August 6, 2024 • 41 mins
Increased penetration of online retail sales and global economic growth set up a strong backdrop for long-term volume growth for DHL’s eCommerce division, which provides domestic parcel-delivery services. In this episode of Bloomberg Intelligence’s Talking Transports podcast, Pablo Ciano, DHL Group’s board member and the eCommerce’s division CEO, joins Lee Klaskow, BI senior transportation and logistics analyst, to talk about how his organization will outpace global growth by 100-200 bps and its plans to improve operating margins back toward 5-7%. Ciano also discusses the upcoming peak season, consumer sentiment, M&A and how technology investments are fueling productivity gains. The eCommerce division accounts for about 8% of DHL Group’s revenue and 5% of Ebit.
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Episode Transcript
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Speaker 1 (00:07):
Hi everyone, and welcome to Bloomberg Intelligence Talking Transports Podcast.
I'm your host, Lee Klasgaw, senior Freight, transportation and logistics
analysts at Bloomberg Intelligence. Bloomberg in house research of almost
five hundred analysts and strategists before diving in a little
public service announcement, and your support is instrumental to keep
bringing great guests onto the podcast like the one we
(00:29):
have today. If you haven't already, please do take a
moment to follow, rate and share the Talking Transports Podcast.
We appreciate your support. I'm very excited to have Pablo Siano,
a member of DHL Group's board and CEO of DHL
e Commerce, roles he's held since twenty twenty two. Pablo
(00:49):
joined DHL in two thousand and five after several management
roles within DHL Express in the US until moving to
the group's headquarters in Bond, Germany, where he supported the
corporate board and top management and shaping the strategic agenda
of the company. He holds a Masters of Business Administration
from Darden Business School at the University of Virginia. So
(01:11):
I guess go Cavaliers. So welcome to the podcast. Pablo,
how are you doing today.
Speaker 2 (01:16):
Hi, Lee, how are you doing? Great? And thank you
very much for having me.
Speaker 1 (01:20):
Here, very welcome. Actually saw your Cavaliers loss to the
University of Maryland a couple of months ago. I was
I went to the I guess the final four of
the Lacrosse Championship NCAA Cross Lacrosse Championship was a pretty
exciting game to be part of.
Speaker 2 (01:38):
Yeah, yah, big school. I don't follow it, to be honest,
we do that closely.
Speaker 3 (01:41):
I have been more I have been bs here with
following Argentina, my home country, at the Copa America and
other sports. But yeah, UVA and Darden always very.
Speaker 2 (01:52):
Close to my heart.
Speaker 1 (01:54):
All right, great, and I'm sure you've also been a
little busy this morning because d DHL came out with
their earnings. Can you talk about how you know your
division did e commerce? And I guess before we even
get into that, can you talk to a little about
what actually does DHL e Commerce do?
Speaker 2 (02:13):
Absolutely so.
Speaker 3 (02:15):
DHL e Commerce is one of the five DHL Group divisions.
We are the newest. We were forming twenty nineteen by
putting together all the domestic parcel delivery assets that we
had in the company. So today we are fifteen countries,
(02:36):
mainly Europe, India and the US. We deliver one point
six billion shipments per year last year to give you
rough numbers, high level numbers, six point five billion in revenue,
forty five thousand employees direct employed and another forty thousand subcontracted.
Speaker 2 (02:57):
And we specialize in.
Speaker 3 (02:59):
Parts of the livery across those regions, mainly focusing on
e commerce. Seventy five percent of our volume is B
two CE e commerce related and ninety percent of our
growth is driven by e commerce.
Speaker 2 (03:14):
Very important.
Speaker 3 (03:15):
If I may here to clarify that e commerce logistics
is a core part of all our business units. So
a little bit of our name the HLD e Commerce
could be a little bit confusing, but we do e
commerce logistics across all our divisions. We happen to specialize
exclusively mainly in e commerce and the majority of our
(03:38):
growth is coming from logistics and parcel delivery for e commerce.
Speaker 1 (03:43):
And so the regions that you're operating in, is it
just a ground network or do you operate the ground
and air network as well?
Speaker 3 (03:50):
The majority is ground, although in India in particular, we
do have a ground and air in India we have
a in air network domestic air networks with eight seven
three sevens and we have a very leading position in
anything that is air cargo domestic. The rest is mainly
(04:11):
ground and is mainly domestic services. We do some cross
border but it's still also ground within Europe.
Speaker 1 (04:19):
And then do you guys participate in just a delivery
aspector do you do for filment services as well delivery aspects?
Speaker 3 (04:28):
Only one of our the other business units, DHL Supply Chain,
specializes in fulfillment, so we only do parcel delivery for
businesses and consumers and is mainly ground networks in the
countries where we have these type of assets.
Speaker 1 (04:46):
And then one of the three largest geographic markets that
DHL e Commerce is currently in, it's.
Speaker 3 (04:53):
Mainly in Europe, India and the US. Within Europe, main
markets are Benelux, Netherlands in particular, Poland and the UK.
Speaker 1 (05:04):
Gotcha all right? So would the US market be the
biggest country market or would it be India?
Speaker 2 (05:11):
The US is the biggest one.
Speaker 3 (05:12):
In the US, we have a very interesting value proposition
which is that all our last mile is done through
the USPS, so we do the first mile, we do
the middle miles, so we sort across our nineteen sorting
centers within the US, and we inject downstream into the USPS.
(05:33):
We're doing roughly five hundred millionshipments per year in the US.
We are one of the largest partners of the USPS
in terms of injection into the delivery network, and we
have a great partnership with them, But we don't do
our last mile. Delivery in the US mainly is only
done through the USPS.
Speaker 1 (05:52):
And is that a model that's different than other regions
that you're operating.
Speaker 3 (05:57):
Yes, in Europe in the eight countries where we have
our own part of delivery networks domestic in Europe we
do it all end to end, including of course verst mile,
middle mile and last mile.
Speaker 2 (06:09):
In India we do the same.
Speaker 3 (06:12):
We have some partnerships in some other countries where we
replicate the same model as the USPS, so for example
in Italy and in France and in Eastern Europe we
also rely on last mile the livery partners such as
for example we rely in the US with the USPS.
Speaker 1 (06:31):
A right, great, And I guess you know because you
mentioned DHL Group does e commerce services across all divisions,
so what's the I guess the is there what's the
main difference between e commerce segment and the express segment,
which is one of the largest segments in the DHL portfolio.
Speaker 3 (06:52):
Excellent, and I love this question because it allows me
to explain a little bit the similarities of the two
focus segments afford the two business units. So Express is
mainly what we call TDI, so time definite International. They
operate in two hundred and twenty countries, They move end
to end within their closed network, they move shipments and
(07:13):
parts around the world. Put things in perspective, this segment,
with the three main integrators, which is of course the
HL Group, FedEx and UPS, they manage one percent of
the total cross border volume in the world.
Speaker 2 (07:28):
So it's a very very niche.
Speaker 3 (07:30):
If you think about this as a pyramid, or the
top of the pyramid is the one percent overall market
volume and is time definite International. The rest is all
done through a combination of postal operators or air freight
cargo that is injected into last mile delivery providers, and
(07:51):
that's where we operate. We operate in the remaining ninety
nine percent of the global cross border segment where we
use what we call a very hybrid and flexible network
where we utilize our own assets when we have those
assets to deliver last mile, or we rely on partners.
(08:12):
And for example, in Europe we have eight countries where
we do las might delivery with our own assets. All
the remaining fifteen countries in the European Union we rely
on third party partners like Post Italiana in Italy in Italy,
or Chronopoles and some other partners in France, or Austrian
(08:35):
Post in Eastern Europe. So that's the main difference. Express
is mainly a close network, time definite, super fast efficient.
Price point there is much higher and is driven also
by a lot of B two be heavier shipments. We
specialize in more of a hybrid network, lighter volumes, and
it's more it's not as fast from a delivery perspective
(08:58):
compared to Express at the price is much The price
point is much lower than that of Express.
Speaker 1 (09:05):
Are you able to talk about who some of your
major customers are around the world.
Speaker 3 (09:09):
Sure. We operate with all major multinationals, mainly in the
online e commerce segments. So we do business with of
course Amazon, Chiniao, Ali, Baba, Temu Shin to name some
of the most well known names, Bad trendy Old in
(09:30):
Turkey and Aleeboro in Poland. So all the major marketplaces
that you can think about sealando and also all the
direct to consumer brands right so from Nike, Adidas, Victoria's Secret.
