Frank Appel, the chief executive of Deutsche Post, puts a brave face on the attack his company faces from U.S. retail giant Amazon.
“It’s a challenge and it also awakens our sporting ambition,” he recently said when asked about Amazon’s plan to compete directly with Deutsche Post's DHL express freight business by delivering its own parcels in Germany.
Mr. Appel told Handelsblatt that freight forwarding was a demanding business. That’s not deterring Amazon, though, which has launched a pilot project in Munich and has already taken nearly a third of Deutsche Post’s market share in the Bavarian capital.
So far, Amazon is using 240 delivery vans operated by six sub-contractors in Munich. It will expand the service and even offer it to retailers who don’t sell on Amazon.
“We know we’re very good at logistics,” Amazon’s European head of logistics, Roy Perticucci, told Handelsblatt. “Why shouldn’t we turn that into an infrastructure offer that others can use?”
Mr. Perticucci, speaking to Handelsblatt from Amazon’s European headquarters in Luxembourg, said Amazon’s project in Munich aimed to create extra delivery capacity, not replace DHL. Asked whether Amazon wanted to take over express delivery for itself in future, he said: “No, DHL in particular has invested a lot in Germany. We need such partners who go along with us.”
But Bernd Schwenger, director of Amazon logistics for Germany, told Deutsche Verkehrs-Zeitung, a transport industry publication, that the U.S. group will expand its delivery service. “At first, we’ll go to other urban centers and set up distribution centers close to the cities,” he said.
“We know we’re very good at logistics,” Amazon’s European head of logistics, Roy Perticucci, told Handelsblatt. “Why shouldn’t we turn that into an infrastructure offer that others can use?” Roy Perticucci,, Amazon’s European head of logistics
If Amazon expands its own delivery service in Germany, Deutsche Post is likely to lose some of the nearly 50 percent market share in its home market. Currently, almost 1 in 7 of the 1.15 billion parcels delivered to German households each year were dispatched from Amazon, most of them delivered by DHL.
On Wednesday, Deutsche Post released financial results that suggested it was building momentum to handle the challenge from its U.S. rival. Deutsche Post said net profit rose 4.9 percent in the fourth quarter to €670 million ($738 million) from €640 million. Profit for the full-year in 2015 fell by 26 percent to €1.54 billion from €2.07 billion in 2014.
Deutsche Post cut its profit forecast twice last year amid ongoing strikes and the costs of a botched software upgrade at its freight-forwarding business.
The company on Wednesday held its dividend unchanged at 85 euro cents per share. Mr. Appel, in a statement, said the costs incurred in 2015 were exceptional and would not surface again this year.
"The non-recurring effects which were a setback for us in 2015 will not be repeated,'' Mr. Appel said in the statement.
But the Amazon effect on Deutsche Post's business, which is growing, is not likely to go away. Deutsche Post's sales rose 4.6 percent to €59.2 billion in 2015 from a year earlier, and fell 0.2 percent in the fourth quarter to €15.3 billion from a year earlier.
Amazon’s activities in Britain should serve as a warning to the Deutsche Post chief executive. After Amazon launched a similar venture in Britain in 2014, the Royal Mail was forced to halve its growth forecast.
Insiders said Deutsche Post’s supervisory board is studying Amazon’s expansion plans very closely. For now, Germany's package delivery market leader is confident it can hold off the challenge. But it would be dangerous to underestimate Amazon.
The competition is spurring Deutsche Post to invest in more self-service, automated parcel stations — where DHL parcels can be deposited for delivery or be picked up 24 hours a day. In Berlin alone, the company plans to more than double the number of package stations to 500 by the end of this year. It’s even testing locating stations near dense residential areas in Berlin and Dortmund.
There are persistent rumors Amazon wants to set up its own rival machines. Bavarian newspaper Süddeutsche Zeitung recently reported that Amazon planned to set up a network of them across Europe, starting in Germany and France.
There’s no doubt that Amazon has the resources to invest heavily in new delivery systems.
The competition is spurring Deutsche Post to invest in more self-service, automated parcel stations. But there are persistent rumors that Amazon wants to set up its own rival sites too.
The company even appears bent on beating Deutsche Post’s delivery times.
Logistics consultant Horst Manner-Romberg said the Americans were in talks with courier services in Berlin and Hamburg to arrange delivery within 90 minutes of a good being ordered. There was no confirmation from Amazon.
But the U.S. company launched such a similar service in Manhattan last year. Amazon's “Prime Now” offer delivers a parcel in just an hour — for an extra $7.99. Delivery within two hours is free of charge for Amazon “Prime” customers who pay an annual fee.
Amazon offers parcel delivery even for retailers that don’t sell on the Amazon platform, which should be particularly worrying for firms like DHL. Amazon Chief Executive Jeff Bezos has expanded courier services to U.S. cities including Miami, Baltimore and Chicago, as well as London since 2015 and most recently Milan.
In Britain, Amazon cooperates with 45 courier firms that on some days deliver half of all its parcels. Fresh groceries were recently added to the range.
The group may even expand its global delivery processes, according to Bloomberg. The agency recently reported that Amazon has a project named “Dragon Boat” to fetch products straight from the producers on behalf of the retailers on its market platform.
At present, logistics companies fulfill this service, and the market leader here is Deutsche Post. A further assault by Amazon would hurt its DHL unit, which is in the middle of a restructuring after the introduction of a uniform IT system failed 18 months ago.
With Amazon’s onslaught on the horizon, Deutsche Post is looking for other ways of keeping its shareholders happy. The company this week announced a €1 billion share buyback program that drove up the share price by over 6 percent.
But Amazon isn’t confining itself to conventional delivery. Mr. Perticucci, its European logistics chief, said the company plans to use drones to send out its parcels one day, once aviation regulations permit it.
“It could play a role in the suburbs especially, where people have gardens,” he told Handelsblatt.
He also mentioned Amazon would increasingly use robots in its warehouses. “The robots have huge advantages. One doesn’t need fixed aisles so we can store more goods in the same area," he said. "In addition, it usually takes a few hours to prepare an order for dispatch. Now we’re talking about minutes. But the robots aren’t suitable for all goods at the moment, if goods are a bit bulky or oddly shaped, they reach their limits.”
Jens Koenen, Sigfried Hofmann and Christoph Schlautmann are editors at Handelsblatt who cover Deutsche Post and the European transport and logistics industries, among other sectors. To reach the authors: [email protected], [email protected] and [email protected]