GTR speaks to John Pearson, the European chief executive of DHL Express, the courier delivery service of the German-owned logistics giant, to find out about the role it plays in international trade and the patterns he notices in trade development.
GTR: What role does a company like DHL play in international trade and how has that changed over the years?
Pearson: DHL Express, and the international express industry overall, play a very important role in international trade. While we probably don’t account for a huge proportion of the volume of trade that is carried around the world each day, we account for a significantly higher proportion of the value. We are able to connect well over 90% of world GDP within 48 hours and we play a critical role in the supply chain of many industries, such as technology and life sciences and healthcare, for example. In a 2011 survey of European businesses by Oxford Economics, 74% of businesses said that their international competitiveness would be harmed if international next-day delivery services were not available.
In terms of how our industry has changed over the years, perhaps the most fundamental change has been the shift from our original business of shipping documents to the parcels that now make up a big portion of the volumes we carry. Whereas at the outset, our activities were limited to carrying the bills of exchange, letters of credit and contracts that underpinned trade activity, we are today more directly involved in the international trade flows themselves. We now carry everything from industrial items, such as automotive spare parts and drill bits, to consumer goods such as the latest fashion accessories and smartphones.
GTR: The firm is in the midst of investing heavily in its automation capability – how can this serve to boost trade?
Pearson: DHL’s global network is made up of hubs and gateways, effectively shipment processing and customs clearance facilities, which are connected by our dedicated fleet of cargo aircraft and trucks. When a customer hands over a shipment in country A, it will invariably be carried through our network, via these hubs and gateways, before being routed and delivered to its destination in country B. Our “hub and spoke” system allows us to carry around a million express shipments every day in the most efficient and reliable way, ensuring that we can deliver the shortest possible delivery times.
Automation at our hubs allows us to reduce the time shipments spend transiting through our network and to connect them even more reliably to their end destination. Trade benefits from the improved connectivity and from the fact that businesses’ inventory is spending less time in transit and more time generating value for them.
GTR: The benefits of a hub may be clear for direct courier services etc, but what is the knock on effect which hubs such as those in East Midlands, Leipzig and Cincinnati have on trade in the regional area?
Pearson: Many companies we work with rely on the speed of express delivery to generate value for their product or service, for example through just-in-time supply chain models or enhanced service guarantees. A good example would be in Leipzig, where a number of our multinational customers have invested in operations in the region precisely to benefit from the quicker access to their customer base in the Emea region. IDEXX Laboratories, for example, is a global leader in animal health. They have based a central laboratory near Leipzig in order to achieve a competitive advantage: through quicker delivery of samples and analyses from veterinary clinics across Europe, they can offer a commitment to deliver diagnostic test results by 08:00 the day after arrival.
GTR: What overall trends are you noticing in global trade patterns? Where are you seeing the major opportunities for companies looking to increase their exports?
Pearson: We have seen an interesting phenomenon in recent years. Despite the economic slowdown that has hit most economies around the world, international trade has held up reasonably well. In some of the worst affected markets during the crisis, such as Southern Europe, we actually saw very healthy growth in shipment volumes.
The main reason for this has been that many companies, seeing demand stagnate within their own domestic economy, have decided to look for opportunities to grow abroad. Small businesses, in particular, are embracing international trade, thanks partly to the way in which the internet has given them potential access to a global customer base and transport connections have opened up new markets.
Where the opportunity lies depends on the product or service you’re offering and on the specific market and economic factors of each country, but we are seeing growth across a broad range of industries and countries. As just one example, Australia, thanks in part to its strong currency and its relatively high de minimis threshold for customs duties, has seen high demand for online retail products from as far away as the UK and US.
GTR: What impact do political issues such as trade sanctions have on your business?
Pearson: We aim to fully comply with sanctions whenever they apply to our business, and we have specialists who keep up to date on the latest developments and ensure that our business is prepared for any change. In the case of commodity specific sanctions (which are the case for more recent sanctions applied against Russia, for example), compliance is ultimately the responsibility of the shipper, although we monitor and review all restrictions to ensure that our own trade compliance programme protects our company and brand.
GTR: How exposed is the company to volatility in international trade? How can it protect itself against fluctuations?
Pearson: Our industry typically grows at 1.5 to 2 times the rate of international trade. We benefit from this during growth periods. At the same time, we are protected to some extent during downturns by the fact that demand for express services does not decline by the same multiple. The reason for this is that many companies look to reduce costs during economic crises through reducing their overall inventory or shifting to even slower modes of transport, such as ocean. In both of these cases, our industry benefits. Our quicker delivery times mean that companies can compress their order-to-delivery cycle, which in turns means that they need less buffer inventory to service spikes in demand. When they use slower modes of transport, they also turn to express more often when demand exceeds forecasts or urgent supplies or replacements are needed.
GTR: What is the future of DHL’s express delivery? Drones? Driverless cars? Google Glass?
Pearson: Our industry was in itself an innovation that expanded rapidly throughout the world in the 1970s and 80s. As all the main players have built up worldwide networks with air fleets and hubs, innovation in recent years has taken place at the margins. By that, I mean that small, incremental improvements, be that in reducing flight times between certain trade lanes by thirty minutes or even reducing the time each courier needs to spend with a customer by one minute, have had the greatest impact in providing a competitive advantage.
At the same time, in recent years, we have seen a number of technologies emerge that have the potential to disrupt our industry. Drones are a popular example, although we still don’t see the potential for mass application in the short-term within the international express industry. Deutsche Post DHL is currently testing drones, in particular to understand the potential benefits for emergency or remote deliveries, for example. Driverless cars are also interesting, as are other technologies, such as augmented reality, 3D printing, radio frequency identification and even developments within the internet and social media. While the battleground for our industry in the near future will remain in the domain of our international networks of planes, hubs, trucks, IT systems and people, we are keeping a very close eye on all these technologies and remain open-minded about adopting anything that will fundamentally improve our customers’ ability to trade internationally.