Analyzing DHL from the Air - Freight Sector - Essay Example

?Report on DHL from the air - freight sector Executive Summary This report discusses the performance of the air freight service industry based on theexternal and internal analysis of an organization. In this context, DHL has been the global market leader in air and sea mail. While conducting the external analysis, PEST analysis and Porter five forces have been considered and in case of internal analysis, various aspects such as, assets, strengths, weakness and customer segmentation, are kept in view. The analysis, firstly, highlighted the potential threats and opportunities that the organization can face and secondly, it highlights the strengths and weakness of the organization. This is done to understand how organizations will perform in their near futures and the steps that can be taken in order to improve. Thus, the report suggests that despite the decline in the organization’s revenue due to the fall in their volume, they still have high potential to perform well in the future. Table of Contents Executive Summary 2 Business environment 4 PEST Analysis 4 Political 4 Economic 5 Social 6 Technology 6 Porter’s Five Forces 6 Rivalry within the industry 7 Bargaining power of the customers 7 Bargaining power of the suppliers 8 Threat of new entrant 8 Threat of Substitute 8 Assessment of DHL 8 Assets of DHL 8 Strengths and Weaknesses 9 Customers Segmentation 10 Conclusion 11 Reference List 12 Introduction Today the performance of an organization is not only dependent on the internal factors within the organization, but also on the external factors that continuously affect the internal operations. In this context, DHL has been considered in this report, on which the analysis will be conducted and recommendations will be made regarding the performance of their business. DHL is a segment of Deutsche Post DHL, a logistic company based in Germany that provides international express mail service. Deutsche Post is the world leading logistic company with major international presence. They are the global market leader in air and sea mail. The organization was originally founded in the year 1969 to distribute documents between Honolulu and San Francisco; however, the organization managed to expand their services throughout the world. Inter-continental and offshore deliveries were the main interest of the organization. The organization served many other countries, not served by any other air-freight organizations, such as, North Korea, Vietnam, China, Iran, Iraq, Eastern Bloc and Soviet Union (Zetes, n.d.). In order to conduct the performance analysis of the organization along with PEST analysis, Porter’s five forces, SWOT analysis as well as segmentation and targeting strategy of the organization, based on which the business performance will be discussed. Business environment PEST Analysis Political Air freight or air cargo is regulated by the policies established in the year 1994 in the Chicago Conference. When the policy was established, the air cargo industry was in its infancy and the agreements were mainly related to the limitation on foreign ownership and airline destination. These regulations were seen to affect the carrier operations such as, restriction towards the ground handling services and diversification of the ancillary functions related to air cargo. These restrictions had limited the ways of conducting business. In order to keep pace with the economic expansion and global trade, both the international and national regulatory frameworks related to air cargo were made more liberal. For instance, in US, the deregulation in air cargo not only liberalised the licensing of the carriers, but also opened domestic routes to encourage full competition. The common aviation area of Europe was decided, which allowed the carriers to operate in European Union. These reforms had considerable impact in the air cargo industry by open up skies, providing them additional trading and access opportunities. However, the liberalisation was taking place at a slower pace for South East Asia. In 2002, Memorandum of Understanding on Air Freight Services was signed, which was an important milestone in the implementation of open skies policy. Thus, it can be concluded that from political context, the business environment for DHL is quite supportive and helps in enhancement of business (Grosso and Shepherd, 2009). Economic The economic activity all over the world is measured in terms of Gross Domestic product (GDP). As far as GDP is concerned, it is expected to rise on an average by 3.2 percent per year until 2031. The growth in the GDP contributes significantly towards the increase in the air cargo traffic and international trade. However, currently, the deceleration in the world trade is expected to end by 2013, thereby strengthening the global trade. Industrial production is considered as an important component that contributes towards the world GDP. It is measured by utilities, mining and manufacturing, the key elements which act as an indicator of economic performance and signify the long-term trend of air cargo. This is because of the fact that the freighter aircrafts are often required to move the in-progress manufacturing items among the production facilities. The slower pace of