Speaker 2 (09:43):
Here in the US and many other customers.
Speaker 3 (09:46):
So we have a pretty broad portfolio of multinational companies,
marketplaces and direct to consumer brands.
Speaker 1 (09:55):
And your major competitors are the other integrated logistic providers
like a FedEx or UP, yes, or Emato or I
guess the local post office, is that correct?
Speaker 2 (10:04):
Yes?
Speaker 3 (10:05):
I think that the competition varies geographically a little bit.
So in Europe we compete a lot against geopost and GLS.
We compete also there are many local players for less
man delivery, so Inland in Poland we compete with against Impost,
in Netherlands against Post and L and of course FedEx
(10:27):
and UPS are in general press and in most of
the markets, although they specialize as you know, more on
the domestic US and also competes more with GTEL Express.
Speaker 2 (10:36):
On the time definite international type of segment.
Speaker 1 (10:40):
So we answer me that, so I order a suit online,
it comes from China, it's it's delivered by DHL I
won't name the retailer I buy my suits from, but
like this is a true story. And so the soup
gets to the United States once against the United States,
does e Commerce then take it from Express? Or is
Express doing the final delivery? How is there a handoff?
(11:03):
Is that how it works?
Speaker 3 (11:05):
Not really in that case that you are describing, very likely,
because you might have ordered with an expected delivery day
that is fast, so you might want to have it fast.
And the purchase price of your suits, assuming that you
are paying a reasonable amount of money for a good
quality of suit, that might be more suitable for the
(11:26):
typic that Express delivery and will be delivered end to
end by Express. It will be picked up and I
don't know if you bought it in London or in
Hong Kong or somewhere, but it will be picked up
at origin fly with d HL planes, cleared in the
DHL Express in the US, and delivered with a DHL
courier to your door. In the case of the HD Commerce,
(11:50):
usually we operate in a more deferred type of cross
border delivery and is a smaller type of parcels with
a lower tick price.
Speaker 1 (12:01):
Right in, my suits are slightly more than ten dollars.
Speaker 2 (12:04):
A piece exactly. That's what I assume.
Speaker 1 (12:08):
So, you know, when we kicked off the conversation, I
mentioned that you guys just reported or DHL just reported earnings.
Could you talk specifically about, you know, how e commerce
segment did quarter?
Speaker 3 (12:22):
Yeah, absolutely, so our numbers were in line with expectations.
We had a pretty good growth on the top line
ten percent plus. That is mainly driven by a little
bit of inorganic a recent acquisition in December last year
of MMG Cargo in Turkey, so there is some inorganic
(12:44):
upside there, including the own numbers. But then the remaining
portfolios is still growing from a top line perspective pretty well.
On bottom line, we are continuously seeing the current trend
on margins that.
Speaker 2 (12:59):
Are around the four percent. This is in line with expectations.
We are going through an ongoing phase of investment and
which is impacting our y bit overall.
Speaker 3 (13:13):
But also we are seeing a readjustment of demand and
supply after you know, the incredible times of COVID and
a little bit of investment across the entire industry. We
are not seeing yet a complete balance between the man
and supply. We see more supply than the man, and
that's why that is putting pressure into eels and margins.
(13:35):
But it was in line with expectations. We have always
said that that that was going to be our number.
We see twenty twenty four five still in this more
or less range of still margin pressure, moving towards margin
expansion twenty six onwards.
Speaker 1 (13:55):
And do you guys have out there, like a long
term margin kind of target or a range we'd like
to be because as you mentioned, you're around four percent.
That was one hundred and twenty basis point declined from
from the previous year, So obviously I'm assuming you're not
happy with where margins are. Do you guys have a
target out there?
Speaker 3 (14:16):
We do have a target, and it's in the in
the range of five to seven percent. We have been
there before during the pandemic times. Those were very extraordinary times.
We have half of our countries already performing at that level,
so the entire focus is on optimizing the other half
(14:37):
that is not there yet and it's a matter of
time in terms of just optimizing the operations networks. As
I was saying, we have been investing heavily in most
of the countries, so we have not seen yet the
benefits of those network expansions and optimizations. So we do
see that in twenty six onwards we're going to be
(15:00):
going back to the levels that we are talking about
around you know, five to seven in general, like growthen
type portfolio.
Speaker 1 (15:09):
As a segment. The scale matter because you're obviously you're
operating in all these different countries, and I'm assuming each
country has its own kind of insular network, so I'm
assuming it's very easy for DHL to decide, oh, we
don't want to be in this region, we're going to
maybe sell it off, or oh we want to be
in this region, we're going to go grow through acquisition.
(15:31):
Is that fair to sect?
Speaker 2 (15:33):
Fair to say? Absolutely fair?
Speaker 3 (15:35):
So, first of all, yes, a scale matters in the
markets where we operate, in particular e commerce and domestic
parcel delivery, sixty to seventy five percent of the cost
is the delivery cost itself. So just to compare with Express,
where the majority of the cost maybe is in the
global air networks, in lest my delivery part of delivery
(15:58):
domestic is more in the last my delivery itself. So
scale matters because of course higher density brings.
Speaker 1 (16:07):
Lower cost per stop.
Speaker 3 (16:09):
Because of course you have each of the delivery routes
delivering more packages and therefore the cost per piece has
a very nice improvement.
Speaker 2 (16:18):
We are seeing that in many of the countries.
Speaker 3 (16:21):
Where we are seeing this scale which is helping us
optimize what delivery costs.
Speaker 2 (16:26):
So question number one, Yes, scale matters.
Speaker 3 (16:29):
And because we are so heavily relying on e commerce
and so much focused on e commerce, we see that
the overall growth is going of the commerce market as
it is growing today, is going to help us achieve
those economs, economies of scale and unit economics. And then,
of course the strategy to your second part of the question.
(16:49):
The strategy varies by country. It varies in the combination
of what is the competitive landscape in the country, what
is our own position in the country, what is the complexities.
Speaker 2 (17:03):
And the barriers to entry.
Speaker 3 (17:05):
So, for example, Turkey, it's a very interesting country, eighty
five million people, high internet population. That is a complicated
country to serve because it is a large country if
you compare to Singapore or Hong Kong.
Speaker 2 (17:18):
Or Costa Rica.
Speaker 3 (17:20):
And therefore in that case, the strategy for Turkey would
be different to when we are making decisions in smaller
countries like Czech Republic for example.
Speaker 1 (17:31):
Gotcha, So, you know, you talk about e commerce growth
as an industry. What are your expectations for e commerce growth?
Do you expect your division to grow with that growth?
Do you expect to outpace that growth? And we're talking
organically here, if you can just talk about that aspect
(17:52):
and then you know, just while I'm babbling here, can
you also talk about you know, your m and a
strategy for growth.
Speaker 3 (18:02):
Absolutely, so, e commerce logistics in general is going to
continue being a significant source of growth for the entire industry.
We are seeing that the e commerce penetration as a
percentage of retail will continue to grow, and it will
be growing depending on the market and on the segment,
between five to ten percent, so above GDP and above
(18:25):
the overall logistics industry, and we are sitting at the
center of that type of trend. We are planning to
grow and we are aiming at growing faster than the
market between one to two points. And again that varies
by region, by country, and by segment. But in general,
we are seeing and to your question, this is organic.
(18:49):
I'm seeing that we are being able to grow in
those markets where we have a good competitive position faster
than the market. So we have that expectation and that
ambition and from an M and A perspective, yes, our
strategy is not only optimizing our organic performance, in particular
(19:11):
in those countries were not yet at the level that
we want to be from a margin and growth perspective,
but also relies on inorganic we have been We acquired
this company MG Cargo in Turkey in the summer last year,
which has been a great addition to our team. We
had a presence DHL Group had a presence in Turkey
for many many years, but we didn't have a domestic
(19:34):
delivery company delivery parcels within Turkey and this company that
we acquired allowed us to do so. I don't know
if you have maybe you have been written the news
in the UK. We were competing until very recently, actually
Thursday last week for the acquisition of every which is
one of the largest part of delivery companies in the UK.
