Acquisitive post offices under fire

A senior British logistics executive has warned that acquisitive European post offices risk repeating the mistakes of leading shipping lines and freight forwarders.

Edward Roderick, group chief executive of Christian Salvesen, said that forwarders and the lines “expanded into areas which they perceived as similar to their own core competencies.

“But then they quickly had to retract, losing their shareholders significant value in the process.”

Mr Roderick contended that the profit generation and performance of Dutch post office TPG and Germany’s Deutsche Post remained in their core postal markets, while the profit growth overseas in new markets “has as yet been, relatively speaking, small”.

He continued: “They are, however, using the cash generation and the freedom to generate money on the markets which liberalisation has given them to carry out this expansive view of life.

“The Americans, in the form of United Parcel Service, do not break down their figures but at a recent Warburgs conference indicated that after 10 years in Europe they had only recently made a gross profit.”

Mr Roderick was presenting the annual Neil Kinnock lecture to the Institute of Logistics and Transport in London.

He argued that in the 1980s shipping lines realised that a significant source of their income — customs entry charges — was going to disappear in Europe and similar processes would soon spread around the world.

“Their product was becoming more and more commoditised and margins were being squeezed.

“Does this also sound familiar?” said Mr Roderick, drawing a parallel between shipping lines and post offices.

“They did, however, have a large client base which was there to be developed.

“However, as an original idea this process didn’t work despite it being commenced by some of the larger players, people like NYK, Nedlloyd and P&O.

“And despite a spree of huge acquisition investments. The reasons are fairly clear to explain.

“Initially there was no through transit IT systems, although primitive track-and-trace did exist, so everything was disconnected, laborious, slow, imprecise and not customer-focused.”

The Salvesen boss added that shipping lines’ management saw “little or no financial benefit” for them and were not committed to the “new toys” bought by their bosses.

Internal corporate “jealousy and mistrust” saw component parts in the company-owned supply chain maxi- mise internal profit.

“Therefore, when a total price was presented to the client on an end-to-end basis, it was much more than the individual components they could buy in the open market.

“There was no concept of a single enterprise profit and the customers were failing to see the benefit.”

In a well received speech Mr Roderick identified other problems. Shipping lines had favoured routes and could not give total geographic coverage even within the primary economic zones of the world.

“They wouldn’t dream of recommending a competitor as an option and wouldn’t go out and buy forwarders, as this was seen as demeaning.”

He added: “They didn’t yet have fully developed links or partnerships to cover secondary distribution and warehousing, even though they were acquiring.

“The process wasn’t working. The investments were discredited and the majority recommenced a process of divestment and separation, returning to what was considered core competence.”

Speaking afterwards, Mr Roderick said: “I do not think that acquisitive growth automatically leads to success. Just ask Enron.”

He questioned whether the creation of logistics “mega brands” such as DHL, UPS, TNT and Exel would result in higher profits.

“There are not that many mega contracts to be won in the world, so the big players will have to compete on a cost-down basis against each other.

“That means they will not earn the high margins that they expected.”

But even bids for the smaller contracts would not go smoothly because “the smaller contracts have more choice and can hop around a bit to find the best deal.”