Competing against mail and parcel delivery group Deutsche Post DHL is tough. Just ask Hanjo Schneider, the head of Hermes, Germany’s second largest parcel courier.
German market leader Deutsche Post DHL, which competes with FedEx and United Parcel Service, can practically dictate the price ceiling for delivering packages in Germany, Mr. Schneider told Handelsblatt.
As a former mail monopolist, Deutsche Post DHL still runs the biggest door-to-door delivery network in Germany, giving it a competitive advantage: It can entrust hand delivery of 70 percent of packages to its own mail carriers, instead of sending out its parcel deliverers.
Deutsche Post, headquartered in Bonn, in 2002 bought parcel delivery firm DHL, which was founded in 1969 in San Francisco.
The German parcel delivery market has been in flux due to increased competition from foreign companies, and a new German minimum wage of €8.50 ($9.61) per hour.
U.S. express giant UPS, headquartered in Atlanta, Georgia, and DPD, which is owned by former French mail monopolist La Poste, are saturating Germany with parcel stations to facilitate business with private customers. Industry experts, however, consider it unlikely they are making a profit in this new market.
Deutsche Post DHL showed a return on revenue of 8.5 percent for its combined mail and courier business. Hermes had to make do with 2.6 percent.
Deutsche Post DHL, in which the German government still has a 21.4 percent stake, is trying to cut costs as many of its rivals offer a lower, average wage.
The company recently enraged trade union officials with a reduced wage offer for new parcel couriers. At almost €13 an hour, it would amount to a 15 to 35 percent cut.
Andrea Kocsi, the deputy head of Germany’s second largest trade union, Ver.di, called the offer “a social-political scandal of the highest order.”
But a spokesperson for Deutsche Post said it’s all about competition. “We cannot allow the wage difference to our competitors become too big,” said the spokesperson.
For a competitor such as Hermes, which is owned by German retail and services group Otto, wage costs are moving in the other direction. Thanks to a new minimum wage of €8.50, compulsory since January 1, many Hermes drivers have received a pay increase.
That only adds to the pressure on Hamburg-based Hermes. “We can’t pass on all the increased costs to our customers," Mr. Schneider told Handelsblatt. “The current competitive situation in Germany would not allow it.”
The uneven state of affairs is seen in the companies’ financial reports. The last results for Deutsche Post DHL showed a return on revenue of 8.5 percent for its combined mail and courier business. Hermes had to make do with 2.6 percent, despite the low wages it pays.
That the minimum wage is such a bone of contention for Hermes has to do with negative publicity in 2011, when reports surfaced about the precarious situation of delivery drivers. Part of Hermes’ packages are delivered by subcontractors, who in the past had used self-employed drivers. This practice has been banned since 2011, with only a few exceptions during the busy Christmas season.
“Since then we have our subcontractors checked by an independent auditing body,” said Mr. Schneider. The auditors put everything under the microscope, not just employment contracts, overtime records and maximum driving hours, but also wage payments.
“If subcontractors are found not to have transferred the prescribed minimum wage,” said Mr. Schneider, “those companies risk being held account.”
Delivery payments to subcontractors – often €1.30 to €1.40 per package – were raised accordingly. In addition, the company appointed an ombudsman, to whom drivers could turn in conflict situations.
Last business year, Hermes generated €34 million in operating profits, excluding deliveries for its parent company, Hamburg-based Otto Group.
According to a source at Hermes, this happened 40 times in 2014, and 15 of the complaints were either fully or partially justified.
Not all of Hermes’ 350 subcontractors, who employ a total of about 10,500 drivers, went along with the fundamental change in working practices.
“We replaced a fifth of them,” said the Hermes boss, Mr. Schneider.
Last business year, the company generated €34 million in operating profits, excluding deliveries for its parent company, Hamburg-based Otto Group. Results will hardly improve in the short term. A €300 million is earmarked for new package distribution centers to be built by 2017. The aim is to speed up delivery, which currently can take more than two days. The investments will initially have a negative effect on profits.
In the current business year Hermes has managed to keep revenue growth at last year’s level. That would come to a revenue increase of 8 percent to €2.25 billion, said Mr. Schneider. But he is not satisfied.
“To generate acceptable returns and be able to pay better wages for delivery,” he said, “we need on average €0.50 more per package.”
Christoph Schlautmann leads Handelsblatt’s reporting on the consumer goods industry. Gilbert Kreijger, an editor with Handelsblatt Global Edition, also contributed to this story. To contact the author: [email protected]