(19:55):
Unfortunately we lost that want to apollow private equity, which
I'm still you know, that still hurts a little bit,
but it was a great journey, great journey and you know,
kudos to Apollo and of course we will continue monitoring
that market. Very closely, So yes to your question about AMNA,
(20:16):
whenever we see the strategic advantage of growing through.
Speaker 1 (20:21):
Acquisition, we will do.
Speaker 2 (20:22):
So.
Speaker 3 (20:23):
We have a very clear target of countries and companies
that we are closely looking into, which, as you might imagine,
I cannot reveal the details.
Speaker 4 (20:32):
Come on, this just does it's a it's a big
part of our strategy as well.
Speaker 1 (20:37):
All right, And I just want to make be clear
that I heard you. So you you guys are expecting
e commerce the market to grow five to ten percent
a year and DHL e commerce expected to grow one
hundred to two hundred basis points over that. Yeah, yeah, okay, great.
That's from a volume standpoint, not a sales or revenue standpoint.
Speaker 3 (21:00):
Uh, that would be more from a from a volume
perspective yield Yeah yeah, yeah, yield.
Speaker 2 (21:06):
Yield will be depending on the market conditions, competitive landscape
and each country.
Speaker 3 (21:11):
But from a volume perspective, we're expecting to grow a
little bit faster than the market.
Speaker 1 (21:16):
Yeah okay, I do want to touch upon your yield strategy,
but before we do that, you know, just to continue
on the conversation of M and A, are there certain
markets outside of the UK that are that are attractive
markets for d h L that you're currently not operating in.
Speaker 2 (21:35):
That's a very good question.
Speaker 3 (21:38):
Probably our shorter term MITERM focus will be and is
more on strengthening the position in the markets where we
are operating today, and that's why most of our short
term and M and A activity and exploration is in Europe,
(21:58):
in particular Eastream Europe and India, where we do have
a fantastic position there, but we want to even strengthen
it further additional countries to their portfolio. Maybe it will
probably be in the geography of Europe to begin with,
but we don't rule out potentially mid term, longer term
(22:22):
something around Middle East and Latin America.
Speaker 1 (22:26):
Right, all right, let's let's talk about pricing because obviously
pricing is very important. We're in a high inflation environment,
so you guys need to increase those prices to you know,
support ROI so you can reinvest in the business. What
is your how do you guys go to market with pricing?
You know, do you do gris that you you know,
(22:47):
kind of discount? How does pricing work for DHL e commerce?
Speaker 3 (22:53):
Yeah, so yes, we do a gri I of course
it depends market by market in terms of the intense
city of that gri I, But we do GRI as
a discipline process for adjusting our rates based based on inflation.
We also provide value added services to our customers.
Speaker 1 (23:14):
Customers can have a multiple and a.
Speaker 3 (23:18):
Variety of different services that they can buy from us
in terms of special pickups or oversize shipments, or certain
features and functionalities, so that we include that into of
course ongoing pricing and yield management, and then it varies
a little bit market by market to some extent, Right,
(23:38):
how how do we approach the yield discipline? In some
markets where we are growing and gaining market share, we
are a little bit more aggressive on our pricing. Clear
example to name one is our for example Czech Republic,
where we do have a very high market share on
(24:00):
doorstep delivery, but we want to grow faster on what
we call the out of home locker delivery into lockers
or deliver into parser shops, and that's where we are
a little bit more aggressive on a pricing perspective. But
pricing is you know, managing one point six billionships per year.
Anything that we can find tune in that sense from
(24:22):
a pricing perspective is absolutely.
Speaker 2 (24:26):
Critical and that's why we have elevated in the last
two years. I I've taken a lot of focus on
elevating the pricing function within each country. In the past,
it was something that we were not putting too much
focus and it was, you know, the pricing function hidden too.
Speaker 3 (24:41):
Many layers below the country manager. Today, in every single country,
we have the pricing head reporting directly to the country
manager and that's why, you know, we are elevating and
improving the way that we are dealing with pricing.
Speaker 1 (24:55):
Okay, so on the call, the earning is called the
hl's earnings called today, they mentioned, you know, a search charge,
a demand search charge that they're implementing in September. Is
that just for express or is that for DHL e
commerce as well?
Speaker 2 (25:12):
And it is?
Speaker 1 (25:12):
Can you just talk about what that search charge is?
Speaker 3 (25:15):
Sure it will also be for DHL e commerce as well.
It will be selective by countries. Some countries we might
do it in some others we might not.
Speaker 2 (25:23):
But in general, yes, anywhere we can. We are looking
into that.
Speaker 3 (25:28):
And I think what is important is to understand the
background of that because in particular in e commerce, in
deliveries to consumers. We are seen that the fluctuation between
the average volume and the peak weeks or even months
of a peak volume varies by one hundred percent. So
(25:48):
for example, we are seen in Netherlands that we are
delivering seven hundred and fifty thousand simbas.
Speaker 2 (25:55):
Per day on average on a normal week.
Speaker 3 (25:58):
But then when retailers marketplaces do promotions, we can see
that number going up to one point five million, two million.
So it's a trade off between providing good service quality,
satisfying the needs of the merchants, allowing them to have
these promotions, but doing it in a cost effective way.
We cannot have of course, as everyone might understand, we
(26:21):
cannot have delivery couriers and employees in our certain centers
just seeting there waiting for a few weeks of peak,
and that recruiting all of those that capacity requires of
course extra costs, and that's why we believe that it's
fair to have some type of searchers that will allow
us to satisfy the need of the merchants, provide good
(26:44):
service quality to the consumers, but also do that in
a customer in an investor friendly way.
Speaker 2 (26:51):
So long answer to your question, but I thought it
was a good.
Speaker 3 (26:53):
Good to share that in particular ecommerce, we see massive
fluctuations and the reason for the peak church is because
of the valsing cost and service quality. And yes, we
will do in most of our countries e commerce. We
will do a big search charge, gotcha.
Speaker 1 (27:12):
And you know so, I'm sure a lot of people
turn to Pablo and they want to know what's the
temperature of the consumer right now? So you know, from
your advantage point, where do you see the global consumer.
I'm a little biased that I'd like to know what
your thoughts are in the US market, but you know,
(27:32):
what are your thoughts on the global consumer from your
vantage point?
Speaker 3 (27:36):
Yeah, I would say that that is cautiously optimistic.
Speaker 2 (27:43):
For now.
Speaker 3 (27:45):
We have seen a stubilization after the pandemic days COVID,
and which is what wasn't too far away back in history, right,
this was only eighteen months ago that we were still
talking about COVID and online purchases.
Speaker 2 (27:59):
And we have seen the.
Speaker 3 (28:01):
Last few few months that a lot of the online
e commerce has moved more to consumption of services which
have been postponed for a while. And that's why we
saw a significant lowdan of growth after COVID and stabilizing
in the levels that we are experiencing right now. To
(28:23):
be honest with you, we we see a pretty stable
overall consumption. We we are aiming for a pig that
will be as usual, a little bit higher than the
previous months. But we are not seeing an exuberant type
of demand coming yet and we are That's why we
(28:46):
are caustiously optimistic. I would say that the temperature of
the consumer I would put it into a stable mode
similar to what we have been experiencing in the last
few months, and expecting a pig season that is going
to be similar growth compared to previous previous year.
Speaker 1 (29:06):
I know in the US the peak season a little
condensed this year, just given the days between Christmas and Thanksgiving.
Is it condensed in other parts of the world as well,
So yeah.
Speaker 2 (29:19):
It is condensed in general.
Speaker 3 (29:21):
In the Turkey, some countries in Southeast Asia, they do
have a little bit of a different type of facing
throughout the years. Of course, Chinese New Year is a
big one for China particular, so there is a little
bit of variances, but in general years it is condensed.
What we are seeing is that retailers and merchants are
preparing for that pig season this time a little bit
(29:45):
more in advance. They're all very aware of what's going
on with the ocean freight and the air freight capacity
out of China and the red sea issues. From an
oce A perspective, I would be very cautious in reading
that as expectations of a significant peak. I would say
(30:08):
that it's more preparation in advance to reduce risk, and.
Speaker 2 (30:11):
It's too early to say.
Speaker 3 (30:13):
It's very early to say if this year we're going
to see a higher growth compared to previous years or
it's going to be similar. What we see for sure
is that we are receiving more requests to prepare more
in advance, but too early to say if that is
an indication of optimism or is more just hedging for
(30:33):
any type of supply chain disruptions.
