Deutsche Post-DHL Group’s first quarter earnings indicated that the company was facing some headwinds in its Post-eCommerce-Parcel division, but an internal memo obtained by German newspaper Handelsblatt indicates that e-commerce giant Amazon has been behind much of DHL’s recent weakness in that sector for more than a year.
The newspaper cites two main factors in Amazon’s impact on DP-DHL: First, Amazon’s own delivery service in Germany is significantly cutting into DP-DHL’s P-e-P business; and second, where Amazon doesn’t deliver its own packages, it is turning to DP-DHL’s lower-cost competitors, citing a 15% price difference that it doesn’t believe is justified by quality differences.
Regarding Amazon’s delivery service in Germany, it is likely DP-DHL is losing more revenue within its P-e-P sector than earlier thought. During the first quarter, the P-e-P segment reported revenue of €4.6 billion, but although DP-DHL CEO Frank Appel noted that the growth in e-commerce is “the most important growth driver for our business,” Amazon is making significant headway in cutting into DP-DHL’s share of that market.
Projections in the presentation obtained by Handelsblatt state that Amazon is likely to distribute 154 million packages in Germany in 2022, with DHL distributing 360 million. Some of that growing delivery volume is likely to come out of the business DHL currently provides for Amazon – which, according to the presentation, makes up 17.6% of DHL’s parcel business. By 2020, Amazon could operate its own delivery networks throughout most of Germany, in at least thirteen to fourteen of the most significant metropolitan areas.
The pressure from DP-DHL’s lower-cost competitors, such as Hermes Europe, is also significant, and resulted in an internal austerity program, according to the presentation. However, counteracting the impact the price differences have had on DP-DHL’s Amazon business is expected to require production improvements, as well as the year-ago waiving of a price increase that had been negotiated with Amazon, but would have lowered 2018 package volumes if implemented.
However, DP-DHL has not altered their earnings forecast through 2020, and has doubled down on its business with Amazon by, among other decisions, securing a contract to deliver groceries in Germany through Amazon’s “Amazon Fresh” service. In the United States, DHL partnered with Amazon at its new air hub at Cincinnati/Northern Kentucky Airport (CVG), in a deal that has DHL providing services including sorting and ground handling operations for Amazon’s air network at the hub.
Turning outward, beyond Amazon’s Cincinnati/Northern Kentucky air gateway, the e-commerce giant has yet to reveal how significant a role dedicated air freight operations will play outside the US. Amazon has long been testing the waters for air operations on the European Continent, but has yet to solidify any long-term agreement mirroring the company’s arrangement with Atlas Air Worldwide Holdings and ATSG. Cargo Facts believes that Amazon has recently issued new RFPs to various carriers in the region. If an agreement does materialize, Amazon’s ground operations in Europe may turn out to be just the beginning of DHL’s woes in Europe.