Letters and packages - DHL is doing better business in Germany
DHL's German operations are thriving while other business areas struggle. In the first half of 2024, the Post & Paket Deutschland segment saw a 2.8% increase in revenue to around €8.4 billion, with the company reporting nearly 600,000 employees worldwide. The operating result (EBIT) also increased by nearly a quarter to €324 million. The high demand for parcels contributed to the improved business.
However, the Express division, which focuses on international operations and is more important to the logistics company than its domestic core business, weakened: Express' operating result plummeted by more than a quarter to €1.3 billion.
Express shipments are more expensive than regular letters and parcels, offer faster delivery, and guarantee a specific delivery window. Businesses particularly use Express services to send important documents or urgently needed spare parts. Due to the slowing global economy, Express business is performing poorly. The logistics company's separate freight business also developed negatively.
In total, the company achieved a revenue of €40.9 billion in the first half of the year, a 0.3% decrease from the previous year, and an operating result of around €2.7 billion, a 20.1% decrease.
The core business in Germany plays a minor role for DHL, which was previously known as Deutsche Post. In the digital age, demand for letters continues to decline, with a 6% decrease in the number of items sent last year. However, the booming online trade is driving growth in the separate parcel business.
The dark clouds in the core business are beginning to lift, thanks to the recently concluded reform of the Postal Act, which allows DHL to save costs by reducing the time pressure for letter delivery.
Letter delivery is changing. From January, only 95% of letters must arrive by the third working day after posting, allowing the majority of letter volumes to take two working days longer than before.
Does this mean that the postman will appear less frequently in the street in the future? Chief Financial Officer Melanie Kreis says that the company is currently working on a new delivery system that involves bundling shipments more strongly. According to her, it is possible that the postman will no longer deliver advertising letters every day, but will wait until several advertising letters have accumulated.
Consumers can also expect the letter postage to increase in January, which is almost certain. Currently, a standard letter within Germany costs 85 cents, but it could increase to €1 in January.
However, this is not certain, as a calculation procedure by the Federal Network Agency is still ongoing to determine a price increase corridor for the post. A decision is expected in the fall.
The legislative reform and the expected postage increase make the core business more attractive for DHL. The company is confident that it will achieve more than €1 billion in operating results in the Post & Paket Deutschland segment in the coming year, compared to €870 million in 2023 and more than €800 million expected this year.
A higher operational result is crucial to enable sufficient investment in climate-friendly technology and other measures. The Post & Parcel Germany division is not expected to make a significant contribution to the dividend, according to Kreis. "However, it must earn what it wants to invest, and to do that, we need to exceed the billion mark."
Despite the decline in traditional letter delivery due to digital advancements, Germany's Post & Paket Deutschland segment of DHL is expected to surpass €1 billion in operating results next year, largely due to the reform of the Postal Act and potential postage increases. This growth will fund investments in climate-friendly technology and other initiatives, even though it may not significantly contribute to the dividend.
Germany, being the home of DHL's thriving operations, plays a significant role in the logistics company's overall success, as evidenced by the strong performance of its Post & Paket Deutschland segment in 2024.