Speaker 1 (30:37):
So you can't talk about like an old world industry
like transportation without talking about technology and improving you know,
the overall efficiency of it. And also if I mentioned
artificial intelligence in my podcast, I usually get double the viewership.
So ai AI AI. So I'm just curious from your
(30:59):
advantage point and what investments are you making in technology.
Is it AI? Is it machine learning? And what is
that doing for your operations?
Speaker 3 (31:10):
Yeah, we'll try to help you there. We'll mention AI
as much as possible. But yeah, of course, I like
to say that we are still a very analog company
operating on a heavily digitalized world because we move packages
from point A to point B.
Speaker 2 (31:26):
There's nothing that for now, we'll replace.
Speaker 3 (31:28):
That until we invent telet transportation or something like that.
But we cannot move anything without technology, and we have
been relying on technology and we will continue relying on
technology for a long time. AI and generative AI is
helping us in many ways. We're doing more and more
in terms of customer interaction, customer service, and any type
(31:52):
of proactive notification to customers. We have been working on
previous versions of AI than my generative AI, but advanced
analytics and machine learning, which again you can call them
also you know the early stages of AI, and we
have been using machine learning heavily on anything that has
to do with route planning. All our routes around the
(32:16):
world today are relying on complicated algorithms that every single
day look into what shipments are coming in, what is
the density and how to optimize routes on an ongoing
basis so that is well embedded into our day to
day operations. We see more and more technology, not AI driven,
(32:38):
but technology anyway in terms of automation in our hubs.
A lot of the investment that was referring to before,
which is impacting a little bit of our P and
L these days, from an investment phased perspective, is all
about automation in the hubs and that is allowing us
to process much more efficiently the meanings of packages that
(33:00):
we move every single day. An area that I am
very optimistic about the additional impact of AI is customs clearance,
and in particular I don't want to complicate, you know,
the technology question, but in particular, given what might happen
in Europe and in the US with the minimums reducing
(33:23):
and they need to clear more shipments formally and high
volumes of e commerce shipments, AI will have a big
role to play there to optimize customs clearance and do
that in an efficient way instead of having thousands of
agents typing on keyboards to clear shipments when they arrive
to the country.
Speaker 2 (33:44):
So absolutely critical.
Speaker 3 (33:47):
We are investing heavily and will continue to be a
big source of optimization for our operations.
Speaker 1 (33:54):
And are you using technology or AI and pricing or
pricing more vanilla where maybe it's not as important we are.
Speaker 3 (34:06):
We're not We're not using We're not using AI on
a on a daily basis for pricing. What we do
usually is the analysis, which is more a propensity to
pay type of analysis, which combines elements of AI. But
it's not a regular daily transaction. It's more of the
typical technology that we use for the annual gri I
(34:31):
or the quarterly customer profit ability.
Speaker 2 (34:34):
So it's not that much.
Speaker 3 (34:35):
It's not that much transactional like for example, rap planning
rap planning, you have AI embedded every.
Speaker 2 (34:39):
Single day everywhere around the world.
Speaker 3 (34:42):
Pricing is more it's not that much transactional, is more analytical.
Speaker 1 (34:47):
So I know you've been with DHL since two thousand
and five, I'm not mistaken. How did you get into
free transportation logistics?
Speaker 2 (34:57):
I was by chance.
Speaker 3 (34:58):
I was a consultant after I graduated from from Darden
n b A. I went to it was year two
thousand and I went to everyone at that point in
time going into internet. But the bubble burst a little bit,
so I like to say that I went to B
two C, so back to consulting.
Speaker 2 (35:17):
So I went in to C.
Speaker 3 (35:18):
At the point in time, I did four years of
consulting and then I was tired of traveling.
Speaker 2 (35:23):
Every single week. Uh, and I decided to look for options.
Speaker 4 (35:28):
And alumni from Darden was the CEO for DHL Initia
Pacific who introduced me to DHL.
Speaker 3 (35:38):
And honestly, to be honest with you, I was not
I was not sure what I was getting into. It
sounded a opportunity. It has been an amazing, amazing journey.
I cannot be more thankful and grateful. Has been a discovery.
Every new job. I have had seven different jobs in
this in this in this company, and every single joke
(36:01):
has been a new discovery and has been an amazing,
amazing journey so far.
Speaker 1 (36:05):
Gotcha, that's pretty cool. And so you know you manage
so how many people? How big is dhle e commerce?
Speaker 3 (36:13):
Like?
Speaker 1 (36:13):
How many people do you manage? Roughly?
Speaker 3 (36:17):
Directly forty five thousand and subcontracted another forty thousand, so
eighty five thousand total.
Speaker 1 (36:23):
Okay, do you have a favorite region?
Speaker 3 (36:27):
That's the time a teathing exactly, depending depending where your
your listeners are coming from No I have again I love.
I have to say, I really enjoy visiting the countries
when I have in a company like ours. I worked
fifteen years for the Express, so I traveled the world
(36:47):
with Express, and honestly, it's fascinating to see the diversity
but also the commonalities across the countries and the cultures
and what you know, people like So I really enjoy
every single goal contributed.
Speaker 1 (37:01):
Yeah. Great, And so you know, obviously you're you manage
a very large business, a global business, a business where
there's moving parts and things can go wrong. What keeps
you up at night?
Speaker 2 (37:15):
That's it?
Speaker 3 (37:15):
You know, I sleep very well. I have to say,
I don't lose sleep that often. Not that many things
I have. You know, we have an extra extraordinary, amazing
team across all the all the group across the AHL
e Commerce group functions, I Compliance security. Of course, the
(37:37):
typical things that could really do harm to us is
anything that has to do with cybersecurity. But even you know,
the the recent you know situation with the crowdsource software
that collapsed a lot of companies two weeks ago. In
that case, we diverted all our its systems to our
(38:01):
dr backups. This has a recovery backups. We turned and
migrated technology and systems, and I'm talking about thousands of
systems across two hundred and twenty countries around the world,
and we did that DIDA overnight to preserve the network
from any type of impact. And we had two incidents.
(38:23):
Courier scanners in UK for two hours we're not able
to log in, and a customer facing tool in Thailand
was not performing well.
Speaker 2 (38:32):
So when you see.
Speaker 3 (38:33):
That, I don't want to be, of course overconfident, but
when you see that we had the ability to do
something like that at that scale to preserve the company
to continue operating despite this massive situation that was going on,
it gives me a lot of comfort. So we're not
immune to any of those issues. We are keeping our
(38:57):
eyes on everything that is going on from a cyber
secure perspective. But at the same time, to your question,
does that keep me awake at night, not really.
Speaker 2 (39:06):
We you know, we have a great team, we have great.
Speaker 3 (39:09):
Processes and all the needed alerts to detect detect any
type of deviation.
Speaker 1 (39:15):
Early on, right And so you know, as a as
a global business leader and someone that kind of fell
into transportation. Is there a book about transportation or leadership
that you know you kind of always think back upon
that was really instrumental in your own evolution.
Speaker 2 (39:35):
Yeah, that's a good question. There are not that many
books about logistics, unfortunately, maybe we should be writing more.
Speaker 3 (39:42):
But there was one book that I read long time ago,
which is moving. It's called Moving Mountains and it's about
General Palonis. General Palonis was the general in charge of
the logistics for the Gulf War. That was very close
to my heart because I remember a long time ago
I vis CD our main hub in Bahrain, which will
(40:04):
also the logistics have for the golf movement of things in.
Speaker 1 (40:08):
And out from that area.
Speaker 3 (40:10):
And his book is fascinating, Moving Mountains, highly recommended is
both leadership and logistics. So that is a book that
from a logistics perspective resonated with me a lot.
Speaker 1 (40:21):
All right, I'll hope to take a take a look
at that. Well, Pablo, I really want to thank you
for your time.
Speaker 2 (40:28):
Thank you, Thank you, Lee a pleasure to talk to you.
Speaker 3 (40:31):
Hopefully this will be interesting for your listeners, and yeah,
looking forward to keeping in touch.
