It's been nearly a decade since DHL ceased domestic U.S. express service. Its future success here will depend on executing in a very different delivery environment.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
Inside the halls of delivery giant DHL, the Jan. 30, 2009, termination of its money-hemorrhaging domestic U.S. express service is characterized as a "repositioning" and not a withdrawal. Semantics aside, it was a humbling blow to a company that had known little but resounding successes during its first 40 years.
Yet with those billions of dollars in losses came understanding. DHL Express returned to its original model, where the U.S. was one node in the company's 220-country air and ground delivery network, by far the world's largest. From the 2009 date on, all U.S. pickups and deliveries would have an international origin or destination.
Results over the subsequent years appear to bear out the wisdom of the move: Since 2013, its U.S. inbound volumes have risen 13 percent, compounded annually. Outbound volumes increased at an 8- to 10-percent compound annual rate from 2010 to 2017. Annual revenue compounded annually by 9 percent over that time.
DHL Express today averages 200,000 daily shipments moving to and from the U.S., roughly double its 2009 totals. In 2017, a rare year of synchronized global growth, outbound U.S. revenues rose by 14 percent over the prior year. U.S. daily inbound shipments grew 16 percent in 2017. Through May, inbound traffic is up 14 percent relative to the same period a year ago.
What may surprise those who perceived that DHL Express had abandoned the U.S. is that its footprint has expanded since it ended the domestic service. Today, the U.S. business employs about 10,000 people, roughly doubling its work force from 2009. It operates 4,300 vehicles, up from 2,500 in 2009. It has between 105 and 110 U.S. service centers today, compared with 95 in 2009.
Besides the improving U.S. and global economies and a more appropriate alignment with the rest of the DHL network, the U.S. unit's express operation has benefited from what would first be a nascent and then a dramatic increase in global e-commerce traffic. Today, e-commerce accounts for 40 percent of its outbound revenue. Six out of every 10 total domestic shipments it handles has a residential component. That is a far cry from DHL Express's near-exclusive reliance on domestic business-to-business (B2B) traffic nearly a decade ago.
If the DHL business units (besides Express, it has a large contract logistics business called DHL Supply Chain; DHL eCommerce, a dedicated e-commerce operation that works closely with the U.S. Postal Service (USPS); and a freight forwarding and logistics service called DHL Global Forwarding) are to sustain their U.S. success, e-commerce will likely be the talisman. According to SJ Consulting, a transport consultancy, about 38 percent of all U.S. parcels today move in distances of less than 300 miles, up from 29 percent in 2008. The weight of the average domestic shipment has declined by 17 percent over that time, according to SJ data. This reflects a migration to lighter and localized shipments triggered by more e-commerce activity, said Mark D'Amico, an analyst for the firm.
It also demonstrates a dramatic change in mix. For example, parcels today account for about 90 percent of DHL eCommerce Americas' current shipments, according to Lee Spratt, CEO of its Americas operations. A decade ago, Spratt said in a phone interview last month, virtually all of the unit's shipments consisted of large envelopes, newsletters, and magazines known in postal lingo as "flats." To reflect the change, the unit was rebranded in 2014 from DHL Global Mail, which had been in the U.S. market since 2004.
To put the market shifts in perspective, e-tailer giant Amazon.com Inc. today handles four times the U.S. volumes per year that DHL Express did in 2007, according to SJ data. In another sign of the times, DHL Express manages Amazon's daytime sortation operations at Cincinnati/Northern Kentucky International Airport, which Amazon is sharing as its temporary air hub until its own hub there is operational sometime in 2020.
"STRATEGY 2020"
Dominating global e-commerce logistics is one of the two core components of DHL's broad mission known as "Strategy 2020" (the other component is expanding within developing economies). Given its mandate, and because e-commerce is broadening beyond the small-package segment to include heavier, more industrial-type goods, all of DHL's components will have to operate in sync in order to maximize its value.
"We will need to be a full-service provider" to hit all of business's e-commerce needs, said Spratt, whose unit moves 400 million parcels a year in the Americas (most of them in the U.S. through a partnership with the USPS), in a phone interview.
While offering end-to-end services sounds good in concept, it could present a challenge in the execution. That's because each business unit has its own culture, a different service niche, and, perhaps most important, its own operating platform. The siloed model has been by design. DHL Express, for instance, offers time-definite service in the U.S. with an international origin and destination point, whereas DHL eCommerce interacts with USPS for domestic services that aren't time-specific and are offered at a lower price point. Integrating the sales, marketing, and IT (information technology) services for different types of customers could create more problems than it solves.
