FRANKFURT, Germany -- Freight and mail giant Deutsche Post has entered a new phase of growth after its privatization 20 years ago, leading the industry once more by embracing cutting-edge technology.
Information technology is bringing the world closer and making communication easier, but the economy still needs goods moved, said Chief Executive Officer Frank Appel. The German company has been aggressive in adopting next-generation logistics such as electric vehicles and drones.
Focus on innovation
In late 2014, Deutsche Post acquired StreetScooter, an electric-vehicle startup affiliated with a well-known local engineering college in Aachen, near Germany's border with the Netherlands. StreetScooter has used a shuttered Bombardier plant to create its own electric vehicles and supply them to Deutsche Post and others.
Venturing into electric-vehicle development and production is highly unusual for a logistics company. But addressing environmental concerns is the most important issue facing the field, according to Deutsche Post, which is eyeing low-emission delivery.
The company is also expanding into drones, a battlefield for U.S. IT giants such as Amazon.com and Google. Deutsche Post has started testing drone delivery, planning to use it for shipping pharmaceuticals. It is also experimenting with augmented reality, linking digital information to real-world warehouse stock.
Deutsche Post is trying everything from wireless technology to smart keys, according to Appel.
E-commerce transactions account for 36% of Deutsche Post's postal sales, with Amazon a key client in this area. While the U.S. concern has plans to break into the drone delivery business, Appel is confident that his company can continue to lead the way in logistics even against competitors with radically different perspectives.
Germany's Industry 4.0 initiative aimed at further advancing its manufacturing sector through the Internet and information technology is in full swing. Logistics is a key part of this project, and Deutsche Post is participating in research and bringing its expertise overseas.
From post to freight
The company owes its financial might to the success of DHL International, the global brand it turned into a wholly owned subsidiary in 2002. Deutsche Post merged U.S. and European peers it had bought around 2000 into DHL and expanded its global network. It is investing in key Pacific air routes, including air freight hubs of its own in the U.S. and China. The company is working to undercut rivals UPS and FedEx in their U.S. stronghold.
Deutsche Post is racing to tap emerging markets as well. It is building specialized warehouses in India, where pharmaceutical quality control is growing more stringent, and setting up rail shipping between Europe and China through Russia. The company plans to raise its proportion of sales from emerging markets from just over 20% now to 30% by 2020.
With its shift in focus from postal services to global logistics, Deutsche Post has built an earnings structure that strikes a balance between postal services, international freight, third-party logistics and home delivery.
Just two CEOs have led Deutsche Post through the reforms since its 1995 privatization. Both hailed from U.S. consulting giant McKinsey. Appel went to Deutsche Post in 2000 and took over the top spot at the tender age of 46. Now 53, he is more than 25 years younger than Japan Post President Taizo Nishimuro.
While Deutsche Post's public funding has fallen to around 21%, it still faces problems rooted in its public-sector origins.
Unions still wield considerable influence in Germany, where the company has 200,000 staffers. Although Deutsche Post cut its payroll by half since becoming a private company, it cannot change its current workers' employment terms at one stroke, forcing it to maintain a costly wage structure. This is one reason why its operating profit margin is lower than those of rivals such as UPS.
As a step toward solving this problem, it announced in January it will form a new DHL delivery unit that will handle smaller shipments and offer lower pay. But opposition to this move has set off postal strikes. Relations between labor and management remain a source of risk.