DGF trades air and ocean freight market share for higher profitability as division seeks to match ‘conversion ratio’ of better-performing peers.
Deutsche Post DHL group’s freight management business DHL Global Forwarding (DGF) today reported significant improvements in its gross profit margins as the unit continued with its strategy to trade market share for higher profitability in order to match the ‘conversion ratio’ margins of its better-performing peers.
It said the Global Forwarding, Freight division “can look back on a successful year in 2018”, in which the division increased revenues by 3.4% to €15 billion, “despite focusing on only high-margin business”. Adjusted for negative currency effects, revenue improved by an even more substantial 6.7%.
“Gross profit, an important performance indicator for Global Forwarding, Freight, also performed strongly with an increase of 3.9% over the prior year to €3.6 billion,” the company highlighted, with the division registering gross profit margin improvements in both air and ocean freight. Road and rail transport in Europe “also showed a positive development”.
As in the first nine months, the division “succeeded in translating its upward trend in gross profit into a significant EBIT increase”, the company said, noting that “operating profit surged 48.8% to reach €442 million in the full year 2018, thus demonstrating that the initiatives to improve cost efficiency are taking effect.”
Drilling down into the various business activities, the company’s air freight volumes dropped by 3.9% in 2018, “due mainly to structural adjustments in the customer portfolio”. Revenue increased by 6.9% compared with the previous year, thanks to rising freight rates worldwide. Gross profit from air freight improved by 9.2%.
Air freight revenue rose by 10.4% in the fourth quarter of 2018, while gross profit improved by 14.6%, despite a volume decline of 3.6% versus the exceptionally strong prior-year fourth quarter for the air freight market.
Meanwhile, ocean freight volumes managed by DHL in 2018 were 1% below the level of the previous year. “Here, too, we focused increasingly upon a high-margin volumes,” the company explained.
Revenue from ocean freight remained at the previous year’s level, while gross profit improved slightly by 0.9%. Ocean freight revenue rose by 4.5% and ocean freight volume by 0.5% in the fourth quarter.
The performance of DGF’s industrial project business “improved significantly compared with the previous year. The share of revenue related to industrial project business and reported increased from 25.6% in the prior year to 30%. Gross profit improved by 9.4%,” DGF said.
Revenue in the Freight business unit, the group’s European overland transport business, rose by 2.3% to €4.45 billion in the year under review, and increased from €4.35 billion in 2017, despite negative currency affects of €84 million. The 6.5% volume growth was mainly driven by e-commerce-based business in Sweden and less-than-truckload business in Germany. The business unit’s gross profit raised by 3.4% to €1.117 billion.
In terms of outlook, the company highlighted a number of global economic risk factors weighing on expected growth, noting: “After two strong years in succession, we expect growth in the global trade flows relevant to us (air and ocean freight shipped in containers) to slow somewhat in 2019. All in all, we anticipate an increase of 3.6%.”