industrial production has created significant impact on air cargo traffic all over the world; however, the reports forecast a moderate growth in 2013, which will further expand in 2014 (Boeing, 2013). Social The air cargo industry is heavily impacted by the political and economic factors as compared to social factors. The economic activity was seen to slow down in 2011 and had continued to cool throughout 2012. The higher amount of debt led to sluggish growth, which also decreased the confidence of consumers. Apart from this, the demand of consumers also gets lowered, which leads to further lowering of industrial production, thereby affecting the performance of the air cargo industry. Technology Technology is seen to create huge impact on the air cargo industry. GPS solutions have been introduced by many of the airlines, which allow shippers to track the condition and location of the important, critical and high-value shipments. The GPS is also seen to add more visibility to the supply chain that is already benefitting with the ability of technology to track and transact shipment (DHL International GmbH, 2014; Terry, 2012; The International Air Cargo Association, n.d.). Porter’s Five Forces Porter’s five forces is an influential analytical tool that helps in assessing competition within the industry. The five forces that are measured using this framework are bargaining power of the suppliers, bargaining power of the customers, threat of new entrant, threat of substitute and rivalry within the industry. Rivalry within the industry The airfreight market has been struggling for the past few years due to the decreasing amount of global trade, which made them shift some of their commodities to sea transport. There are large numbers of global players in the air freight industry such as, the African and Middle Eastern airlines, which have recorded a growth of 7.1 percent and 14.7 percent respectively. Cargolux, the leading cargo airline of Europe, are expanding their routes and networks into other countries. Etihad Cargo is an Abu Dhabi-based air freight company, which also has strong demand in countries like, India, Germany and Hong Kong. Apart from these, DHL also has major competitors such as, Cathay, Pacific, FedEx and UPS, who offer significant competition to the organization. Therefore, the large number of players in the industry indicates that rivalry within the industry is high. Bargaining power of the customers The bargaining power of the customers is quite high as there is large number of players in the industry, which provides them with large number of options from which they can choose their desired service provider. The customers can change their service provider by emphasizing on new product, quality and price. Bargaining power of the suppliers For air freight companies, the importance of suppliers is high as they highly rely upon them. The suppliers are selected based on the quality, cost-effectiveness and ethical policies they follow. Thus, they have a high bargaining power. Threat of new entrant The threat of new entrant for the air freight industry is quite low as high entry cost is involved. In a similar manner, if the business does not perform well, then the organization needs to incur high exit cost too. Besides that, the rising price of the fuel is also an important barrier to entrance of any new player in the industry. Threat of Substitute The threat of substitute is low. This is because of the fact that sending packed articles individually incurs higher amount of cost. Moreover, it is much cheaper to send through air freight organizations as it involves much lower cost, owing to economies of scale. Assessment of DHL Assets of DHL The brand DHL has emerged as a global brand in supply chain solutions, forwarding, freight, express and mail. They have created substantial amount of brand awareness among the customers due to which they are easily recognised. Apart from the tangible assets, the organization maintains large amount of intangible assets. They provide personal commitment, proactive solutions and quality service to customers, which are the main assets that help in creating their reputation. They belief in long-term relationship with the customers, built on the platform of confidence and trust (DHL International GmbH, 2013; Deutsche Post AG, 2013). To deliver this, the organization maintains a strong team that coordinates among themselves to provide optimal service to their customers. Apart from this, the high quality process and product that they deliver to customers is extremely important for the organization. Their brand portfolio, along with the sector specific know-how, are combined together to deliver appropriate solution to the customers as per their requirements. In delivering these services in an optimum manner, the employees and suppliers are the main assets. In DHL, the suppliers are selected through multi-step tendering process and they have designed their own Supplier Code of Conduct for the suppliers and subcontractors to abide by. Strengths and Weaknesses The major strengths of the organization are as follows: Global presence and reputation makes it easily recognizable by the customers. The organization looks at building long-term relationship with customers based on trust and faith. It