Logistics World Coped Well With Pandemic Demand Shock: DHL Express CEO John Pearson

In this week’s The Core Report: Weekend Edition, financial journalist Govindraj Ethiraj speaks to Pearson about the shifts in global logistics and DHL Express’ role in it.

6 July 2024 12:30 AM GMT

Global trade has changed significantly in the last two decades. Especially in the last decade, the logistics industry has grappled with wars and global calamities leading to trade disruptions, a shift towards automation, more efficient processes, as well as the growing importance of sustainability and electrification.

DHL Express CEO John Pearson explained that interruptions in global trade have become more common, but the industry has also become more resilient. “It's bounced back to pre-pandemic levels. The logistics and supply chain world performed extremely well during the pandemic,” he said. The fundamental patterns of global trade have not significantly changed, with trade continuing to flow intercontinentally from east to west, he explained.

There has been a shift to automation in warehouses, more DHL Express aircraft using sustainable aviation fuel, and more reliable transit times. Last mile electrification has also increased. “We have aspirations to get to carbon zero in 2050,” he said. “We have aspirations to get a certain reduction in our carbon emissions by 2030.” That means, of 1000 vehicles they have, 600 would have to be electric.

In this week’s The Core Report: Weekend Edition, financial journalist Govindraj Ethiraj spoke to Pearson about the shifts in global logistics and DHL Express’ role in it.

Edited excerpts:

Before we come to where things are today, can you tell me what's changed fundamentally in the way the industry has worked? And let's say packages have been delivered in the last ten or 20 years, and where is that change being felt the most?

Okay, well that's a fascinating question and I think you gave me the window of 10 to 20 years. So let me say, as if I was explaining that to a group of people, I think what hasn't changed: the world hasn't changed, in terms of its geography. And our hub and spoke system hasn't changed very much. There are more hubs and there are more spokes. But I'd like to imagine that people think certain things haven't changed. Global trade has changed. I'm sure in our discussion here, which I'm very pleased to be having, by the way, global trade has changed quite a lot. And the mercurial nature of trade and imagined lines going all over the world, that certainly changed quite a fair bit over the last 10 to 20 years.

And then I would say that in terms of how a package moves and I was talking to a group of students or something, I'd say if they looked up in the sky, they would see more efficient aircraft. They would have seen many aircraft 10 or 20 years ago or so, but they would see newer and more efficient aircraft. If they could see into the fuel tank of those aircraft, they would see some sustainable aviation fuel sloshing around in the tanks. That's certainly a development that has come in the last 18 months to 24 months maximum. If they wandered around our facilities, they would notice the change from mechanised to automated, sophisticated mechanisation to super sophisticated automation, I would say.

They would notice that more efficient handheld scanning and technology is in the hands of the operators. They would not notice much more sophistication in terms of our x-ray and security scanning and volumetric scanning of packages and the types of equipment that is on our hubs in that sense. I think those are, would be the things that I would call out. And then the transit time, which is the ultimate measure of our product. People entrust us to send something from A to B, the transit time reliability, I would say, is quite similar, but at a much higher level of reliability, given the technological and digital advances and the system uptime and the, the lower level of outages and the system reliability. So the transit time reliability would have improved, although the transit times themselves would have probably improved quite immaterially in that sense, planes are faster, but not necessarily that much faster than 10 to 20 years ago. So that would be the backdrop of what I would say a little bit of global trade commentary and really the sophistication of the industry and the aviation part of that.

If they're walking down the streets, and maybe this would be my last comment, they would notice that the electrification of our last mile, first and last mile, the electrification of our vehicles and the solar panels and the carbon neutral nature of our facilities would quite impress them, I feel, as to how much progress has been made in terms of our, our environmental goals as quite clearly documented over the last few years.

That's the front end and that's a useful insight. Now tell us about what's changed in the backend. So, for example, let's say the amount of computing power that goes to processing all that data coming in and the intelligence it creates and feeds has changed. So how would you list some of the significant changes there which have made, I'm assuming, your job easier?

