Hermes published its balance sheet for the 2016 financial year today. The annual report shows a clear increase in volumes (+ 10%) and sales (+ 7%) in the relevant business units of parcel distribution and two-man handling. Donald Pilz, CEO of Hermes Europe GmbH, evaluates the result in an interview and explains the opportunities and challenges involved.
Mr Pilz, you have just completed your first year at Hermes. That means that this is the first annual report of Hermes for which you are directly responsible. What is your conclusion?
Donald Pilz: We achieved a good result in the 2016 financial year. In our core business – that is, parcel distribution and two-man handling – in particular, we have grown significantly and have strengthened and expanded our market share. After all, as an established logistics partner to many dealers, we are in a highly dynamic and currently also geopolitically very challenging market environment.
International trade is characterised by new trends in e-commerce and m-commerce, for which we are preparing with a forward-looking approach and significant investments. Added to this are new uncertainties in Europe, for example in the wake of Brexit, that have an effect on the investment climate and the exchange rates. Against this background, I am very satisfied with the performance of our group.
I am in particular pleased that in third-party customer business, our growth is clearly higher than the market trend in the parcel divisions in Germany, the UK and Austria, as well as in two-man handling. These are important constants that we build upon. In other business areas, we still see potential for optimisation. Here we will adapt our strategy and, for instance, accelerate international development.
The French-based companies Mondial Relay and Girard Agediss are now also part of the Hermes Group. How does that fit in with your future orientation?
Donald Pilz: Very well! These two companies, which previously belonged to the 3SI Group as part of the Otto Group, are an ideal complement to our existing portfolio. Mondial Relay is an important building block in our gradually expanding European parcel network. As is known, Hermes has its own parcel companies in the UK, Austria, Italy and Russia.
In Mondial Relay, we have now gained a heavyweight in 2C shipping in the most important southern European countries that we have been unable to service ourselves – especially in France, Spain, Belgium, Portugal and Luxembourg. This will have a very positive impact on cross-border parcel shipping in Europe, as this will be simplified in terms of the customer’s demand for a “one-stop service provider”.
Another asset within our business model is the highly successful two-man handling. Hermes Einrichtungs Service has been very successful in Germany for many years and already offers transport services to neighbouring countries. The direct connection we get to the French market through Girard Agediss now completes this business model. Accordingly, we expect the positive growth trend in this segment to continue.
A look at your balance sheet shows that sales and volumes are rising. What about revenue?
Donald Pilz: All the players in the market, including Hermes, are under pressure to make their business profitable in the face of growing demands in human resources, technology and infrastructure. The ongoing boom in e-commerce, which has in a positive sense been the guarantor of our growth for many years now, of course, also requires that we make significant investments – and that we do so with foresight. We are doing that everywhere – for example, in Germany we are opening new logistics centres worth around 300 million euros, and in the UK we will be opening another new parcel distribution hub in Rugby this autumn. Then we are also investing in new services, such as same-day delivery, which we operate by joining strong partners or promising start-ups like Liefery and expanding the business.
One thing is clear: these investments must first be earned, and that is often in conflict with the margins that can be raised in the parcel market. In order to achieve a sustainable cost-to-benefit ratio, our services must in the medium term be structured and priced in a more differentiated manner.
The tourism industry, for example, increases their prices during the holidays – in other words, over peak season, when many people travel, which brings in money, but for which tailor-made capacities must be provided. In contrast, we do not increase our prices during the peak shipping period, that is, for the Christmas business, even though transporting the significantly higher volumes over this period usually causes significant additional costs. But thus far, the necessary willingness to pay is present neither in the trade nor among consumers.
Let’s talk about digitisation – what role does technical progress play?
Donald Pilz: Digitisation has a tremendous impact on our business. The new digital options give rise to extremely fast development in the service area, which passes on from retail to us and is often already present upstream in logistics. Hand in hand with demographic changes, digital transformation ensures that the customer is increasingly in the centre and has an actual say in the offering.
Digitisation also helps us make our processes more efficient and thus more compatible with people and the environment. The pivotal point is management of the data and information that shed light on how we can reach our customers in the most direct way in their everyday lives. We initiate development centrally, but implementation takes place in the national companies.
Germany and the UK already have their own DigiLabs, which are committed to driving this development forward with colleagues who are appropriately accomplished in this area. We establish best practices across the group or use our start-up companies to set or develop new standards.
You recently signed a deal with Mercedes-Benz for the development of e-mobility. What is that all about?
Donald Pilz: In addition to new locations and ParcelShops (POS), the fleet is an important area for us to invest in and to position ourselves as a forward-looking company. Especially when it comes to testing e-mobility, we have a long history dating back to the 90s.
Hermes Germany has now concluded an agreement with Mercedes-Benz to jointly ensure that there are 1,500 new vehicles on the road by 2020. The management colleagues of Hermes Germany took the lead in this agreement with Mercedes-Benz and thus set a clear signal for a trend reversal. That is because this measure explicitly supports the objective of specialising mainly in ecologically compatible delivery in metropolitan areas in the future.
It is already foreseeable that access barriers will increase in many urban areas – as is for instance already happening in London, where Hermes has been making deliveries to customers exclusively by e-mobility since 2015. We can therefore not help but look into alternatives early on. I’m looking forward to the upcoming pilot project! And it does not stop there – by 2025, we want our deliveries to be 100% emission-free in the inner-city areas of all major German cities.