Speaker 1 (40:38):
Yeah, absolutely, and really appreciate your insights. And I also
want to thank you for tuning in. If you liked
the episode, please subscribe and leave a review. We've lined
up a number of great guests for the podcast. Check
back to hear conversations with C suite executives, shippers, regulators,
and decision makers within the freight markets. Also, if you
(40:58):
have an idea for a future empersent, or just want
to talk transports, please hit me up on the Bloomberg
terminal or on LinkedIn or on Twitter at logistics Lee.
Thanks everyone, and take care.
Hi everyone, and welcome to Bloomberg Intelligence Talking Transports Podcast.
I'm your host, Lee Klasgaw, senior Freight, transportation and logistics
analysts at Bloomberg Intelligence. Bloomberg in house research of almost
five hundred analysts and strategists before diving in a little
public service announcement, and your support is instrumental to keep
bringing great guests onto the podcast like the one we
(00:29):
have today. If you haven't already, please do take a
moment to follow, rate and share the Talking Transports Podcast.
We appreciate your support. I'm very excited to have Pablo Siano,
a member of DHL Group's board and CEO of DHL
e Commerce, roles he's held since twenty twenty two. Pablo
(00:49):
joined DHL in two thousand and five after several management
roles within DHL Express in the US until moving to
the group's headquarters in Bond, Germany, where he supported the
corporate board and top management and shaping the strategic agenda
of the company. He holds a Masters of Business Administration
from Darden Business School at the University of Virginia. So
(01:11):
I guess go Cavaliers. So welcome to the podcast. Pablo,
how are you doing today.
Speaker 2 (01:16):
Hi, Lee, how are you doing? Great? And thank you
very much for having me.
Speaker 1 (01:20):
Here, very welcome. Actually saw your Cavaliers loss to the
University of Maryland a couple of months ago. I was
I went to the I guess the final four of
the Lacrosse Championship NCAA Cross Lacrosse Championship was a pretty
exciting game to be part of.
Speaker 2 (01:38):
Yeah, yah, big school. I don't follow it, to be honest,
we do that closely.
Speaker 3 (01:41):
I have been more I have been bs here with
following Argentina, my home country, at the Copa America and
other sports. But yeah, UVA and Darden always very.
Speaker 2 (01:52):
Close to my heart.
Speaker 1 (01:54):
All right, great, and I'm sure you've also been a
little busy this morning because d DHL came out with
their earnings. Can you talk about how you know your
division did e commerce? And I guess before we even
get into that, can you talk to a little about
what actually does DHL e Commerce do?
Speaker 2 (02:13):
Absolutely so.
Speaker 3 (02:15):
DHL e Commerce is one of the five DHL Group divisions.
We are the newest. We were forming twenty nineteen by
putting together all the domestic parcel delivery assets that we
had in the company. So today we are fifteen countries,
(02:36):
mainly Europe, India and the US. We deliver one point
six billion shipments per year last year to give you
rough numbers, high level numbers, six point five billion in revenue,
forty five thousand employees direct employed and another forty thousand subcontracted.
Speaker 2 (02:57):
And we specialize in.
Speaker 3 (02:59):
Parts of the livery across those regions, mainly focusing on
e commerce. Seventy five percent of our volume is B
two CE e commerce related and ninety percent of our
growth is driven by e commerce.
Speaker 2 (03:14):
Very important.
Speaker 3 (03:15):
If I may here to clarify that e commerce logistics
is a core part of all our business units. So
a little bit of our name the HLD e Commerce
could be a little bit confusing, but we do e
commerce logistics across all our divisions. We happen to specialize
exclusively mainly in e commerce and the majority of our
(03:38):
growth is coming from logistics and parcel delivery for e commerce.
Speaker 1 (03:43):
And so the regions that you're operating in, is it
just a ground network or do you operate the ground
and air network as well?
Speaker 3 (03:50):
The majority is ground, although in India in particular, we
do have a ground and air in India we have
a in air network domestic air networks with eight seven
three sevens and we have a very leading position in
anything that is air cargo domestic. The rest is mainly
(04:11):
ground and is mainly domestic services. We do some cross
border but it's still also ground within Europe.
Speaker 1 (04:19):
And then do you guys participate in just a delivery
aspector do you do for filment services as well delivery aspects?
Speaker 3 (04:28):
Only one of our the other business units, DHL Supply Chain,
specializes in fulfillment, so we only do parcel delivery for
businesses and consumers and is mainly ground networks in the
countries where we have these type of assets.
Speaker 1 (04:46):
And then one of the three largest geographic markets that
DHL e Commerce is currently in, it's.
Speaker 3 (04:53):
Mainly in Europe, India and the US. Within Europe, main
markets are Benelux, Netherlands in particular, Poland and the UK.
Speaker 1 (05:04):
Gotcha all right? So would the US market be the
biggest country market or would it be India?
Speaker 2 (05:11):
The US is the biggest one.
Speaker 3 (05:12):
In the US, we have a very interesting value proposition
which is that all our last mile is done through
the USPS, so we do the first mile, we do
the middle miles, so we sort across our nineteen sorting
centers within the US, and we inject downstream into the USPS.
(05:33):
We're doing roughly five hundred millionshipments per year in the US.
We are one of the largest partners of the USPS
in terms of injection into the delivery network, and we
have a great partnership with them, But we don't do
our last mile. Delivery in the US mainly is only
done through the USPS.
Speaker 1 (05:52):
And is that a model that's different than other regions
that you're operating.
Speaker 3 (05:57):
Yes, in Europe in the eight countries where we have
our own part of delivery networks domestic in Europe we
do it all end to end, including of course verst mile,
middle mile and last mile.
Speaker 2 (06:09):
In India we do the same.
Speaker 3 (06:12):
We have some partnerships in some other countries where we
replicate the same model as the USPS, so for example
in Italy and in France and in Eastern Europe we
also rely on last mile the livery partners such as
for example we rely in the US with the USPS.
Speaker 1 (06:31):
A right, great, And I guess you know because you
mentioned DHL Group does e commerce services across all divisions,
so what's the I guess the is there what's the
main difference between e commerce segment and the express segment,
which is one of the largest segments in the DHL portfolio.
Speaker 3 (06:52):
Excellent, and I love this question because it allows me
to explain a little bit the similarities of the two
focus segments afford the two business units. So Express is
mainly what we call TDI, so time definite International. They
operate in two hundred and twenty countries, They move end
to end within their closed network, they move shipments and
(07:13):
parts around the world. Put things in perspective, this segment,
with the three main integrators, which is of course the
HL Group, FedEx and UPS, they manage one percent of
the total cross border volume in the world.
Speaker 2 (07:28):
So it's a very very niche.
Speaker 3 (07:30):
If you think about this as a pyramid, or the
top of the pyramid is the one percent overall market
volume and is time definite International. The rest is all
done through a combination of postal operators or air freight
cargo that is injected into last mile delivery providers, and
(07:51):
that's where we operate. We operate in the remaining ninety
nine percent of the global cross border segment where we
use what we call a very hybrid and flexible network
where we utilize our own assets when we have those
assets to deliver last mile, or we rely on partners.
(08:12):
And for example, in Europe we have eight countries where
we do las might delivery with our own assets. All
the remaining fifteen countries in the European Union we rely
on third party partners like Post Italiana in Italy in Italy,
or Chronopoles and some other partners in France, or Austrian
(08:35):
Post in Eastern Europe. So that's the main difference. Express
is mainly a close network, time definite, super fast efficient.
Price point there is much higher and is driven also
by a lot of B two be heavier shipments. We
specialize in more of a hybrid network, lighter volumes, and
it's more it's not as fast from a delivery perspective
(08:58):
compared to Express at the price is much The price
point is much lower than that of Express.
Speaker 1 (09:05):
Are you able to talk about who some of your
major customers are around the world.
Speaker 3 (09:09):
Sure. We operate with all major multinationals, mainly in the
online e commerce segments. So we do business with of
course Amazon, Chiniao, Ali, Baba, Temu Shin to name some
of the most well known names, Bad trendy Old in
(09:30):
Turkey and Aleeboro in Poland. So all the major marketplaces
that you can think about sealando and also all the
direct to consumer brands right so from Nike, Adidas, Victoria's Secret.
Speaker 2 (09:43):
Here in the US and many other customers.
Speaker 3 (09:46):
So we have a pretty broad portfolio of multinational companies,
marketplaces and direct to consumer brands.
