation subcontractors (GHG Protocol Scope 3).
- Expanded use of electromobility. DPDHL has continued modernising its air fleet in the Express division and is exploring the use of sustainable synthetic fuels in its fleet.
The DHL teardrop trailer. Source: © Deutsche Post DHL
One example of these environmental measures in action is the use of fuel-efficient vehicles, such as teardrop trailers (pictured). The aerodynamic form of this teardrop-shaped transport features a curved roof, which reduces air resistance and cutting fuel consumption by up to 6%−10% compared to regular heavy-load trucks. “By adding to its green fleet, Deutsche Post DHL not only acts on its environmental responsibility, but due to a decreased fuel use it saves costs per tour,” the company reported in 2014.9
More recently, in September 2020 it announced that DHL Global Forwarding (DPDHL’s air and ocean freight specialist) will be neutralising the carbon emissions of all less-than-container load (LCL) ocean freight shipments from 1 January 2021.10
DPDHL is also dedicated to driving improvements through its green and ESG financing options. As a major employer globally, the company currently has around €14bn in active assets under management for pension provisions. Since 2010, work has been underway to shift these assets towards ESG-compliant asset managers.
Access to trade
On 14 October 2020, the company launched its GoTrade initiative, in partnership with the German Federal Ministry for Economic Cooperation and Development.11 Its purpose is to give SMEs in developing countries (focussing on Africa) access to global markets by investing €30m in the digitisation of customs and trade processes and to promote e-commerce and low-emissions logistics in cities.
“We are starting in Morocco, Rwanda, Kenya, Ghana and the Ivory Coast,” said Federal Minister of Economic Cooperation and Development Gerd Müller. “We are also creating new sales markets worldwide via new e-commerce platforms. All this accelerates trade, creates transparency and enables enormous leaps in development.”
"We are creating new sales markets worldwide via new e-commerce platforms"
“We place particular emphasis on training and the promotion of women as entrepreneurs,” he added. “And we are deliberately focusing on digitisation. Nowhere is digitisation progressing faster than in Africa. Some African countries are already further ahead than Europe - for example, in cashless payment via smartphone.”12
Investor appetite and treasury issues
Turning to the wider treasury, Deutsche Post’s strong financials, and credit ratings of BBB+ (Fitch, 11 May 2020) and A3 (Moodys Investor Service, 8 October 2020), have helped it prepare for pandemic disruption – long before coronavirus made its impact.
DPDHL has a committed undrawn €2bn credit facility maturing in 2023, which Deutsche Bank was instrumental in setting up. In the 2019 Annual Report it was described as guaranteeing the company “favourable market conditions and acts as a secure, long-term liquidity reserve”.
While there was, says Hänche, “no need to draw upon the syndicated loan and there was also no need to issue a bond”, he adds that “the longer the pandemic continued [meant] we decided to go out and issue long-term bonds just in case” and also to retain “fire power”. With investors looking for high-quality issuers, in May 2020 DPDHL issued a multi-tranche senior bond, led by Deutsche Bank as joint bookrunner, with a total volume of €2.25bn. Chief Financial Officer Melanie Kreis commented that “the successfu3l transaction shows that investors are convinced of our resilient business model and our successful future.”13
“We shall continue to grow in the years ahead, even in a volatile economic climate,” predicted CEO Frank Appel in the 2019 Annual Report. While nobody could have predicted quite how volatile 2020 would prove, DPDHL is clearly ready for anything.
Henrik Hänche, Head of Corporate Finance, Deutsche Post DHL Group is the featured guest in Deutsche Bank Research’s Behind the Headlines podcast series, presented by Fundamental Head of Credit Strategy Jim Reid
Listen to the podcast here
With thanks to Deutsche Post DHL for the kind permission to reproduce the photography of their operations.
1 See https://bit.ly/3q0w4Ff at globaltrade.dhl
2 See https://on.bcg.com/33h4Xfm at bcg.com
3 See https://bit.ly/3mdRXhV at dpdhl.com
4 See https://bit.ly/2KBU9BX at dpdhl.com
5 See https://bit.ly/33k6EJ4 at dpdhl.com
6 See flow’s From the engine room for more on Deutsche Bank’s move to work from home as the pandemic took hold
7 See https://bit.ly/2UYfurc at dpdhl.com
8 See https://bit.ly/2J92xbB at ghgprotocol.org
9 See https://bit.ly/2HDVzuI at dhl.com
10 See https://bit.ly/379YkfU at dpdhl.com
11 See https://bit.ly/3pZqF1d at dhl.com
12 See https://bit.ly/362Urdh at dhl.com
13 See https://bit.ly/379rpbu at dpdhl.com
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