Deutsche Post DHL Annual Report 2012

Annual Report 2012

Seal: DHL in China

GLOBAL FORWARDING, FREIGHT division

Excerpts from Deutsche Post AG's 2012 Group Annual Report.

GLOBAL FORWARDING, FREIGHT division

Business Units and Market Positions

The air, ocean and road freight forwarder

With its business units Global Forwarding and Freight, DHL is the Group’s air, ocean and road freight forwarder. Our services extend from standardised container transport to highly specialised end-to-end solutions for industrial projects, and solutions tailored to specific sectors. A team of approximately 42,000 employees around the world strives to continuously improve our services in order to meet our customers’ needs.

Our business model is very asset-light, as it is based on the brokerage of transport services between our customers and freight carriers. This allows us to consolidate shipments to achieve higher volumes, purchase cargo space at better conditions and optimise our network utilisation. Thanks to our global presence, we are able to offer a variety of routing options and meet our customers’ increasing demand for multimodal shipments.


The leader in a softer air freight market

The air freight market showed signs of weakness in 2012. Although volumes in the first half of the reporting year did not decline as much as in the second half of the previous year. According to IATA, the global airline industry association, worldwide freight tonne kilometres flown in 2012 dropped by 2.6% by the end of June. Airlines have responded to the lower demand by expanding overall capacity only slightly, by 0.83% (as at June 2012). Whilst passenger capacities were increased, freight capacities were decreased.

In its air freight business, DHL transports a significant share of the world’s technology and manufacturing products. Transport volumes vary by sector: the Technology sector saw a decline in the reporting year whilst the Engineering & Manufacturing and Automotive sectors experienced increases. Since we have an especially large share of air freight business in the Technology sector, our overall tonnage performance was slightly below the market average. Cost pressure drove some of our largest customers in particular to shift parts of their business from air to ocean freight, which is more economical for them. After transporting 2.44 million export freight tonnes in 2011, we remained the air freight market leader in 2012.

Air freight market, 2011: top 4

Ocean freight market on steady but moderate rise

The ocean freight market showed steady but moderate growth in the reporting year. However, the traditional peak season in the fourth quarter was nearly absent. Overall market growth was 1.9% (as at December 2012), DHL outperformed this with a growth rate of 4.2% (as at December 2012). The increase in ocean freight was mainly fuelled by intra-Asian and strong European exports, whilst volumes declined on the traditional Asia-Europe and Asia-North America trade lanes.

The decline in freight rates observed in the prior year came to an end in 2012. Ocean carriers made a series of general rate increases, which decreased the effective capacity in the market to the point that overall vessel use was high throughout the entire year. After transporting 2.72 million twenty-foot equivalent units in 2011, we remained the second largest provider of ocean freight services in 2012.

Ocean freight market, 2011: top 4

Road freight market growth slows

Driven by the challenging macroeconomic environment, growth in the European road freight market slowed over the course of 2012. The annual average was 0% to 2% (previous year: 3% to 5%). Whilst the market in Germany and other parts of Central Europe saw satisfactory growth developments, several Southern European countries recorded a decline. DHL’s Freight business unit continued to be one of the leading providers in the European market, with a share of 2.4% in 2011. Our revenue growth matched that of the overall market.

European road transport market, 2011: top 5

Revenue and Earnings Performance

Freight forwarding business grows profitably in weak market

The GLOBAL FORWARDING, FREIGHT division increased revenue in the reporting year by 3.6% to €15,666 million (previous year, adjusted: €15,118 million). This figure includes positive currency effects of €507 million. Revenue growth in the freight forwarding business was moderate throughout 2012. The market weakened noticeably and the economic environment remained uncertain. Our business grew profitably despite this.

In the Global Forwarding business unit, revenue increased by 4.6% in the reporting year to €11,604 million (previous year: €11,094 million). When adjusted for the positive currency effects of €467 million, we saw growth of 0.4%. Gross profit increased by 7.6% to €2,655 million (previous year: €2,468 million).