Speaker 1 (09:55):
And your major competitors are the other integrated logistic providers
like a FedEx or UP, yes, or Emato or I
guess the local post office, is that correct?
Speaker 2 (10:04):
Yes?
Speaker 3 (10:05):
I think that the competition varies geographically a little bit.
So in Europe we compete a lot against geopost and GLS.
We compete also there are many local players for less
man delivery, so Inland in Poland we compete with against Impost,
in Netherlands against Post and L and of course FedEx
(10:27):
and UPS are in general press and in most of
the markets, although they specialize as you know, more on
the domestic US and also competes more with GTEL Express.
Speaker 2 (10:36):
On the time definite international type of segment.
Speaker 1 (10:40):
So we answer me that, so I order a suit online,
it comes from China, it's it's delivered by DHL I
won't name the retailer I buy my suits from, but
like this is a true story. And so the soup
gets to the United States once against the United States,
does e Commerce then take it from Express? Or is
Express doing the final delivery? How is there a handoff?
(11:03):
Is that how it works?
Speaker 3 (11:05):
Not really in that case that you are describing, very likely,
because you might have ordered with an expected delivery day
that is fast, so you might want to have it fast.
And the purchase price of your suits, assuming that you
are paying a reasonable amount of money for a good
quality of suit, that might be more suitable for the
(11:26):
typic that Express delivery and will be delivered end to
end by Express. It will be picked up and I
don't know if you bought it in London or in
Hong Kong or somewhere, but it will be picked up
at origin fly with d HL planes, cleared in the
DHL Express in the US, and delivered with a DHL
courier to your door. In the case of the HD Commerce,
(11:50):
usually we operate in a more deferred type of cross
border delivery and is a smaller type of parcels with
a lower tick price.
Speaker 1 (12:01):
Right in, my suits are slightly more than ten dollars.
Speaker 2 (12:04):
A piece exactly. That's what I assume.
Speaker 1 (12:08):
So, you know, when we kicked off the conversation, I
mentioned that you guys just reported or DHL just reported earnings.
Could you talk specifically about, you know, how e commerce
segment did quarter?
Speaker 3 (12:22):
Yeah, absolutely, so our numbers were in line with expectations.
We had a pretty good growth on the top line
ten percent plus. That is mainly driven by a little
bit of inorganic a recent acquisition in December last year
of MMG Cargo in Turkey, so there is some inorganic
(12:44):
upside there, including the own numbers. But then the remaining
portfolios is still growing from a top line perspective pretty well.
On bottom line, we are continuously seeing the current trend
on margins that.
Speaker 2 (12:59):
Are around the four percent. This is in line with expectations.
We are going through an ongoing phase of investment and
which is impacting our y bit overall.
Speaker 3 (13:13):
But also we are seeing a readjustment of demand and
supply after you know, the incredible times of COVID and
a little bit of investment across the entire industry. We
are not seeing yet a complete balance between the man
and supply. We see more supply than the man, and
that's why that is putting pressure into eels and margins.
(13:35):
But it was in line with expectations. We have always
said that that that was going to be our number.
We see twenty twenty four five still in this more
or less range of still margin pressure, moving towards margin
expansion twenty six onwards.
Speaker 1 (13:55):
And do you guys have out there, like a long
term margin kind of target or a range we'd like
to be because as you mentioned, you're around four percent.
That was one hundred and twenty basis point declined from
from the previous year, So obviously I'm assuming you're not
happy with where margins are. Do you guys have a
target out there?
Speaker 3 (14:16):
We do have a target, and it's in the in
the range of five to seven percent. We have been
there before during the pandemic times. Those were very extraordinary times.
We have half of our countries already performing at that level,
so the entire focus is on optimizing the other half
(14:37):
that is not there yet and it's a matter of
time in terms of just optimizing the operations networks. As
I was saying, we have been investing heavily in most
of the countries, so we have not seen yet the
benefits of those network expansions and optimizations. So we do
see that in twenty six onwards we're going to be
(15:00):
going back to the levels that we are talking about
around you know, five to seven in general, like growthen
type portfolio.
Speaker 1 (15:09):
As a segment. The scale matter because you're obviously you're
operating in all these different countries, and I'm assuming each
country has its own kind of insular network, so I'm
assuming it's very easy for DHL to decide, oh, we
don't want to be in this region, we're going to
maybe sell it off, or oh we want to be
in this region, we're going to go grow through acquisition.
(15:31):
Is that fair to sect?
Speaker 2 (15:33):
Fair to say? Absolutely fair?
Speaker 3 (15:35):
So, first of all, yes, a scale matters in the
markets where we operate, in particular e commerce and domestic
parcel delivery, sixty to seventy five percent of the cost
is the delivery cost itself. So just to compare with Express,
where the majority of the cost maybe is in the
global air networks, in lest my delivery part of delivery
(15:58):
domestic is more in the last my delivery itself. So
scale matters because of course higher density brings.
Speaker 1 (16:07):
Lower cost per stop.
Speaker 3 (16:09):
Because of course you have each of the delivery routes
delivering more packages and therefore the cost per piece has
a very nice improvement.
Speaker 2 (16:18):
We are seeing that in many of the countries.
Speaker 3 (16:21):
Where we are seeing this scale which is helping us
optimize what delivery costs.
Speaker 2 (16:26):
So question number one, Yes, scale matters.
Speaker 3 (16:29):
And because we are so heavily relying on e commerce
and so much focused on e commerce, we see that
the overall growth is going of the commerce market as
it is growing today, is going to help us achieve
those economs, economies of scale and unit economics. And then,
of course the strategy to your second part of the question.
(16:49):
The strategy varies by country. It varies in the combination
of what is the competitive landscape in the country, what
is our own position in the country, what is the complexities.
Speaker 2 (17:03):
And the barriers to entry.
Speaker 3 (17:05):
So, for example, Turkey, it's a very interesting country, eighty
five million people, high internet population. That is a complicated
country to serve because it is a large country if
you compare to Singapore or Hong Kong.
Speaker 2 (17:18):
Or Costa Rica.
Speaker 3 (17:20):
And therefore in that case, the strategy for Turkey would
be different to when we are making decisions in smaller
countries like Czech Republic for example.
Speaker 1 (17:31):
Gotcha, So, you know, you talk about e commerce growth
as an industry. What are your expectations for e commerce growth?
Do you expect your division to grow with that growth?
Do you expect to outpace that growth? And we're talking
organically here, if you can just talk about that aspect
(17:52):
and then you know, just while I'm babbling here, can
you also talk about you know, your m and a
strategy for growth.
Speaker 3 (18:02):
Absolutely, so, e commerce logistics in general is going to
continue being a significant source of growth for the entire industry.
We are seeing that the e commerce penetration as a
percentage of retail will continue to grow, and it will
be growing depending on the market and on the segment,
between five to ten percent, so above GDP and above
(18:25):
the overall logistics industry, and we are sitting at the
center of that type of trend. We are planning to
grow and we are aiming at growing faster than the
market between one to two points. And again that varies
by region, by country, and by segment. But in general,
we are seeing and to your question, this is organic.
(18:49):
I'm seeing that we are being able to grow in
those markets where we have a good competitive position faster
than the market. So we have that expectation and that
ambition and from an M and A perspective, yes, our
strategy is not only optimizing our organic performance, in particular
(19:11):
in those countries were not yet at the level that
we want to be from a margin and growth perspective,
but also relies on inorganic we have been We acquired
this company MG Cargo in Turkey in the summer last year,
which has been a great addition to our team. We
had a presence DHL Group had a presence in Turkey
for many many years, but we didn't have a domestic
(19:34):
delivery company delivery parcels within Turkey and this company that
we acquired allowed us to do so. I don't know
if you have maybe you have been written the news
in the UK. We were competing until very recently, actually
Thursday last week for the acquisition of every which is
one of the largest part of delivery companies in the UK.
(19:55):
Unfortunately we lost that want to apollow private equity, which
I'm still you know, that still hurts a little bit,
but it was a great journey, great journey and you know,
kudos to Apollo and of course we will continue monitoring
that market. Very closely, So yes to your question about AMNA,
(20:16):
whenever we see the strategic advantage of growing through.
Speaker 1 (20:21):
Acquisition, we will do.
Speaker 2 (20:22):
So.