Well, I think that's the digital and the technological comment that I made as part of our strategy, our last strategy cycle. We're about to unveil strategy 2030 in

Q4 four this year. But part of our last strategy cycle, in fact the headline naming of that strategy cycle was digitalization. And each division within the brand architecture of DHL supply chain, global forwarding, e-commerce, Deutsche Post, and DHL Express had their own aspirations and ambitions as to how to use digitalization in the business.

And our little summary of that, given that the word digital and digitalization is not new, don't forget there was a company called Digital Equipment, a company founded in 1957. So we made clear our aspiration that the company and the employees embrace technology for the benefit of either customer satisfaction, employee engagement, operational efficiency or all three. And many of the digital innovations and enhancement have in fact been all three.

One little example I can give you is the digital forecasting capability of hub-to-hub volumes, which allows us to have a much better feel for the empty space on an aircraft in real time and ahead of time, which allows then our air capacity sales division to sell into that empty space with higher degrees of confidence that material would move in that empty space than ever before. So a number of different initiatives across those three dimensions allows the organisation to really understand something that's been alive and well for 20 or 30 years or longer, how we can run faster and try harder across those dimensions for the benefit of either customers or employees or operational efficiency.

Let me come back to global trade, and you touched upon it. So in the last decade, we've obviously seen Covid, which was a sort of almost extinction event, but we've also seen trade pattern shift, and we've seen wars. We've seen the Russia-Ukraine war. We've seen the Israel-Hamas war, all of which has caused many changes in the way trade, including movement of oil, and movement of goods, has happened in some specific regions, but also affected the rest of the world. How do you see that from your vantage point?

Okay. What I would say there is that I think one of the things that I could have included in the answer to your first question there as to what's changed is that interruptions in global trade are much more common. I think this was something that hadn't really been seen before. And the first time it really happened was in 2011 or 2012 when the Icelandic ash cloud situation happened. People think it was just a meteorological event, but no planes flew above Europe for about 30 days. That was an interruption. Then we had the pandemic, which was the biggest interruption of all. Then we had the Russia-Ukraine situation with no planes allowed to overfly Russia. We had the Middle East Israel-Gaza situation, and the consequence of the Red Sea situation, which means there's a much tighter capacity and longer sea freight journey.

So personally, interruptions in global trade have become far more common. But we have been publishing the ‘Global Connectedness Report’ for the last 10 or 12 years. And one of the things that you can really say is, despite all the nationalism and protectionism and onshoring, reshoring, friendshoring rhetoric that's out there, global trade is extremely resilient and it's bounced back to pre-pandemic levels. The logistics and supply chain world performed extremely well during the pandemic.

In fact, there was a cartoon in The Economist that suggested that the pharmaceutical companies would be busily successfully making the vaccines, but the logistics industry would struggle to deliver them. Well, that was not the case. In fact, we delivered 5 billion vaccines with almost zero percent spoilage. So the logistics industry coped extremely well with the demand shock that came with the pandemic.

And then I would also say, just to keep my answer somewhat brief, that global trade is very resilient.

And this concept of near-shoring and everything being done on people's doorstep really hasn't materialised. Nothing really changed after the Icelandic ash cloud crisis. And to this day, the distance global trade moves is still approximately 6300 kms; same, if not slightly more than it was a decade ago. What that says to me, that simple KPI 6300, is that global trade is still moving intercontinentally from east to west, mainly along the old lines of trade, from yesteryear through the Malacca Straits and so on and so forth.

Those supply chains have served people extremely well. They've served them well from an efficiency point of view. They've served them well economically. And those trade lanes and those supply chain configurations are still in place. And as much as companies promise and intend and have the aspiration to de-risk and decouple and all these sorts of things, some of that has happened around the edge, around the fringe, but by and large, trade is still behaving in quite a similar way, although different trade lanes have opened up as countries have signed trade agreements and so on and so forth.

And I would say that despite coming off an all-time high, China and the US are still each other's largest trading partners. And there is no data amongst the 3 million data points within our Global Connectedness Report that suggests that there is any fragmentation of trading blocs between China dealing with their allies and the US dealing with their allies. There's no evidence whatsoever to support that. I think it's important to put that on record and say that the trade lines that exist don't suggest that has started taking place.

