Shippers and their service providers “have to learn to live in a world where there is more uncertainty than there has been in the past decade or two,” says Hessel Verhage, who became DB Schenker’s chief executive officer for the Americas region on Aug. 1.
Verhage, based in Miami, oversees the logistics company’s operations throughout North America, including the U.S., and South America, said multicountry sourcing, the ability to reflow inventory and make other adjustments are vital for shippers to adapt to a changing trade environment.
While he said there is little visibility into where the trade dispute between the U.S. and China is going, he remains optimistic.
“My guess is that at the end of the day, it will all work itself out with China,” said Verhage.
DB Schenker has about 11,000 employees throughout the Western Hemisphere. The U.S. accounts for about half of the company’s business in the Americas, followed by Mexico. Canada, Brazil and Argentina are other large markets for DB Schenker in the Americas. DB Schenker USA also named a new CEO Jeffery Barrie back in November 2018.
One unusual company DB Schenker works with is Peru’s Incalpaca, which is a luxury producer of clothing made with alpaca wool. The company says since early this year it has been supporting the company by providing airfreight and logistics services for Incalpaca, moving about 60 tons in the first half of the year.
With about 180 branch offices in the Americas, the company has a “major, solid footprint in all of the countries in both North and South America,” Verhage said.
Verhage said DB Schenker has ambitions to grow further and that the decision on whether to do that organically or through acquisitions will be made “at the right time.”
While there is a lot of discussion about companies possibly shifting production from China to Southeast Asia or Mexico or even to the U.S., Verhage noted such changes are not “done overnight.”
Smaller shippers may be able to make such a switch more quickly than mega-players, he said, “but I have not heard of any major importer out there that has made a dramatic shift. I really think we are in a wait-and-see mode.”
DB Schenker is an arm of the German railway Deutsche Bahn (the DB in DB Schenker).
While DB Schenker’s revenues are not revealed by region, in the first half of 2019, DB Schenker had worldwide revenue of about €8.5 billion ($9.4 billion), 2.3% more than in the first half of 2018. That was about 38.6% of the DB Group’s adjusted revenue of €22 billion. (DB Cargo, the group’s European rail freight business, accounts for another 9.7% of the group’s revenue.) DB Schenker’s global adjusted earnings before interest and taxes (EBIT) in the first half of 2019 was €238 million, up 10.2% from the first half of 2018.
Verhage did not give specific numbers, but said DB Schenker’s business in the America’s region in general mirrors the midyear report for DB Schenker as a whole.
“The foot is off the gas for air freight a little bit, but the company is still beating the market,” he said. “Year-over-year as a whole, the Americas is up and ocean freight has shown a little growth.”
Worldwide, DB Schenker moved 578,000 tons of air freight in the first half of 2019, a 10.6% decrease from the first half of 2018.
The company attributed the drop in air freight volumes to “slower development of global trade and global industrial production, which are impacted by political uncertainties resulting in trade obstructions. This affects all significant trade routes, only the trade lane from Europe to North America recorded growth.”
Its ocean business was more buoyant. DB Schenker arranged the movement of 1,115,000 TEUs globally in the first half of 2019, a 2.6% increase from the first half of 2018.
“The ocean freight market still recorded solid growth during the first months of 2019. The inner-Asian trade in particular continued to develop well. At the same time, the tariffs that were increased on both sides increasingly resulted in declining transports between the USA and China, with the consequence that growth will be more moderate compared to the previous year,” the company said in its half-year report.
As a buyer of transport, Verhage noted that DB Schenker’s procurement team is continually negotiating with its suppliers of transport and trying to bring down costs. But the company said in its half-year report that ocean “rates are expected to grow throughout the year, which is partially caused by better capacity management by the most important carrier alliances and the effect of the implementation of new environmental provisions on the shipping business.”
With its strong presence throughout the Americas, Verhage said he would like to see DB Schenker further increase its share of north-south intra-American trade.
Contract logistics accounts for a “significant chunk” of DB Schenker’s revenue in the Americas, where it has 21 million square feet of contract logistics warehousing space. The company says its contract logistics business has had above-average growth in Europe and the Americas.
“I personally like the contract logistics space,” said Verhage. “It’s optimization and specialization and tailoring to the customer’s needs site by site. Generally the agreements are a little more long term than the regular transactional nature of the freight forwarding business.”
The company’s contract logistics customers include companies in retail and manufacturers of high-tech, health care and automotive products. He said companies with complex supply chains “naturally lean toward contract logistics needs.”
Another client of DB Schenker is Airbus. The company helped the aircraft manufacturer develop a logistics plan for supplying its final assembly line in Mobile, Alabama.
Large ocean-going vessels move airplane components from Europe to Mobile where they are transferred to a barge at a new roll-on/roll-off terminal and then to the production plant. The new system was first used in May 2018.
The resources DB Schenker has poured into technology are among the reasons Verhage says he was attracted to joining the company.
Since January, DB Schenker has been rolling out what it calls its “connect 4.0” platform, which allows customers to book freight orders online.
The company said with the system customers “receive an immediate, specific price offer and can always track where the shipments currently are; connect 4.0 is being offered for all freight lines of business, air, ocean or land and has also been available in North and South America since June 2019.”
DB Schenker also is collaborating with Cisco to implement various “internet of things” technologies for logistics and is using an electric autonomous T-Pod truck made by Einride to move cargo between two warehouses in Sweden.
Products like connect 4.0 are helping DB Schenker adapt to digitization trends and what Verhage says is the increasingly transactional nature of the forwarding industry.
A shipper moving cargo from Hong Kong to Chicago in many cases will be moving it on ship or airplane with space shared by many companies or even, in the case of an LCL shipment, a shared container.
“And let’s be honest, pretty much at the same rate,” Verhage said. “When I started out in this business there was no Shanghai Containerized Freight Index, where I could look at every morning and see what the market rates were.”
As a result, there is a need for companies to find other ways to differentiate themselves. He said DB Schenker’s, history, reputation and “closed-loop global network” are important, but said differentiation “for me comes down to two things: people, which is a subjective, but whenever I visit a branch I challenge them personally to be better than the counterpart down the street, and the second is information.”