Speaker 3 (20:23):
We have a very clear target of countries and companies
that we are closely looking into, which, as you might imagine,
I cannot reveal the details.
Speaker 4 (20:32):
Come on, this just does it's a it's a big
part of our strategy as well.
Speaker 1 (20:37):
All right, And I just want to make be clear
that I heard you. So you you guys are expecting
e commerce the market to grow five to ten percent
a year and DHL e commerce expected to grow one
hundred to two hundred basis points over that. Yeah, yeah, okay, great.
That's from a volume standpoint, not a sales or revenue standpoint.
Speaker 3 (21:00):
Uh, that would be more from a from a volume
perspective yield Yeah yeah, yeah, yield.
Speaker 2 (21:06):
Yield will be depending on the market conditions, competitive landscape
and each country.
Speaker 3 (21:11):
But from a volume perspective, we're expecting to grow a
little bit faster than the market.
Speaker 1 (21:16):
Yeah okay, I do want to touch upon your yield strategy,
but before we do that, you know, just to continue
on the conversation of M and A, are there certain
markets outside of the UK that are that are attractive
markets for d h L that you're currently not operating in.
Speaker 2 (21:35):
That's a very good question.
Speaker 3 (21:38):
Probably our shorter term MITERM focus will be and is
more on strengthening the position in the markets where we
are operating today, and that's why most of our short
term and M and A activity and exploration is in Europe,
(21:58):
in particular Eastream Europe and India, where we do have
a fantastic position there, but we want to even strengthen
it further additional countries to their portfolio. Maybe it will
probably be in the geography of Europe to begin with,
but we don't rule out potentially mid term, longer term
(22:22):
something around Middle East and Latin America.
Speaker 1 (22:26):
Right, all right, let's let's talk about pricing because obviously
pricing is very important. We're in a high inflation environment,
so you guys need to increase those prices to you know,
support ROI so you can reinvest in the business. What
is your how do you guys go to market with pricing?
You know, do you do gris that you you know,
(22:47):
kind of discount? How does pricing work for DHL e commerce?
Speaker 3 (22:53):
Yeah, so yes, we do a gri I of course
it depends market by market in terms of the intense
city of that gri I, But we do GRI as
a discipline process for adjusting our rates based based on inflation.
We also provide value added services to our customers.
Speaker 1 (23:14):
Customers can have a multiple and a.
Speaker 3 (23:18):
Variety of different services that they can buy from us
in terms of special pickups or oversize shipments, or certain
features and functionalities, so that we include that into of
course ongoing pricing and yield management, and then it varies
a little bit market by market to some extent, Right,
(23:38):
how how do we approach the yield discipline? In some
markets where we are growing and gaining market share, we
are a little bit more aggressive on our pricing. Clear
example to name one is our for example Czech Republic,
where we do have a very high market share on
(24:00):
doorstep delivery, but we want to grow faster on what
we call the out of home locker delivery into lockers
or deliver into parser shops, and that's where we are
a little bit more aggressive on a pricing perspective. But
pricing is you know, managing one point six billionships per year.
Anything that we can find tune in that sense from
(24:22):
a pricing perspective is absolutely.
Speaker 2 (24:26):
Critical and that's why we have elevated in the last
two years. I I've taken a lot of focus on
elevating the pricing function within each country. In the past,
it was something that we were not putting too much
focus and it was, you know, the pricing function hidden too.
Speaker 3 (24:41):
Many layers below the country manager. Today, in every single country,
we have the pricing head reporting directly to the country
manager and that's why, you know, we are elevating and
improving the way that we are dealing with pricing.
Speaker 1 (24:55):
Okay, so on the call, the earning is called the
hl's earnings called today, they mentioned, you know, a search charge,
a demand search charge that they're implementing in September. Is
that just for express or is that for DHL e
commerce as well?
Speaker 2 (25:12):
And it is?
Speaker 1 (25:12):
Can you just talk about what that search charge is?
Speaker 3 (25:15):
Sure it will also be for DHL e commerce as well.
It will be selective by countries. Some countries we might
do it in some others we might not.
Speaker 2 (25:23):
But in general, yes, anywhere we can. We are looking
into that.
Speaker 3 (25:28):
And I think what is important is to understand the
background of that because in particular in e commerce, in
deliveries to consumers. We are seen that the fluctuation between
the average volume and the peak weeks or even months
of a peak volume varies by one hundred percent. So
(25:48):
for example, we are seen in Netherlands that we are
delivering seven hundred and fifty thousand simbas.
Speaker 2 (25:55):
Per day on average on a normal week.
Speaker 3 (25:58):
But then when retailers marketplaces do promotions, we can see
that number going up to one point five million, two million.
So it's a trade off between providing good service quality,
satisfying the needs of the merchants, allowing them to have
these promotions, but doing it in a cost effective way.
We cannot have of course, as everyone might understand, we
(26:21):
cannot have delivery couriers and employees in our certain centers
just seeting there waiting for a few weeks of peak,
and that recruiting all of those that capacity requires of
course extra costs, and that's why we believe that it's
fair to have some type of searchers that will allow
us to satisfy the need of the merchants, provide good
(26:44):
service quality to the consumers, but also do that in
a customer in an investor friendly way.
Speaker 2 (26:51):
So long answer to your question, but I thought it
was a good.
Speaker 3 (26:53):
Good to share that in particular ecommerce, we see massive
fluctuations and the reason for the peak church is because
of the valsing cost and service quality. And yes, we
will do in most of our countries e commerce. We
will do a big search charge, gotcha.
Speaker 1 (27:12):
And you know so, I'm sure a lot of people
turn to Pablo and they want to know what's the
temperature of the consumer right now? So you know, from
your advantage point, where do you see the global consumer.
I'm a little biased that I'd like to know what
your thoughts are in the US market, but you know,
(27:32):
what are your thoughts on the global consumer from your
vantage point?
Speaker 3 (27:36):
Yeah, I would say that that is cautiously optimistic.
Speaker 2 (27:43):
For now.
Speaker 3 (27:45):
We have seen a stubilization after the pandemic days COVID,
and which is what wasn't too far away back in history, right,
this was only eighteen months ago that we were still
talking about COVID and online purchases.
Speaker 2 (27:59):
And we have seen the.
Speaker 3 (28:01):
Last few few months that a lot of the online
e commerce has moved more to consumption of services which
have been postponed for a while. And that's why we
saw a significant lowdan of growth after COVID and stabilizing
in the levels that we are experiencing right now. To
(28:23):
be honest with you, we we see a pretty stable
overall consumption. We we are aiming for a pig that
will be as usual, a little bit higher than the
previous months. But we are not seeing an exuberant type
of demand coming yet and we are That's why we
(28:46):
are caustiously optimistic. I would say that the temperature of
the consumer I would put it into a stable mode
similar to what we have been experiencing in the last
few months, and expecting a pig season that is going
to be similar growth compared to previous previous year.
Speaker 1 (29:06):
I know in the US the peak season a little
condensed this year, just given the days between Christmas and Thanksgiving.
Is it condensed in other parts of the world as well,
So yeah.
Speaker 2 (29:19):
It is condensed in general.
Speaker 3 (29:21):
In the Turkey, some countries in Southeast Asia, they do
have a little bit of a different type of facing
throughout the years. Of course, Chinese New Year is a
big one for China particular, so there is a little
bit of variances, but in general years it is condensed.
What we are seeing is that retailers and merchants are
preparing for that pig season this time a little bit
(29:45):
more in advance. They're all very aware of what's going
on with the ocean freight and the air freight capacity
out of China and the red sea issues. From an
oce A perspective, I would be very cautious in reading
that as expectations of a significant peak. I would say
(30:08):
that it's more preparation in advance to reduce risk, and.
Speaker 2 (30:11):
It's too early to say.
Speaker 3 (30:13):
It's very early to say if this year we're going
to see a higher growth compared to previous years or
it's going to be similar. What we see for sure
is that we are receiving more requests to prepare more
in advance, but too early to say if that is
an indication of optimism or is more just hedging for
(30:33):
any type of supply chain disruptions.
Speaker 1 (30:37):
So you can't talk about like an old world industry
like transportation without talking about technology and improving you know,
the overall efficiency of it. And also if I mentioned
artificial intelligence in my podcast, I usually get double the viewership.
