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Perhaps no transportation provider better exemplifies the industry today than DHL and its corporate parent, Deutsche Post World Net. In recent years the company has undertaken a flurry of acquisitions, broadening its service menu to include air, sea, ground and contract logistics. That's precisely what many shippers are looking for today: a single provider that can handle multiple supply chain tasks on a global basis. Here, GL&SCS talks with Charles Brewer, executive vice president of sales with DHL Freight, who offers his views on how the landscape is changing, and where the biggest growth will come in the years ahead.
Q: How are you expanding your service offerings into the handling of traditional heavy airfreight?
Brewer: A few years back, Deutsche Post World Net, our parent company, embarked on a strategy to create the number-one express and logistics provider worldwide. This included some significant acquisitions, such as DHL Worldwide Express, Danzas/AEI, Airborne Express, [Mayne Logistics] Loomis in Canada and Exel. A customer could come to DHL and we would have a solution within our portfolio for any need across a supply chain, whether you're sending a letter or a large parcel, or want contract logistics, airfreight, sea freight or mail. This provides our customers and potential customers with the full suite of supply chain solutions, including heavy airfreight.
Q: Do you see a blurring of the line between parcel handling and heavy freight?
Brewer: For years, integrators and freight forwarders have competed for similar opportunities. This becomes increasingly blurred at certain weight breaks, such as for shipments of around 100 or 200 pounds. The requirements of multinational customers aren't defined by express or freight, necessarily-they're more likely to be defined by weight, destination and by day and time of delivery. With our portfolio of products we are able to engage customers about their supply chains, not just their products. We find ourselves talking to them about what they are trying to achieve as an organization. If you try and drive a product, rather than a solution, you're trying to fit square boxes into round holes.
Larger companies are talking less about freight versus express, and more about how they can get their finished goods, samples or spares to a particular location by a particular time, whether that be domestic or international. For SMBs [small and medium-sized businesses], their challenges are more around how they can go global. Having the widest range of products in our portfolio, with knowledgeable supply chain specialists, allows us to have sensible discussions around supply chain optimization.
Q: Some larger aircraft models-Boeing's 787, Airbus's A380-will be coming on line over the next several years. Much of this strategy is driven by the passenger market, but how do you think it will influence freight?
Brewer: Capacity management is an increasing topic of discussion, especially for larger and more global organizations. If you look the growth rates of places like China, India, Brazil and Russia, all of these markets have very strong double-digit numbers, and this can cause some capacity challenges. For our industry, and in particular at DHL, an equal amount of time and energy is placed in managing the capacity needs of today and in looking at capacity requirements of the next 10 to 15 years. Over time, you'll see companies becoming smarter in terms of how they manage two or three suppliers, and how they can plan and procure future availability.
Q: With the larger planes yet to enter service, are we facing a capacity crunch in the short term, especially during peak seasons?
Brewer: Fourth quarter is always going to be a little more difficult for carriers than quarters one, two or three. We plan ahead, working out which trade lanes are growing the fastest, and where we are going to need to add capacity. Take China, with growth in the last few years in excess of 30 percent. Managing that capacity and growth requires smart and well-thought-through plans - not just for aircraft, but for couriers, vehicles, hub sizing and the like.
Today, companies are finding that the unit cost for space goes up at certain times of the year, because capacity's a lot lower. When we get out to 2010 or 2015, that will be even more interesting, if volumes out of China, India, Russia, Brazil, etc., continue to grow at the rate they are today. That will increase pressure on our industry to make sure we've built our forecasting models correctly to be able to handle that capacity.
Q: Fuel prices are on the rise again. What impact will that have on shippers and rates in the short term?
Brewer: The fuel costs that we get, we pass through, and fuel as a percentage of our costs is not significant enough to have a dramatic impact on our business. But it definitely impacts customers in two ways-one, their ability to expand, and two, the tendency to drive supply chains to a deferred mode of delivery. Having said that, most companies these days are so familiar with fuel-price fluctuations that they budget accordingly. It has more of an impact on the SMB community, where the ability to expand internationally or domestically can sometimes be impacted by things like fuel surcharges. It's a fact of life, unfortunately, but we try to work with our customers to give them guidance and tools to prepare for it.
