DHL to expand freight hubs in Asia

Date Posted: 2012-07-21

HONG KONG--The freight-forwarding division of Deutsche Post AG unit DHL plans to set up its fourth operations hub in Asia this year as the global freight firm banks on hopes that demand for trade within Asia will continue to be a key growth engine amid the slowdown in Europe and the U.S.

Recent industry changes have hurt companies with major express delivery operations as many customers have opted for slower-moving, non-premium delivery services in the soft global economy. Illustrating the trend, volume for rival FedEx Corp.'s international-priority-airfreight business, declined 3% in the company's fourth quarter that ended May 31, after falling 1% in the fiscal third quarter.

However, Deutsche Post DHL's express division remained solid on the back of strong volume growth in Asia and America, posting revenue of EUR3.02 billion for the first quarter ended March, up 9.8% from a year earlier. Earnings before interest and taxes rose 7.9% to EUR231 million during the period.

While Deutsche Post DHL has a sizable express division, its global freight forwarding business, which includes ocean and air freight operations, has been its biggest revenue contributor, accounting for around 29% of the company's total revenue last year.

DHL's major investments in Asia have also given it a competitive advantage over its rivals, giving it a more extensive intra-Asia business than FedEx and United Parcel Service Inc., both of which are more focused on longer-haul routes from region to Europe and North America.

"Intra-Asia trade is a big portion of our business portfolio and we've been riding on this growth over the years and it'll continue to be an important area of our growth," Kelvin Leung, Asia-Pacific chief executive at DHL Global Forwarding, told Dow Jones Newswires in a recent interview. Shipments within Asia account for more than a third of the total volumes that DHL Global Forwarding handles in the Asia-Pacific region, he said.

Mr. Leung said that the German mail and logistic giant will soon inaugurate a new operations hub in Asia, adding to its existing centers in Hong Kong, Singapore, and Colombo, as part of efforts to further reduce transit times and save costs by bundling shipments from customers in various Asian markets before exporting them to the rest of the world.

However, he declined to give more details of the planned investment. DHL Global Forwarding currently has a total of seven such operation hubs around the globe including Antwerp, Koper, Bremen and New York.

Mr. Leung said the company is also considering further freight forwarding investment opportunities in Asia, including the development of Qianhai Bay, a 15-square-kilometer development area in the Chinese city of Shenzhen. "We're in discussion with all the parties involved in the development of the Qianhai Bay and we'll keep a very close eye on it," he said, without elaborating.

A key part of DHL's business in Asia is to ship manufactured goods, such as smartphones and computers, to end users in the region and around the globe. While Mr. Leung declined to comment on specific clients, he expects shipments in segments such as infrastructure-related equipments and machinery, as well as pharmaceutical and life sciences products to continue to remain strong in the second half.

Mr. Leung said trade within Asia remains relatively resilient, despite a slower growth rate in some of the key markets such as China, India and Brazil. He notes emerging markets such as Indonesia, the Philippines as well as Vietnam will likely continue to record double-digit growth in shipments in the second half.

Still, revenue at DHL freight forwarding's business rose just 2.4% in the first quarter, weighed by lower air freight volumes despite improvement in ocean shipping margins.

For the second half, Mr. Leung said he expects sea freight rates to stabilize following a series of rate hikes by container shippers since the start of 2012. He also noted that the air freight market will likely see some improvement in the second half because of a low comparison base a year earlier.

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