You talked about interruptions in global trade, and that's a useful point to pick on, because right now, for example, not on air cargo, but on the seaside, we are seeing interruptions or delays, particularly in the Southeast Asian region, which obviously affects India. Now, I mean, not to go too deep into that, but what does that say about the way the logistics industry is set up to handle, let's say, spikes in demand, or let's say unexpected interruptions, as you called it?

Well, I think by and large, it's set up very well to cater that and to cater to those disruptions. And that's why global trade continues to move. Yes, there have been seaport delays. Yes, there are situations where sea containers aren't always in the right place in order to keep those things moving swiftly. Yes, for sure, the route that sea freight has to take around Africa increases transit times, makes transit times slower and puts pressure on capacity. But on the whole, and I'm speaking for Express here because Express is the air end of the DHL nomenclature brand architecture, if you will. What it means for us is that there's some movement of sea to air as people get nervous about having the right goods in their warehouses at the right time. And there are some moved from air freight to Air Express. And during the pandemic, companies were putting edicts and mandates out that requested all air freight up to a certain weight to move by Air Express. So that has happened. But I think on the whole, the industry caters very well to those interruptions and those spikes that you refer to.

Let me come back to on-ground. In India, for example, you've kicked off a new shipment sorting hub in New Delhi. Now, again, in a broader sense, and you did talk about how last mile automation is speeding up. So is speeding up the key outcome of, let's say, such automation centres and let's say, use of robotics and technology, or are there other benefits as well?

Yeah, I think the benefit is efficiency. I always say with robotics and automation people, when I talk to employees and they say, Oh, will we lose our job? I say no. Firstly, we're still growing. We're still employing more people. Our total employee base, 110-112,000 in DHL Express, is increasing. What I like to say is automation and robotics sort of take away the boring jobs, take away the things that can be done like that. And our employees can be in roles that add more value. But taking that auto sort, that daily auto sort. Yeah. Efficiency in the last mile is extremely important.

The plane, you know, the pickup happens, the shipment moves through a facility, a service centre, a gateway and a hub. The transit time of the airplane is roughly what it was 10 or 20 years ago. And that efficiency in the first and last mile, and correctly routing shipments to a certain courier that does a certain route in north Delhi or south Delhi, or west Delhi or east Delhi, saves time and makes the operating day less stressful and more efficient for the driver, who knows exactly turn-by-turn, as it's called, which route they should take.

So it's as much back to my little summary of what digitalisation is in DHL Express as much an employee satisfaction thing as a customer satisfaction thing because they have an increased level of visibility when they're going to get their package, as to cost and efficiency. So that example you speak of talks to all three elements of the reasons for digitalisation that I spoke about, and the auto-sort in Delhi is a great example of that.

And what's changed on the back end? What are the, let's say if in your cockpit view of things that are moving around across the DHL Express system on any given day, what are you tracking most closely and what are the green lights and the red lights?

Well, we track so many things, but ultimately the main thing we track is transit time. So we track the door-to-door transit time, and the elapsed time from pickup and delivery. And you can imagine that at any one point of time, there is pickup, there is a depart facility, there is an okay scan at the end, there are scans as shipments move through the hub…So that's the thing that we monitor most carefully because that is the thing that is most allied to our ultimate promise to the customer. When someone selects DHL Express as their carrier and pays more than they would in the post office or maybe more than they would with other carriers, they want transit time reliability, transit time surety, and shipment visibility, so that they can know when it's coming.

It may be coming to them if it's an e-commerce purchase or it may be going from one manufacturer to their customer if it's a B2B shipment. So ultimately we're tracking the movement of packages through our network and ensuring proactively that in any one stage where there is something isn't where it should be by a certain time, that we try and remedy that in order to achieve the stated transit time that we promise our customers.

And I'm going to come to a specific question on that in a moment. But when you look at, let's say, trade and the logistics industry, let's say including companies like DHL, have made the movement of goods faster, more reliable, and more information tracking all the time. But on the other hand, I'm sure it is the case that many countries have changed tariff regulations or imposed tariffs or changed customs procedures. I mean, without getting into any specific country, how is that changing and how is that affecting, let's say, the free movement of goods or the relative free movement of goods that may have been there a little earlier?

