New Delhi: Ken Allen, chief executive officer of DHL Express, part of Deutsche Post AG, says the Bonn-based cargo carrier will add capacity next year despite a slowdown in global cargo movement. Allen says the Indian arm of DHL, Blue Dart Express Ltd, will double its fleet over the next five years. Edited excerpts from an interview:
There seems to be a global slowdown in cargo and, except for DHL, every other cargo airline has said so. How are you seeing it?
What we are seeing from an express cargo point of view is that when there are problems in domestic economies around the world, companies need to export to find business growth. What we have seen so far this year is year-on-year growth in volumes pretty much around the world. Our business out of the Americas, Europe, out of Asia in particular is so far holding up reasonably well. And I think its people are looking for export opportunities to drive their business forward.
Ahead of the curve: Allen says the industry is growing about 15% in India and the company has been growing above the market rate.
I also think from a DHL point of view, we have invested a lot this year in additional aviation capacity. We are talking about the Bangalore freighter that links Bangalore to Europe, we have put round the world freighter on from Hong Kong through to Cincinnati, that gives people in Asia next day delivery into the US. And also we have been investing heavily in our people and our brands. So to date we are doing well. Nobody knows what the future holds but I think what the businesses have to do is to create that. We are looking at opportunities and we are looking at making sure that we don’t do anything that detracts from the service, so we are not taking out any capacity out of the network. We do see traditionally in this business there is a peak from Sep-Dec period. Is it as strong as last year? No, because it was a big bounce back last year but there is still a peak happening. For months (we heard) now the doom and gloom in the US and the last GDP (gross domestic product) figures come out and you know they are growing at 2.5%. When I speak to a lot of customers who travel around the world, people are cautiously optimistic about next year. I think what we have to make certain is that we don’t talk ourselves into a recession.
How are you as an airline dealing with the fact that economies are shifting and adjusting worldwide?
What’s very exciting for us, especially in Asia and India is a good example, is that the entrepreneurial spirit of smaller companies is starting to emerge. Obviously we deal with all the big companies but there is a whole mass of companies now that have built a good domestic position now, looking for export market to grow their business. That’s true in India, it’s true in China. They have gone through the different stages of growth—you have got very well educated workforce, strong middle classes who have gone to credibly good universities, now they want to start their own businesses and that for us is generating more and more export businesses.
A lot of our customers, if you exclude the big customers, are sending 5-10 shipments a week, never mind a day. But that’s where the growth comes from. What we see as well is the average shipment rate that’s coming through our system is increasing from 15kg to 30kg—it’s not going into tonnes right? But that creates the requirement for a lot of capacity. (In India) we have set up these SME (small and medium enterprise) clinics, one was in Indore and many other places, so they have access to the global economy so their products compete favourably there. So we bring the knowledge there and we assist them and then help them as they grow because their core competencies is their product. Our is logistics. So we marry the two and we believe these guys will be the guys of tomorrow.
How are you shifting capacity in your international network?
We are not shifting capacity, we are just adding capacity where the opportunity comes online. And I think we are bit more entrepreneurial and aggressive in putting that capacity on because sometimes if you look at it from a pure financial perspective, it’s hard to make the figures balanced. But what we found is that if you put the capacity on and you market it well then you can pretty quickly put flights to a positive contribution from the profit and loss point of view.
Are you looking at rebranding Blue Dart?
Why would you rebrand one of the strongest brands in India? I think that is a fantastic business in what it does and we should not mess around with it. We look at Blue Dart as DHL’s strong domestic arm (owned 81%). Our investments continue into Blue Dart. We have seven freighters carrying over 300 tonnes a night flying seven online stations. There is a very close coordination between domestic and intercontinental freighters. We will continue to invest as we see the growth story... Currently we have about 10,000 people in India and we will keep adding as we grow. The industry is growing about 15% (in India) and we have been growing above market. And we would add people probably in the growth rate half of that, about 7-8%. In the next five years we see it going to 700 tonnes-plus. It’s a question of capacity. Suffice to stay that we will be doubling our (fleet) capacity.
You said DHL invested about $5 billion (around Rs 24,500 crore) in the last five years globally. How would it look for the next five?
You have to put investments at the rate of growth of the market. What you don’t want to know is wake up tomorrow morning and find out your competition where you are not going and where they are opening a hub where you are not. We are the leaders and we have to take the leadership position and we have to make sure we are ahead of the curve, just like in the US where FedEx and UPS are investing ahead of the curve all the time.
You are opening a major cargo hub in Shanghai next year. When does a similar cargo hub look feasible for India?
It’s a question of time. There is the recognition that India is very important that’s why you see the investments that are happening. We want to be close to where the market exists. Now when in the future will there be a hub of that magnitude I think we don’t want to speculate, but clearly the growth opportunities are so much that eventually that that discussion will happen.
From a international perspective, how much capacity was added this calendar year, and how much will be added next year?
We put on two extra (Boeing) 777s this year, three extra 747s this year and maybe added adjustments to the European fleet. All I can say we haven’t cut back on any of our capital expenditure plans to date.
So you will add capacity in 2012, and will it be more than 2011?
Yes. I hope so.
Do you see yourself buying out anyone over the next one year?
Not in the express division. I think we learnt our lessons from what happened with us in the US and other markets. From an express point of view, we can grow and be very successful and profitable through reinvestment in our own business. We are better off putting that capital into our own business than looking outside to acquire.
Are you open to an acquisition?
I would rather swallow razor blades than make an acquisition. And that’s an express viewpoint... But I think we are better off investing capital in our core business that we know inherently.