China delivers good growth for DHL despite tough competition
John Mullen recalls sitting in Sir Peter Abeles' office in the twin TNT Towers in Sydney in the early 1980s, watching his chief executive brief a junior colleague on how the company was going to break into the Asian package delivery market.
“The strategic discussion was, `Just go and open it'. He asked, `What do you mean by that?' and Abeles said: `Get on a plane and go and open Asia. It's got to be the future'.''
And with that, the junior executive was dispatched to Hong Kong.
“That was the sort of strategic planning in those days,'' Mullen says.
“People were sent off all around the world and you made the deliveries from the back of a station wagon and paid the wages on your Visa card because nobody had any money.''
Two decades later, the Chinese economy's exponential growth is driving massive demand for logistics services, both for the country's foreign trade and for internal communications.
As head of the Asian division of DHL Express, the global package delivery service owned by German logistics giant Deutsche Post, the 51-year-old Australian has had to move fast to meet the 50 per cent annual increase in parcel volume China has delivered over the past five years.
“You only get one China in your business lifetime. We're hiring about 1500 new people a year in China just to keep pace with the growth. Just getting people uniforms, a desk and email at that rate is mind-boggling. We're opening stations every month,'' Mullen says.
DHL Express now has about 6000 staff in China, having built up the business by exploiting existing relationships with foreign companies that were establishing Chinese manufacturing operations for the first time.
But as growth of the Chinese middle class transforms the economy from being simply a cheap exporter of manufactured goods to a consumer society in its own right, so is DHL's business changing from just being a conduit for the import of components and export of finished goods.
“We've opened a full domestic service right across China, servicing about 160 cities already, and that's going to be the battleground of the future,'' Mullen says. But in contrast to the strategy proposed by his former boss, Mullen says China must be approached carefully.
“Some people think you just have to go to China and you'll make money, but it's actually one of the most competitive markets I've ever seen, and the Chinese ability to manage extremely low-cost, high-volume solutions is legendary. There's no shortage of volume but making money from it is a bigger challenge.''
DHL Express, which first entered China some 25 years ago through a joint venture with state-owned transport monopoly SinoTrans, has made money there by focusing on the top end of the market — large Chinese companies and foreign multinationals prepared to pay the same price in China as they would be charged in other parts of the world.
“You can use a small local player who operates without a liveried vehicle, no technology, earth floor and so on, and the service might not be tomorrow, it might be the next day and occasionally it doesn't get there at all, but they're doing it for 20 per cent of the price we charge,'' he says of the local competition.
“That's not a market you want to enter as a company like ourselves — you can very easily trip up if you try to take those sorts of guys on,'' he says.
Mullen was this month promoted to chief executive of DHL Express, after the company merged its European division with the rest-of-world division he had been managing for the past five years.
Speaking from Israel, where he visited the local operation to open a new facility in Tel Aviv and congratulate staff for maintaining services throughout the conflict with Lebanon, he promises to continue watching China closely. But he is also relishing the even bigger challenge his new role has given him — cracking the US market dominated by his global rivals, UPS and FedEx.
“There's a duopoly that's been unchallenged for over 40 years, and while they've expanded out into the rest of the world, nobody's taken the fight back to them, and there are some industry pundits who think it's impossible,'' Mullen says.
Undeterred, DHL Express has in recent years built up a US operation employing some 50,000 people and flying 126 jet aircraft every night.
“We're still losing a lot of money there, and that drags down the group result for Express, but we just don't think we can be a global leader unless we have a strong platform in the US,'' he says.
“It will take us a few years yet to crack it. It's a titanic struggle. I described it to my colleagues as `corporate Viagra'. It doesn't get any better than that.''
He also hopes to get another chance at breaking into the Australian domestic market, after narrowly missing out in the race to acquire Star Track in 2003.
Star Track, which was snapped up for 750 million dollars by a Qantas-Australia Post joint venture, was the only standalone parcel service that could have allowed DHL an easy entry to the Australian domestic market.
“The options are now either to buy a number of smaller players and try to meld them together into a network, or start from scratch, but that's a long row to hoe,'' he says.
As he has been based in the US since 2002, an Australian acquisition would give him an excuse to more regularly visit his true home in Sydney, where he rejoins his family every six weeks, time permitting.
“It's not often and it's not ideal,'' he says, adding that trips home are supplemented by visits to Florida from his family during school holidays.
In the meantime, he soothes his homesickness by roping friends into watching the Aussie sports matches at a local pub in Fort Lauderdale.