So ai AI AI. So I'm just curious from your
(30:59):
advantage point and what investments are you making in technology.
Is it AI? Is it machine learning? And what is
that doing for your operations?
Speaker 3 (31:10):
Yeah, we'll try to help you there. We'll mention AI
as much as possible. But yeah, of course, I like
to say that we are still a very analog company
operating on a heavily digitalized world because we move packages
from point A to point B.
Speaker 2 (31:26):
There's nothing that for now, we'll replace.
Speaker 3 (31:28):
That until we invent telet transportation or something like that.
But we cannot move anything without technology, and we have
been relying on technology and we will continue relying on
technology for a long time. AI and generative AI is
helping us in many ways. We're doing more and more
in terms of customer interaction, customer service, and any type
(31:52):
of proactive notification to customers. We have been working on
previous versions of AI than my generative AI, but advanced
analytics and machine learning, which again you can call them
also you know the early stages of AI, and we
have been using machine learning heavily on anything that has
to do with route planning. All our routes around the
(32:16):
world today are relying on complicated algorithms that every single
day look into what shipments are coming in, what is
the density and how to optimize routes on an ongoing
basis so that is well embedded into our day to
day operations. We see more and more technology, not AI driven,
(32:38):
but technology anyway in terms of automation in our hubs.
A lot of the investment that was referring to before,
which is impacting a little bit of our P and
L these days, from an investment phased perspective, is all
about automation in the hubs and that is allowing us
to process much more efficiently the meanings of packages that
(33:00):
we move every single day. An area that I am
very optimistic about the additional impact of AI is customs clearance,
and in particular I don't want to complicate, you know,
the technology question, but in particular, given what might happen
in Europe and in the US with the minimums reducing
(33:23):
and they need to clear more shipments formally and high
volumes of e commerce shipments, AI will have a big
role to play there to optimize customs clearance and do
that in an efficient way instead of having thousands of
agents typing on keyboards to clear shipments when they arrive
to the country.
Speaker 2 (33:44):
So absolutely critical.
Speaker 3 (33:47):
We are investing heavily and will continue to be a
big source of optimization for our operations.
Speaker 1 (33:54):
And are you using technology or AI and pricing or
pricing more vanilla where maybe it's not as important we are.
Speaker 3 (34:06):
We're not We're not using We're not using AI on
a on a daily basis for pricing. What we do
usually is the analysis, which is more a propensity to
pay type of analysis, which combines elements of AI. But
it's not a regular daily transaction. It's more of the
typical technology that we use for the annual gri I
(34:31):
or the quarterly customer profit ability.
Speaker 2 (34:34):
So it's not that much.
Speaker 3 (34:35):
It's not that much transactional like for example, rap planning
rap planning, you have AI embedded every.
Speaker 2 (34:39):
Single day everywhere around the world.
Speaker 3 (34:42):
Pricing is more it's not that much transactional, is more analytical.
Speaker 1 (34:47):
So I know you've been with DHL since two thousand
and five, I'm not mistaken. How did you get into
free transportation logistics?
Speaker 2 (34:57):
I was by chance.
Speaker 3 (34:58):
I was a consultant after I graduated from from Darden
n b A. I went to it was year two
thousand and I went to everyone at that point in
time going into internet. But the bubble burst a little bit,
so I like to say that I went to B
two C, so back to consulting.
Speaker 2 (35:17):
So I went in to C.
Speaker 3 (35:18):
At the point in time, I did four years of
consulting and then I was tired of traveling.
Speaker 2 (35:23):
Every single week. Uh, and I decided to look for options.
Speaker 4 (35:28):
And alumni from Darden was the CEO for DHL Initia
Pacific who introduced me to DHL.
Speaker 3 (35:38):
And honestly, to be honest with you, I was not
I was not sure what I was getting into. It
sounded a opportunity. It has been an amazing, amazing journey.
I cannot be more thankful and grateful. Has been a discovery.
Every new job. I have had seven different jobs in
this in this in this company, and every single joke
(36:01):
has been a new discovery and has been an amazing,
amazing journey so far.
Speaker 1 (36:05):
Gotcha, that's pretty cool. And so you know you manage
so how many people? How big is dhle e commerce?
Speaker 3 (36:13):
Like?
Speaker 1 (36:13):
How many people do you manage? Roughly?
Speaker 3 (36:17):
Directly forty five thousand and subcontracted another forty thousand, so
eighty five thousand total.
Speaker 1 (36:23):
Okay, do you have a favorite region?
Speaker 3 (36:27):
That's the time a teathing exactly, depending depending where your
your listeners are coming from No I have again I love.
I have to say, I really enjoy visiting the countries
when I have in a company like ours. I worked
fifteen years for the Express, so I traveled the world
(36:47):
with Express, and honestly, it's fascinating to see the diversity
but also the commonalities across the countries and the cultures
and what you know, people like So I really enjoy
every single goal contributed.
Speaker 1 (37:01):
Yeah. Great, And so you know, obviously you're you manage
a very large business, a global business, a business where
there's moving parts and things can go wrong. What keeps
you up at night?
Speaker 2 (37:15):
That's it?
Speaker 3 (37:15):
You know, I sleep very well. I have to say,
I don't lose sleep that often. Not that many things
I have. You know, we have an extra extraordinary, amazing
team across all the all the group across the AHL
e Commerce group functions, I Compliance security. Of course, the
(37:37):
typical things that could really do harm to us is
anything that has to do with cybersecurity. But even you know,
the the recent you know situation with the crowdsource software
that collapsed a lot of companies two weeks ago. In
that case, we diverted all our its systems to our
(38:01):
dr backups. This has a recovery backups. We turned and
migrated technology and systems, and I'm talking about thousands of
systems across two hundred and twenty countries around the world,
and we did that DIDA overnight to preserve the network
from any type of impact. And we had two incidents.
(38:23):
Courier scanners in UK for two hours we're not able
to log in, and a customer facing tool in Thailand
was not performing well.
Speaker 2 (38:32):
So when you see.
Speaker 3 (38:33):
That, I don't want to be, of course overconfident, but
when you see that we had the ability to do
something like that at that scale to preserve the company
to continue operating despite this massive situation that was going on,
it gives me a lot of comfort. So we're not
immune to any of those issues. We are keeping our
(38:57):
eyes on everything that is going on from a cyber
secure perspective. But at the same time, to your question,
does that keep me awake at night, not really.
Speaker 2 (39:06):
We you know, we have a great team, we have great.
Speaker 3 (39:09):
Processes and all the needed alerts to detect detect any
type of deviation.
Speaker 1 (39:15):
Early on, right And so you know, as a as
a global business leader and someone that kind of fell
into transportation. Is there a book about transportation or leadership
that you know you kind of always think back upon
that was really instrumental in your own evolution.
Speaker 2 (39:35):
Yeah, that's a good question. There are not that many
books about logistics, unfortunately, maybe we should be writing more.
Speaker 3 (39:42):
But there was one book that I read long time ago,
which is moving. It's called Moving Mountains and it's about
General Palonis. General Palonis was the general in charge of
the logistics for the Gulf War. That was very close
to my heart because I remember a long time ago
I vis CD our main hub in Bahrain, which will
(40:04):
also the logistics have for the golf movement of things in.
Speaker 1 (40:08):
And out from that area.
Speaker 3 (40:10):
And his book is fascinating, Moving Mountains, highly recommended is
both leadership and logistics. So that is a book that
from a logistics perspective resonated with me a lot.
Speaker 1 (40:21):
All right, I'll hope to take a take a look
at that. Well, Pablo, I really want to thank you
for your time.
Speaker 2 (40:28):
Thank you, Thank you, Lee a pleasure to talk to you.
Speaker 3 (40:31):
Hopefully this will be interesting for your listeners, and yeah,
looking forward to keeping in touch.
Speaker 1 (40:38):
Yeah, absolutely, and really appreciate your insights. And I also
want to thank you for tuning in. If you liked
the episode, please subscribe and leave a review. We've lined
up a number of great guests for the podcast. Check
back to hear conversations with C suite executives, shippers, regulators,
and decision makers within the freight markets. Also, if you
(40:58):
have an idea for a future empersent, or just want
to talk transports, please hit me up on the Bloomberg
terminal or on LinkedIn or on Twitter at logistics Lee.
Thanks everyone, and take care.
Host
Lee Klaskow
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