Spratt said DHL is working with third-party software developers to build more connectivity across its disparate business units. "It's a huge focus for us," he said.
To be sure, there are areas of cooperation. DHL has a dedicated unit that cross-sells its portfolio to big shippers. In addition, the Americas e-commerce unit uses space in four of DHL Supply Chain's fulfillment centers—Columbus, Ohio; Mexico City; Los Angeles; and Newark, N.J., which was scheduled to open around mid-July. The e-commerce unit also leverages its sister unit's technology, according to Spratt.
If there is one product that underscores how DHL is reacting to the changing times, it is "Parcel Metro," which was launched last March in Chicago. Run by the e-commerce unit, Parcel Metro provides e-commerce deliveries without utilizing DHL vans or drivers. Instead, it relies on local and regional professional delivery firms as well as a cast of crowdsourced citizen drivers and their vehicles, both of which are vetted by DHL before hitting the road.
DHL's goal is to use its brand and technology to build credibility with retailers and their third-party e-commerce partners such as Shopify. DHL also wants to attract a critical mass of qualified drivers who can cover as much geography as possible. In addition to Chicago, the product has been rolled out in New York, Dallas, and Los Angeles. It was expected to be launched in Atlanta at this writing, and will be available in San Francisco and Washington, D.C., later in the year.
Perhaps most important, DHL has gotten the jump on rivals FedEx Corp. and UPS Inc., neither of which has a similar product. If it succeeds, Parcel Metro is likely to boost the DHL unit's 2 percent share of the U.S.-origin e-commerce delivery market.
One unit that is unlikely to leverage Parcel Metro, however, is DHL Express. Its U.S. operations are unionized, and it's hard to imagine the Teamsters union going along with such a concept. What's more, Greg Hewitt, the CEO of the unit's U.S. operations, said in a separate interview that the DHL name is too powerful not to be as visible as possible. "We see great value in the DHL-branded vehicle," he said.
Jeremy Van Puffelen grew up in a family-owned contract warehousing business and is now president of that firm, Prism Logistics. As a third-party logistics service provider (3PL), Prism operates a network of more than 2 million square feet of warehouse space in Northern California, serving clients in the consumer packaged goods (CPG), food and beverage, retail, and manufacturing sectors.
During his 21 years working at the family firm, Van Puffelen has taken on many of the jobs that are part of running a warehousing business, including custodial functions, operations, facilities management, business development, customer service, executive leadership, and team building. Since 2021, he has also served on the board of directors of the International Warehouse Logistics Association (IWLA), a trade organization for contract warehousing and logistics service providers.
Q: How would you describe the current state of the contract warehouse industry?
A: I think the current state of the industry is strong. For those that have been focused on building good client relationships over the years, I think it’s a really exciting time. Coming out of all the challenges of the past few years, I think there’s a lot of opportunity for growth and deeper partnerships. It’s fun to see the automation and AI (artificial intelligence) integration starting to evolve [in a way that’s] similar to what we saw with WMS (warehouse management systems) in the early 2000s.
Q: You are now president of your family firm. Is it an advantage having grown up in the business as opposed to working elsewhere?
A: I definitely believe it was an advantage growing up in the business. Whether it’s working with family or someone else in the industry, there’s always an advantage when you have mentors[to guide] you. I’ve been blessed to have several mentors, some in the industry, others just in life, and I’m thankful that they were willing to mentor me and that I was willing to listen to them.
Q: What are the biggest challenges currently facing 3PLs, and how are you addressing them?
A: Labor and legislation are both tough right now. The two seem to have a lot to do with each other, and it can make it tough to find and retain people. So I think we’ll see more and more automation of processes industrywide.
Q: Third-party service providers often must handle a wide variety of products for a lot of different clients. Does this variety make it difficult to invest in automation and other new technologies?
A: It can make things more difficult when looking at certain automation, but it’s in the “difficult” that a lot of opportunities lie. It would be tough to find a single solution that fits every client’s needs, but there are always opportunities to improve in certain areas. It just takes a bit of vision and commitment, and a willingness to invest in your own long-term success.
Q: As a 3PL, what do you look for when selecting the clients you work with?
A: Quality relationships that will last a long time. When both parties are happy and working together in the same direction, everyone wins.
Q: You’ve been a board member of the International Warehouse Logistics Association since 2021. Why is your involvement with this organization important to you?
A: I think it’s important to understand what’s happening in the industry. IWLA is a great resource for staying up to date and getting a solid education when it comes to the latest logistics trends. I also think it’s important to give back and pass along what we’ve learned to those just getting started in the business. As important as it is to have a mentor, it’s just as important to mentor and help others.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modelling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”