Q: What impact might fuel prices have on your ability to compete with other modes of transportation?
Brewer: If the unit cost of express shipping moves up at an accelerated rate, then customers are going to take a more critical view of how they move their product, and look for options to reduce their transportation cost. That can mean moving overnight deliveries to second-day or ground. Statistics for the U.S. show that deferred modes will grow at an accelerated rate versus express. Customers are trying to make their supply chain systems as efficient as possible, and when unit costs go up, that can cause them to move to a deferred product more quickly than they would otherwise. In order to provide an alternative, DHL U.S. offers a twelve o'clock product for next-day delivery, unique to the U.S. express industry. Not everybody needs to have their shipments there at 10:30-that accounts for about 55 percent of the market. Having a twelve o'clock product gives them the a.m. delivery they want, while allowing customers to manage their supply chains more efficiently.
Q: How much freight can shift between modes, depending on the needs and economics of the moment?
Brewer: Supply chains are fluid and the movement between express and deferred is fairly volatile. The weight range does vary dramatically by customer type, although the express range is increasing. Nevertheless, it clearly depends on what the customer is trying to achieve. If speed and express attributes are not essential, then customers tend to opt for the freight mode. Companies' supply chain needs used to be fairly fixed, sometimes for two to five years. Today, they are changing distribution models annually. And with that, we see transportation modes changing fairly frequently. One quarter, a shipment could be going express, and in the next it could be going freight.
Q: What kind of new and innovative service options are you contemplating, along the lines of such creative ideas as sea-air?
Brewer: We have many customers who leverage the various business units within DHL today. Customers are trying to optimize their supply chains and, for DHL, this means making the best use of the various modes we can provide. For example, a shipment could be picked up express, the linehaul could be freight, and then it could be delivered via a ground solution. I think you'll see this requirement increasing, particularly for large multinational companies. DHL has ground infrastructures in Asia, the Middle East, the U.S. and Europe. We recently launched a ground product between Singapore, Malaysia and Thailand. The multimodal environment is definitely something that will become more and more common. In the future, that might well include sea freight, too. You could get companies shipping sea freight, then when it enters a market, it would enter the ground or express system.
Q: What about on the information technology side?
Brewer: As usual, IT will play an important part. E-commerce solutions and product visibility are already very advanced, but I think you'll see that being developed further still. Customers want more and more visibility of where their shipments are. In the U.S., we're providing six additional checkpoints for customers. ProView, which we recently launched, allows us to provide proactive information, either to the shipper or shipper's customer. Many industries utilize field engineers who need to meet the product at its destination. ProView lets us send a message to notify that the shipment is on its way, so they can plan their journeys and arrive on site on time. So visibility of product, and having proactive information, will increase over the next few years.
Q: How do you see the global economy performing in the next year or two?
Brewer: Today's powerhouses are Brazil, Russia, India and China, so we have some very strong economies that will provide accelerated growth for some time. In more mature markets, such as the U.S. and mainland Europe, you're looking at single-digit growth. DHL is often seen as a barometer of trade-if our business numbers are doing well, then the economy is doing well. Recent reports say that the U.S. economy is softening-from a DHL perspective, we have seen continued volume growth across all products with an increase in demand.
Q: Where's the next hot area from a longer-term perspective-say, five to 10 years out?
Brewer: The obvious ones are BRIC-Brazil, Russia, India and China. They are the four countries that will create the fastest growth in the next few years. From our point of view, we're seeing all four grow at an accelerated rate. Aside from those countries, we're seeing very solid growth in Latin America and in the Middle East, too. As to which will grow the fastest, and be able to sustain its economic growth, you can take your pick. It's all pretty exciting stuff, really.
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