DHL airfreight volumes decline as it turns away business to protect margins

Freight forwarder DHL Global Forwarding's decision to turn away airfreight business to protect profits in the first half of this year resulted in a decline in volumes.
The Bonn-headquartered forwarder recorded a 7.2% year-on-year decline in airfreight exports during the second quarter to 530,000 tonnes, while the half-year result was down by 3.6% to 1m tonnes.
Second-quarter airfreight revenues, meanwhile, increased by 3.1% against last year to €1.27bn and for the half year there was an increase of 7.3% to €2.39bn.
It said that the decline in volumes was the result of withdrawing from some major transactions in order to counteract a decrease in margins, while revenues benefited from exchange rate gains.
"Whilst the measures we implemented in the previous year to increase profitability are in fact showing success, margins are still low when compared with the historical average," it said.
Asked whether it would turn away further business in the remainder of the year, chief financial officer Larry Rosen said the decision on whether to "pass out further on loss making routes and customers" depended on market developments.
If the market improves there would be less need to "pass out" but if it worsens the need to be selective would continue.
Airfreight gross profit increased by 1.7% in the second quarter to €246m.
The overall division saw revenues increase by 5.7% in the first-half to €7.57bn. It said the majority of the increase was down to exchange rate gains of €367m.
The DHL forwarding division's earnings before interest and tax declined by more than 62% at the half year to €57m, which it put down to the cost of implementing a turnaround initiative and tough market conditions, although this was offset by the €99m generated by the sale of shares in Sinotrans.
The turnaround initiative has been divided into three parts: the first, which is complete, is to adjust organisational structures, re-empower countries, re-establish stronger accountability and re-enable staff and adjust incentives.
The second stage, which is being implemented at present, involves improving gross profit, improving cost
and service performance and developing a specific country focus.
The third stage will sharpen commercial focus, see investment in skills and capabilities through training and and the renewal of IT with a business-centric approach.
The cost of the turnaround project of €81m was more than offset by the €99m generated through the sale of the stake in Sinotrans.
Following the announcement of its first-quarter results, DHL parent Deutsche Post said it was suspending the forwarding division's transformation programme as its roll out was affecting business performance.
It reasoned that the project had been too ambitious and more attention should have been paid to the results of pilot projects.
DHL airfreight volume decline for the first-half period was the largest posted so far by the major European forwarders that publish figures, although its position as airfreight leader was unaffected as DHL is by far the largest in this sector.
In comparison, Kuehne+Nagel recorded half-year air volume growth of 5.2%, Panalpina was down at 2.1%, DB Schenker saw growth of 1.1% and DSV's half-year increase came in at 8.7%.

Source : http://www.aircargonews.net/news/forwarders/single-view/news/dhl-airfreight-volume-decline-as-it-turns-away-business-to-protect-margins.html

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European airports record growth in H1 2015, but only just

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European airports just managed to drag cargo volumes into positive growth for the first half of the year thanks to improved performance in June.
Figures from the Airports Council International (ACI) Europe show that freight volumes for the first half of the year increased by 0.5% against a year earlier.
The organisation was not too optimistic for the rest of the year.
ACI Europe director general Olivier Jankovec said: "For freight, the situation in Russia as well as slower growth in emerging markets is likely to keep constraining traffic performance."
The increase came as a result of an improvement in June when cargo volumes increased by 3% year on year.
June was the third month of the year to record an increase in volumes compared with the prior year, and it was also the highest increase recorded so far in 2015.