has been positioning its brand to intensify the same image. Gives high importance to the feedback of customers. They act in the international market and respects and understand the demand of each and every culture. In 2011, in Sweden, the organization had won best customer service award. DHL provides safety insurance services through hi-tech technology and equipments. The GOGREEN program initiated by the organization to reduce carbon-dioxide emission, related to transport, through projects on external climate protection. Satisfaction among the employees by offering satisfying salary, which in turn stimulates hard work within them. The major weakness from which DHL suffers is as follows: DHL does not have a high number of employees as compared to its competitors such as, UPS. This signifies that the organization do not have a larger amount of human capital to exploit (Lewis, 2010). In the year 2012, the revenue of DHL had decreased by 1 percent, as a result of its declining volume by 5.3 percent. This fall in the volume was a result of the declining demand in the technology sector related to air freight (Solomon, 2013). DHL lacks liability insurance, which might lead to losing customers. Customers Segmentation Segmentation helps the organization in identifying the target group on which the marketing efforts will be applied. The main advantage of segmentation strategy is that it narrow down the market space and creates a dominant position in which the marketing will be conducted (Aaker, 2001; Gerhardt, 2002). Three main customers segments are identified by DHL; those are the strategic customers, relationship customers and direct customers. The strategic customers are those who are high-volume shippers with express shipment needs. They generally include the large multinationals. The relationship customers are those who regularly use DHL for shipping their documents and products, but in a lower volume. Lastly, the direct customers are those who are infrequent users of DHL. A major chunk of customers of DHL generally comprises of the direct customers, then the relationship customers and lastly, the strategic customers (Wirtz, Sen and Singh, 2009). Conclusion The above discussion is interrelated to each other and provides an idea regarding the performance of the business of DHL. The PEST and Porter’s five forces had analysed the external environment of the organization, which identifies the threat and opportunities faced by it. On the other hand, the strength, weakness, assets and the customer segmentation evaluates the internal environment of the firm. Based on these two aspects, the opportunities and threat that DHL might face can be recognised. The overall external analysis shows that the air freight industry has huge potential to conduct a profitable business and grow in the long run. The liberalization and technological development provide huge opportunities to DHL to expand their business in other countries. However, the unstable economic condition with declining GDP is an area of concern, which can adversely affect the customer’s purchasing decision and impact the profitability of DHL. The industry analysis shows that competition within the industry is quite high and the organization must focus on its quality and cost-effectiveness. They should upgrade themselves in order to retain their existing market along with their competitiveness. Overall, the scenario is quite favourable for the organization to grow and expand its business. Reference List Aaker, D.A., 2001. Strategic marketing management. New Jersey: John Wiley & Sons. Boeing, 2013. World Air Cargo Forecast 2012-2013 [pdf] Boeing. Available at: [Accessed 2 January 2014]. Deutsche Post AG, 2013. DHL - the Logistics company for the world. [online] Available at: [Accessed 2 January 2014]. DHL International GmbH, 2013. Reduce Capital Assets and Improve Supply Chain Efficiency. [online] Available at: [Accessed 2 January 2014]. DHL International GmbH, 2014. Worldwide Document Express. [online] Available at: [Accessed 2 January 2014]. Gerhardt, P.L., 2002. A paper presented in partial fulfillment of the requirements of OM 814 marketing strategy and practice. Journal of Service Marketing, 20(8), pp. 150-160. Grosso, M.G. and Shepherd, B., 2009. Liberalising air cargo services in APEC. [pdf] ECIPE. Available at: [Accessed 2 January 2014]. Lewis, N., 2010. What are DHL weaknesses compared to FedEx and UPS? [online] Available at: < http://www.logisticsmediauk.co.uk/articles/what-are-dhl-weaknesses-compared-to-fedex-and-ups> [Accessed 2 January 2014]. Solomon, A., 2013. Global airfreight market sees sluggish growth begin in 2013. [online] Available at: [Accessed 2 January 2014]. Terry, L., 2012. Air Cargo’s Future: Ready for Anything. [online] Available at: [Accessed 2 January 2014]. The International Air Cargo Association, n.d. Working to advance the world of air cargo. [pdf] The International Air Cargo Association. Available at: [Accessed 2 January 2014]. Wirtz, J., Sen, I. and Singh, S., 2009. Customer Asset Management at DHL in Asia. [pdf] National University of Singapore. Available at: [Accessed 2 January 2014]. Zetes, n.d. Consolidation helps us to increase business flexibility and improve service quality. [pdf] Zetes. Available at: [Accessed 2 January 2014]. Read More