Our project New Forwarding Environment made encouraging progress.


Gross profits in air and ocean freight at good level

In the reporting year, revenue declined year-on-year in the air freight business and grew in the ocean freight business. Consequently, shipping volumes trended as follows: air freight was down and ocean freight was up. Overall, the margins and therefore gross profit were stabilised at a good level.

Air freight volumes decreased by 5.3% year-on-year, primarily on account of the decline in demand in the technology sector. The decline was slowed in the fourth quarter with the slight rise of freight rates, especially on freight lines from Asia. On the short-term spot market, options became available at times due to the continued availability of surplus capacities, which resulted from the relatively strong rise in passenger flight capacities compared with a relatively weak decline in air freight capacities. Revenue was down in the reporting year by 1.0% and in the fourth quarter by 2.7%. Gross profit improved by 2.9% in the reporting year.


Global Forwarding: revenue
€m
2011 2012 +/– % Q4 2011 Q4 2012 +/– %
Air freight 5,573 5,517 –1.0 1,436 1,397 –2.7
Ocean freight 3,544 3,738 5.5 895 921 2.9
Other 1,977 2,349 18.8 576 624 8.3
Total 11,094 11,604 4.6 2,907 2,942 1.2


Global Forwarding: volumes
thousands
2011 2012 +/– % Q4 2011 Q4 2012 +/– %
Air freight tonnes 4,378 4,147 –5.3 1,105 1,070 –3.2
of which exports tonnes 2,447 2,327 –4.9 624 606 –2.9
Ocean freight TEUs1 2,724 2,840 4.3 682 701 2.8
  1. 1 Twenty-foot equivalent units.


Volumes in our ocean freight business in 2012 were 4.3% higher than in the prior year. Whilst demand stagnated on the traditional east-west trade lanes, it rose on north-south and transcontinental routes, above all in Asia. A number of our suppliers put large, new ships into operation in the fourth quarter, which improved purchasing conditions in the market. Revenue and gross profit both grew by 5.5% in the reporting year.

Our industrial project business (in table A. 53 reported as part of Other) grew strongly in the reporting year. The share of revenue reported under Other related to the industrial project business increased to 38.7% (previous year: 35.6%). Gross profit also improved again.


Stable growth in overland transport business

The Freight business unit generated revenue of €4,192 million in 2012, exceeding the previous year’s adjusted figure of €4,162 million by 0.7%. This includes positive currency effects of €41 million. Excluding these effects, revenue was slightly below the previous year’s figure by 0.3%. Volumes declined primarily in Scandinavia and the Benelux countries. We generated higher revenue mainly in Germany and Eastern Europe. Business from Standard Forwarding in the United States represented 1.7% of the total revenue of the Freight business unit in the reporting year. We acquired this business in June 2011 to drive our overland transport business outside of the European core market. Despite persistent pressure on margins, gross profit was €1,155 million, which exceeded the prior-year figure by 6.0% (previous year, adjusted: €1,090 million).

Effective 1 January 2012, responsibility for our domestic less-than-truckload and part-truckload business in the Czech Republic was transferred from the EXPRESS division to Freight. The previous year’s segment reporting figures were adjusted accordingly.


EBIT increases due to high gross profit margins

EBIT in the division improved by 16.4% to €512 million (previous year, adjusted: €440 million) due to high gross profit margins and constantly increasing efficiency. Return on sales amounted to 3.3% (previous year: 2.9%).

Fourth-quarter earnings growth was even greater, increasing 27.7% to €166 million (previous year, adjusted: €130 million). Return on sales in the fourth quarter improved year-on-year from 3.3% to 4.2%.

Net working capital declined compared with the prior year as a result of improved receivables management. Operating cash flow was €647 million and therefore slightly below the adjusted prior-year figure of €670 million.

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