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Sun 26 Aug 2012 09:58 AM

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Box clever

German express delivery firm DHL Express has continued to grow its business in spite of economic woes in the euro zone. Chief executive Ken Allen tells Claire Valdini why his services could be the key to solving the economic downturn

Box clever

Ken Allen has a hidden talent.
In addition to managing one of the world’s most international companies, the
German express delivery firm DHL Express, he is also a bit of a closet singer.

His rendition of the hit classic ‘Ain’t No Mountain High Enough’,
used in the firm’s 2011 advertising campaign, might not be quite as good as the
Marvin Gaye version but it certainly emphasises his point about investing in
brand awareness.

“We invest heavily in our brand,” he explains. “The reason
why we do the brand advertising — the deal with Manchester United [for example]
— is really so the small to medium sized companies see our name and when they
need to import or export, they call us first.”

It is a strategy that appears to be working. The division of
Europe’s biggest mail and express delivery group, Deutsche Post DHL, posted
revenues of 11.8bn ($14.7bn), a rise of 5.9 percent compared to the previous
year, in spite of severe economic conditions.

Coming from a firm that is widely regarded as a bellwether
of the global economy, Allen says the current economic outlook is brighter than
most newspaper headlines would have you believe. “It’s really hard at the
moment to try and cut through all on the doom and gloom you read about in the
newspapers every day versus what actual companies are reporting,” he says.

“With a lot of our customers, the general reaction at the
moment is that they are not too worried about 2012 because we are already six
or seven months into the year, but don’t ask about 2013 because they just don’t
know what is going to happen.”

In spite of the uncertainty in the euro zone and the gloomy
economic backdrop in the US, DHL has continued to grow its business amid
resilient expansion in Asia and increased demand for express delivery services
globally. Parent company Deutsche Post said in May that first-quarter net
profit had jumped by two thirds to 533m ($664.43m), exceeding analysts’
expectations. Revenue during the same period at DHL Express increased 7.5-8
percent.

“We are still seeing good growth in Asia, with the exception
of the tech sector,” finance chief Larry Rosen said. “Things are a bit
different than for our competitors because we have a broad network with which
we benefit from intra-Asian trade,” he added.

In addition to rising demand in Asia, Allen says many
small-to-medium-sized enterprises in Europe and the Middle East are keen to
expand their business abroad. “What seems to be happening at the moment is that
a lot of the small-to-medium-sized business in the Middle East and China are
now looking to export to new markets,” he explains.

“We are also seeing a lot of European companies… starting to
export more to get out of the current issues they are in. Spain, for example,
is doing exceptionally well — mostly from Spain to Asia and a little bit to the
Middle East.”

“I honestly believe that the way out of this [economic] mess
is [through international trade]. The world has got so much better over the
last years, especially since World War II, through international trade. It’s the
greatest thing that we can do, it opens up so many markets and so many
opportunities and it’s a massive driver of wealth creation, innovation and
opportunity and that’s why we feel quite proud to be part of it. If you are a
small business sometimes it’s really hard to think about how to get something
into or out of India or China or Brazil so that’s a lot of what we are trying
to do,” he adds.

In the Middle East, which was hit hard by the Arab Spring
unrest last year, DHL Express’ business is recovering. Allen says business in
Egypt and Bahrain, which both saw widespread anti-government protests, is
bouncing back. Much of this, Allen says, is due to the fact that DHL is so well-versed
at crisis management.

“In our business — we are in every country in the world
except for Turkmenistan — we deal with crises every day; aircraft can go
technical, new regulations introduced, a strike in air traffic control or a
problem with the gateway so I think we are quite good at scenario planning and
making sure we keep going in any kind of situation,” he explains.

The introduction of the long-awaited GCC customs union would
significantly ease the transport of goods, adds Allen. The union, which has
been talked about for several years, was given a significant boost last October
when the UAE’s Ministry of Finance issued a statement confirming that a “number
of recommendations pertaining to the finalising of the GCC Customs Union” were
made at a meeting of regional finance ministers. Plans to introduce a union
would effectively establish a trade-free bloc among the six GCC states.

“We are big supporters of a breakdown in customs barriers,”
says Allen. “We’re not saying reduce the customs duty, we’re saying it for
people to trade globally with other countries and for the world as a whole so
any kind of customs union [is helpful].

“When customs barriers came down in Europe, it was a massive
boost for business; all that paperwork, all that additional overhead that you
have to do to conform with all of those regulations, it just goes away so it
makes it cheaper for the manufacturer and consumer. I don’t think it’s an issue
of tariffs necessarily, I don’t think people mind paying tariffs, they just
don’t want it stuck for no reason so I think that anything that assists global trade
is something that we are very supportive of,” he adds.

DHL might be supportive of growing its business organically
but it isn’t likely to be making any acquisitions any time soon — unlike rival
United Postal Service. The Washington-based firm announced in March it would
acquire TNT Express for ¤5.16bn, the biggest purchase in the company’s 105-year
history. The deal, which is currently under regulatory review by the European
Commission, will vault the firm to equal footing in Europe with Deutsche Post.

If he is concerned about the competition the merger will
pose, Allen is good at hiding it. In an April interview with German newspaper Handelsblatt
he claimed he would rather “swallow razor blades than take over larger
competitors” when asked if DHL had missed an opportunity in not participating in
the TNT sale.

“I think that if you do an acquisition it’s a massive drain
on resources. For years, you try to build up an affinity to a brand, like
working for a DHL, and you get everyone fired up about working for DHL and
saying what a great company this is. And then you get taken over and maybe the
name disappears – that has a massive impact that the consultants that are doing
these spreadsheet exercises don’t take into consideration sometimes,” he
explains.

“I think it’s a well-known fact that most acquisitions are
not really creative and I think the bigger they are, the more complex they are.
I think if you are a $2bn company taking over a $10m firm, I think that’s
probably fine, but anything bigger than that is a problem,” he adds.

DHL Express, he adds, will instead continue to invest in
itself by launching additional routes, boosting investment in its IT systems
and focusing on improving its customer service. Last month, it opened its $175m
North Asia hub at Shanghai Pudong International Airport and announced plans to
invest a further $132m on eight dedicated aircraft to service high-demand
routes between Shanghai and North Asia, Europe and the US, by 2014. The company
is also currently securing new facilities at Cairo airport in Egypt to boost
its capacity in the North African state, says Allen.

“Everyone looks at our business as moving a package from A
to B or moving it to Dubai from Ras Al Khaimah. But it's really about moving it
from Caracas via another point to Dubai. Along the way we've got 20-odd
tracking points, automated invoicing and quality control centres that are
making sure that gets through so the investment in IT infrastructure, in people
training [is important].

“We have been growing at double-digit figures [annually]
except for a couple of recessions so facilities are always out of date so you
have got this consistent capital review. And then you need a new plane, each
one of those is quite a considerable investment. Our capex is around about
$600m a year,” he adds.

Singing renditions, it seems, will have to take a back seat
for the time being.

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