Source : http://www.aircargonews.net/news/airports/single-view/news/european-airports-record-growth-in-h1-2015-but-only-just.html 

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Swiss and Lufthansa to launch new cargo pricing structure

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Swiss WorldCargo and Lufthansa Cargo are to launch a two component pricing structure - a net rate plus airfreight surcharge – to reflect the "volatility of external cost factors".
A joint letter to customers states: “The new airfreight surcharge will be significantly lower compared to the combined fuel and security surcharges, which will be eliminated with the start of the winter flight schedule.
“As the surcharge level will be decreased, the change in the pricing structure will subsequently lead to a re-aligned and increased net rate that will reflect the real value of our service in an adequate way. Overall prices of transportation will remain at current levels.”
In countries that are subject to state regulation, such as Japan and Hong Kong, the airlines will retain the current surcharge structure.
Customers will be informed about the applicable airfreight surcharge levels in individual countries in a separate email.
The pricing structure is not an all-in rates offer, as first introduced by Emirates SkyCargo in January this year, a move that prompted several airlines, including Qatar Airlines and IAG Cargo, to introduce similar pricing structures.
The airfreight surcharge will be adjusted “whenever one of these external cost factors changes significantly and thus will display necessary price adjustments in a transparent way”.  
The airlines added: “This would not have been the case with an all-in rate, which we also investigated in detail. An all-in rate would have required a less transparent adjustment mechanism in the event of significant fluctuations in costs beyond our control.”
The letter is from SwissWorld Cargo’s Chief Cargo Officer, Oliver Evans, and Alexis von Hoensbroech, Lufthansa Cargo board member responsible for product and sales.
It continues: “Pricing structure has been the most dominating discussion in our industry in the recent past. Market developments have shown that we need to continue working on our pricing system in order to remain agile and sustainable in the future.
“We have been listening closely to you, our customers, who have been demanding a new and comprehensive pricing concept, to meet your needs and fulfill our own business requirements.”
The letter adds: “The new, market oriented airfreight surcharge reflects the volatility of external cost factors, such as fuel, exchange rates, flight dependent cost such as airport charges and fees, which are beyond our control.
“As in the past, we aim to be a straightforward business partner for you. The new re-aligned surcharge will allow us to largely avoid special processes such as negative rates and thereby shorten our transaction and response times to you."
It continues: “Our talks have shown that both reliable planning and flexibility are becoming increasingly important to you and your customers.
“For an insurance add-on, we will offer you the option of securing stable total rates for certain types of long-term contracts. We will also offer you more opportunities to sign long-term contracts with us whenever your or your customers’ needs arise for such contracts, and even when they extend beyond a single season.”

Source :  http://www.aircargonews.net/news/airlines/single-view/news/swiss-and-lufthansa-to-launch-new-cargo-pricing-structure.html

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Logistics sector losing the price war

 
A large section of the logistics sector is losing the battle to implement planned price increases, coupled with an extremely low success rate when introducing new products and services.
These are the results of the most recent Global Pricing Study*, based on responses from approximately 1,600 managers, conducted by the global strategy consulting firm Simon-Kucher & Partners.
According to the results, logistics firms succeed with only 40% of their planned price increases. And almost 80% of the companies are experiencing higher price pressure compared to last year.
Logistics providers blame these poor results on “fierce competition” and on customers having more negotiating power. As a result, the percentage of logistics companies that only compete on price is twice as high as in other industries.
Dimitris Hiotis, partner at the London office of Simon-Kucher, comments: “The intense competition in the market has led logistics companies to focus negotiations on price; thus self-fulfilling a prophecy of low prices, which further intensifies competition.
“However, focusing instead on value and differentiating the product offering accordingly will allow logistics companies to trade-off value versus price and get the right price for the right product to the right customer."
Hiotis adds: “When a logistics company clearly differentiates their services and products, customers are able to trade off the price they are willing to pay against the level of service they value. This can be a win-win situation for both the logistics company and the customer.” 
Blame is quickly placed on the competitors, although the inability to raise prices is generally self-inflicted, says Philipp Biermann, partner at the Cologne office of Simon-Kucher: "Logistics firms often lack confidence and negotiation tactics.
“They are frequently at the mercy of their customers' professional purchasing departments. Recognising the value of your services, developing a negotiation strategy and turning this into an implementable price - logistics managers must get this into their heads”
The combination of external pressure and low confidence in their own performance has caused almost two-thirds of the respondents, to “suffer from price wars” says Simon-Kucher.
All of them, however, say that it was the competition who started it.
Explains Kornelia Reifenberg, senior director at the Bonn office of Simon-Kucher: "The phenomenon that companies make concessions to their customers in the heat of the moment that they actually cannot justify is very widespread in the logistics industry.
“In the process, they often don't see the signals that their dumping prices give to the competition. They don't grasp that these 'isolated cases' ultimately have a negative impact on the market price level."
When it comes to launching new products and services, the logistics industry has also been struggling: Only 18% of all new products achieve their profit targets, which is the lowest rate ever recorded  - with a benchmark of 28% in other industries.
* Approximately 1,600 participants, of which 39% are C-levels, from companies of all industries and over 40 countries across Asia-Pacific, the Americas and Europe, took part in summer 2014 in an online study conducted by Simon-Kucher.

