The postal group that now delivers
Klaus Zumwinkel likes to show visitors the spectacular view from his corner office on the 40th floor. The chief executive of Deutsche Post points out the sweeping vista from the end of the Rhine valley to the church spires of Cologne.
The 62-year-old also likes to concentrate on the sights nearer to home in the former capital of West Germany. "There is our former building, which we sold to build this skyscraper. And there is Deutsche Telekom, where I am the supervisory board chairman. And next door is Postbank, in which we own a majority stake," he says.
The view highlights both the power of Mr Zumwinkel – Deutsche Telekom is the country's largest company by market capitalisation, and Postbank its biggest retail bank – and the remarkable transformation of Deutsche Post from an underperforming national player into Europe's largest postal group.
"When I started here 14 years ago it was a lousy ÂGerman mail company with lousy quality and huge losses – it was a government agency," he says. "Now we are a (publicly-traded) company, the free float is 55 per cent, we are in 220 countries, we are nicely profitable and have wonderful quality."
This month, the Berlin government sold its remaining stake in Deutsche Post to the KfW state bank, where 45 per cent of the shares now reside.
It took Deutsche Post a long time to transform itself into the company that last year generated revenues of Euros 43bn and an operating profit of Euros 3.35bn. Its German workforce was trimmed by 140,000 over a decade as the business tried to become more efficient in its home market. Mr Zumwinkel is proud of avoiding compulsory redundancies but he notes that "even in good times we have to work on our productivity".
Part of this success is due to treating unions as "partners, not enemies", he says, adding that labour reform "is my passion".
Deutsche Post sponsors the Zukunft fur Arbeit (Future of Work) think-tank in Bonn, run by Klaus Zimmermann, head of DIW, the leading economic institute. Mr Zumwinkel is also outspoken in his support of two ideas touted by the conservative opposition: raising value added tax to finance the social security system, thus easing the burden on employers, and breaking up the regional wage bargaining system that he believes constitutes a cartel.
Mr Zimmermann supports the initiatives, too, saying that an additional four per cent on VAT to bring it to 20 per cent could create up to 500,000 jobs. "It would also lead to more demand, which is one of our biggest economic problems," he adds.
But in the past few years Mr Zumwinkel has also been active in another part of the German corporate restructuring story – that of the finance sector.
In June 2004, one-third of Postbank's shares were listed on the Frankfurt stock exchange – but only after a botched initial public offering that saw Mr Zumwinkel arguing with his advisers over the bank's valuation and confusion over whether Deutsche Bank might actually have preferred to buy the bank itself (a solution that the Berlin government seemed to favour).
Mr Zumwinkel's silence is telling when he is asked about Deutsche Bank's role, but he is nonetheless forthright about the needs of the German banking industry.
Despite the flurry of excitement following the proposed takeover of Germany's HVB by Italy's Unicredito, Mr Zumwinkel argues that German banking does not need consolidation in the private sector: it is the public sector that needs opening up, he says. Local authority-owned savings banks and Landesbanken make up just over half of the market, dominating retail banking at the expense of Postbank and others.
"Germany was so efficient at privatising German industry," he says, adding that the banks should be privatised too. "The state is not a good provider of management," he says. This may surprise some, given that Deutsche Post was majority-owned by the German Âgovernment until earlier
this year.
Deutsche Post may now be in a position of relative strength compared with 14 years ago, when Mr Zumwinkel took over, but new challenges are still emerging.
Top of the pile is the need to be global. For a long time the missing piece in Deutsche Post's strategic jigsaw was the US. This has now been filled by the acquisition of two package delivery companies: DHL, in stages from 1998, and Airborne, in 2003. But investors are worried about long-term losses in the US. The company has set a break-even target for the
last quarter of 2006, yet ÂMerrill Lynch analysts claim the current share price Âsuggests the US operations will become profitable only in 2013.
Mr Zumwinkel, who speaks with almost evangelical intensity over the importance of the US, is more than confident the target will be reached.
"For me globalisation is the huge challenge for Âtransportation or logistics. World trade is growing at twice the speed of GDP. All this trade has to be transported and delivered. And if you have global customers you have to have a global network," he says.
Not having operations in the US would mean missing out on that volume, he adds. Nevertheless, Deutsche Post's ambitions in the US look increasingly modest. At the outset there was much talk of challenging the Âdominant players, FedEx and UPS. Now Mr Zumwinkel says he is happy with the 7 per cent market share the group has in the US, arguing that profitability, not size, is the key.
Besides the US problems, Deutsche Post faces trouble in its own backyard. The European Commission has provisionally scheduled complete liberalisation of postal services in member states for 2009. Germany has gradually been opening up its market to competition but there are laggards elsewhere, says Mr Zumwinkel.
If France, Italy and Spain try to delay liberalisation, he says, he will call for deregulation to be delayed in Germany and the wider EU.
He points to the case of Electricite de France, which embarked on a foreign spending spree while its home market remained inaccessible to outsiders. Mr Zumwinkel outlines three strategies to deal with the increase in competition – focus relentlessly on quality, be as flexible as possible through outsourcing, and enter foreign markets.
Another big challenge looms large: for years, critics have said that faxes, then e-mail, would kill off the postal business. So how does Mr Zumwinkel think the Âindustry will look in five years' time?
Perhaps unsurprisingly, he is upbeat. He admits that
e-mail will gradually strangle the life out of personal mail and that business mail will decline slowly. But the growth of direct mail will more than compensate, he believes.
"When I started as a mailman all my friends said it is going to die . . . I'm optimistic. Mail will be at least as strong as today. It will be a strong utility market."
Finally there is the question of how long Mr Zumwinkel – one of the longest-Âserving chief executives at a German blue-chip company – will continue in the job. He smiles and relaxes into his chair, saying he will serve as long as his shareholders want him to. "I climb high mountains in my leisure time and I want to also climb high mountains in my professional time," he adds.
