Enterprise Risk Management at Deutsche Post DHL

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Excerpts

In early 2014, DPDHL restructured its old ‘mail division’ and the Post-eCommerce-Parcel (PeP) division came into existence. The PeP division was the largest postal service provider in Europe. It was also the market leader in the letter and parcel market in Germany. This division was divided into two units – Post business unit and eCommerce-Parcel business unit. The Post business unit served the Germany market and comprised the mail, retail outlet business, import/export business, dialogue marketing , press services, e-post business, and Postbus business. The eCommerce – Parcel business unit comprised the domestic and cross-border parcels business and parcel operations in select markets. The PeP division was the largest contributor to DPDHL’s total revenue, contributing around 28% during FY13. This division registered a 3.6% year-on-year growth in FY13 (Refer to Table 1).

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DPDHL transported urgent documents and goods under the Express division. By the end of FY13, the Express division had a presence in 220 countries and territories with 3 main global hubs and more than 40,000 service points. It had 31,000 vehicles and 250+ dedicated aircraft which served more than 500 airports all over the world. Under this division, DPDHL offered a wide range of products/services from export to import services and industry specific supply chain solutions to shipment and trading solutions and small business solutions

The Global Forwarding, Freight division was responsible for air, ocean, and road transport. DPDHL offered standard as well as customized and industry specific products under this division (Refer to Table 4 for various products offered by this division). The business model of this division was based on brokerage which kept it a very assets-light business model. The division contributed about 27% to the total revenue of the company.

The Supply Chain division provided warehousing, managed transport, value-added, marketing solution, and business process outsourcing services. This division provided customer and sector specific solutions across the value chain. By the end of 2013, the company had about 23 million square feet of warehouse space and 2,400 logistics centers, warehouses, and terminals to serve its customers across the various sectors (such as, Consumer, Retail, Technology, Life Sciences & Healthcare, Automotive, and Energy) which were spread over more than 60 countries.

DPDHL had a well established risk management system which helped the company to identify the risks at early stage. It helped the company to take the necessary steps well in advance and thus ensure continuous growth. Every quarter, the managers estimated the impact of a future scenario and evaluated the risks in their department. They recorded the measures they had already taken and the measures they planned to take in the future. The company had a hierarchical reporting based system for queries and approvals to make sure those different managerial levels were involved in the risk management process. In addition to this, risk could be reported at any time on an ad hoc basis.

DPDHL provided various services to its customers. These services came under sector specific regulation by the Bundesnetzagentur (German Federal Network Agency), pursuant to the Postgesetz (German Postal Act). As a regulator, Bundesnetzagentur had the power to control the prices and formulate policies for the smooth functioning of the sector. DPDHL had general regulatory risk which could lead to a fall in revenue as well as earnings in the event of tough policies from the regulator. It also faced legal risk from various ongoing court cases. Any negative decision from the court could seriously impact the revenue and earnings of the company.

The DPDHL business was spread across the world and it earned a major part of its income in currency other than the euro (home currency) which exposed it to currency risks. In addition to this, it had various assets and liabilities in non-euro currency. DPDHL divided the currency risk into two parts — Balance Sheet Currency Risk and Currency Risk from Planned Future Transactions, for the purpose of proper currency risk management.

DPDHL expected that by 2020 it would earn 30% of its revenue from emerging markets as against the contribution of 22% in FY13. Industry experts had confidence in the company’s management and their strategy. However, they were not sure how the company would manage country specific risks related to emerging countries. Appel said, “We certainly do not underestimate current geopolitical risks. Nor are we turning a blind eye to the recent trend of increased economic uncertainty in several important regions and markets.”

Exhibit I: USD/EUR Exchange Rate for Period from January, 2013 to March, 2014
Exhibit II: Organizational structure of Deutsche Post DHL
Exhibit III: Opportunity and Risk Management Process