Source : http://www.aircargonews.net/news/forwarders/single-view/news/logistics-sector-losing-the-price-war.html  

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Brussels launches probe into FedEx’s proposed TNT takeover

The European Commission has opened an in-depth investigation into FedEx’s proposed $4.8bn takeover of TNT Express over concerns the deal could reduce competition and push up prices.
The Commission said it had concerns that on a number of European markets for international express and regular small package deliveries, the merged entity would face insufficient competitive constraints from the only two remaining players, UPS and DHL.
This could lead to higher prices for business customers and consumers, it said.
Both TNT and FedEx described the probe as a phase 2 review and said it was a customeray part of the Commission’s investigation process.
Commissioner Margrethe Vestager, in charge of competition policy said: "Many businesses, and in particular e-commerce, rely heavily on affordable and reliable small package delivery services, and many consumers depend on these services to ensure rapid and safe delivery of goods they have bought.
“The Commission must therefore make sure that FedEx's takeover of TNT would not impede effective competition and would not lead to higher prices for consumers.”
A preliminary investigation conducted by the Commission indicated that DHL and UPS would be the only significant competitive constraint on the merged entity for most international express services, with a destination within or outside the European Economic Area (EEA).
As the proposed transaction would reduce the number of integrators competing in the EEA from four to three, the competitive constraint on the merged entity would be significantly reduced, leading to a concentrated market in several member states for international express delivery services to a destination within or outside the EEA.
The Commission's initial investigation also showed that the merged entity would have very high market shares for services to some destinations leading to potential competition concerns.
The Commission now has 90 working days, until 8 December 2015, to investigate the proposed acquisition and to determine whether initial concerns are founded.
FedEx said the transaction is also being reviewed by other antitrust agencies, including the Ministry of Commerce (MOFCOM) in China and Conselho Administrativo de Defesa Econômica (CADE) in Brazil.
FedEx Express Europe president David Binks said: “We will continue to work together with TNT Express to meet the European Commission’s need for additional due diligence and are confident that the combination of both companies will increase competition and create benefits for customers.
“We continue to make progress on all of the necessary regulatory steps around the world that would allow us to complete this transaction in the first half of 2016 and unite two great teams that share a passion for customer service.”
TNT said it looked forward to the success of the intended acquisition.
“The company will continue to cooperate with FedEx and the European Commission with a view to a positive outcome,” it added. “During the transaction approval process, TNT remains focused on executing its Outlook transformation and turnaround strategy.”
FedEx had sought to assuage competition concerns by promising to sell the TNT air fleet of 54 freighter aircraft would be sold to a third party.
On announcing its half-year results, TNT said it expected the deal to be completed in the first half of next year.
The takeover of TNT is based on an all-cash offer by FedEx for all issued and outstanding ordinary shares, including shares represented by American Depositary Receipts of TNT Express for a cash offer price of €8.00 per share.
FedEx started the formal process to obtain merger control approval from the Commission by submitting the required filing to obtain regulatory clearance on June 26.

Source : http://www.aircargonews.net/news/airlines/express/single-view/news/brussels-launches-probe-into-fedexs-proposed-tnt-takeover.html

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