Deutsche Bahn sees future in global freight, logistics arena

Germany might be a country far, far away for most Chinese, but many warehouses and trucks in China's large cities bear the DB logo of Germany's state-owned railway operator, Deutsche Bahn AG.

Handling and transporting goods from all over the world is developing into an increasingly important business for the conglomerate.

With the acquisition of the US logistics company Bax Global at the end of last year, the transport firm Schenker, a Deutsche Bahn sister company, has ascended to the top of international freight forwarders and is expected to consolidate its position not only in China.

For Deutsche Bahn chief executive Hartmut Mehdorn, expectations for growth in this transport sector are high and crucial for the company's planned stock-exchange listing.

"We want to become one of the world's leading freight-forwarding and logistics conglomerates," Mehdorn said.

The purchase of California-based Bax Global cost almost 1 billion dollars and, therefore, must yield financial returns rather sooner than later, the executive added.

To achieve this, the activities of about 50,000 employees in 150 countries have to be combined and interlaced, Mehdorn said. By the end of 2007, the brand name Bax is to be completely assimilated into the brand name Schenker.

The new venture has already helped revive balance sheets and was a strong contributor in increasing Deutsche Bahn's turnover by 19.1 per cent in the first half of 2006 to 14.5 billion euros (18.53 billion dollars).

Deutsche Bahn's freight experts are also aiming at a stronger performance in China.

Personnel in the booming market already doubled through the Bax acquisition to 3,000 employees at 70 locations.

"Next year, we want to hire another 200 to 300 people," said managing director Andrew Jillings, who is overseeing the China business, currently worth 1.2 billion euros per annum.

The ledgers contain orders like containers for the Volkswagen manufacturing plant in Shanghai or special packing services for the electric-appliance company Bosch.

Warehouses stacked up to their ceilings make clear Deutsche Bahn's changing business direction.

Almost half its freight business is not transported by railway any more, and almost one third comprises foreign goods. The name Schenker has become synonymous with transportation by road as well as air and sea.

Despite such an expansion, railway traffic would remain Deutsche Bahn's base business, Mehdorn asserted, adding, however, that with this segment alone, the financial strength needed for new investments could not be achieved.

Germany's federal government, as Deutsche Bahn's owner, supports the company's global ambitions although some parliamentarians have warned of an expensive expansion covering overseas markets far from the national railway network.

Private investors, whose interest Mehdorn intends to capture for the company's planned stock exchange listing, were also expected to cautiously observe if the strategy bears fruit.

On the other hand, access to new funds from the financial market is important for Deutsche Bahn's logistics ambitions as the conglomerate has to compete globally with rivals like Kuehne and Nagel and the Deutsche Post.

"One simply has to play hard in a business sector that is swiftly consolidating itself," said Norbert Bensel, chairman of Deutsche Bahn's freight department.

The company, for example, wants to gain a foothold in Dubai in the United Arab Emirates.

Although Dubai's plans for acquiring a share in the Hamburg Port Authority failed, negotiations for holdings with freight-terminal operators continue to be on the agenda.

In the case of China, planners are currently evaluating a project to build a cargo railway line leading through Russia all the way to Germany.

The venture would be an expensive one, but if implemented, it would save several days in transporting goods compared with sending them by container ship.