Yeah, so that's a great question. So two dimensions, customs and uncertain sort of tariffs. So as these tariff situations evolve and there are some that are positive to global trade and there are some that maybe impede or slow down global trade, and some of the tariff discussions between China and the US obviously could fit into that category. But we have to respond, you know, we're ready to respond to any of those tariff situations. And that dictates, as I used the word before, the rather mercurial nature of trade. When people want things, people find a supplier to get them from. And if they don't typically get them from the supplier that they're currently purchasing from, because tariffs have changed, there'll be another trade lane that is strengthened. So that's the nature of things. We have to respond to that. We have to move our network assets, which is significantly aviation.

During the pandemic, you can imagine that in the first month, it was all about getting PPE equipment, masks, and ventilators and things from the world into China. But for the next two years, it was really about supplying the rest of the world with PPE equipment, which was significantly made in China. So just those two shifts suggested that we have to have aviation assets heading into China in one sense, and had to reconfigure our network to cater to the huge volumes coming out of China during the pandemic to the rest of the world, which created at the time, some backlogged. But we were busy putting more and more aircraft into North Asia to make sure things could move.

Now, in terms of customs change in tariff, customs is becoming ever more regulated and sophisticated because of the nature of global trade, the nature of e-commerce, where things are made in one country and put into another country, and there are suppliers in that country that need to be protected. So there's an ever changing customs duty environment, which we respect totally. And on that sense, we just have to have very close association with customs on a local level in every single country, we work to make sure that we configure well with their systems, are enabled to ensure that as shipments move through our network, they likewise move seamlessly through the customs environment that prevails in that country. So much so that we're paying the duties and the regulatory aspects that are upon us to sort out but the transit time of that shipment isn't impeded.

And would you say, I don't know, what's the time period to take in this case? So let's say a decade ago, things are moving faster through customs in general, across the world, or slower, or is it balancing out because some are moving faster, some are moving slower, and so on?

I would say it's the same. I would say that the level of sophistications in customs and in our own environment suggests we can identify product codes and have proactive information about what's in these shipments and we are able to mitigate any increasing level of inspection by the technology and the systems and the relationships that we have. So, no, I would say it's the same, certainly in terms of denied party screening and shipments that relate to sanctioned countries.

You could imagine the environment there with certain countries in the world where movement of goods into or out of is prohibited. We have to be very careful to have very sophisticated denied party screening, you know, identifying shippers, either at origin or destination that are not permitted, or identifying goods that can't be moved into one country or another country. And we have teams of people in Czech and Malaysia to ensure that those rules, so to speak, and regulations are followed very carefully.

Let's say [there] is a crisis situation. And you talked about the ash above Iceland, or let's say, Covid itself. But of course, that was much more long drawn out. What's the level of response when there is, let's say, an ash like situation, which is something that happens overnight and has to be responded to immediately? I mean, is it a board level response? Is it a much lower operational response? And to situations which must be happening like that every day?

Because situations are happening like that every day. My old boss once said to me, John, we're a global company. There'll be a crisis somewhere every day. And that is absolutely the case. Whether it's an earthquake, whether it's a typhoon, or whether it's something like the ash cloud crisis or the pandemic, there is something happening every day. And that dictates that our operational teams are very capable and have very strong contingency plans somewhat baked already. In the case of the ash cloud crisis, which was a first, the mobilisation was very simple. Guys, there is nothing flying. We have to move everything on the road. And it was about reconfiguring our road network around Europe to ensure that everything would suffer the least possible transit time delay.

Now, it's interesting in the ash cloud one, because there is a very famous radar screenshot which you can easily access on the web and find that on one night in particular, there was no aircraft in the European airspace, apart from two DHL aircraft that you can see with their tail numbers and so on and so forth. Now, we have very close association with the aviation regulatory bodies and we were given permission to fly at a certain altitude on certain sectors. So those types of things.

That was also the case in Israel, where we were flying into Tel Aviv in order not to disrupt B2C shipments, B2B shipments during that situation, and so on and so forth.

So, you know, being the most global and the most international company in the world, no one can say they have a presence in 219, was previously 220 before Afghanistan closed, in 219 countries like we do. And the fact that in most cases, those management at local and regional level are very in tune with everything that is happening on their doorstep. We're able to quickly mobilise and quickly get in a situation where we keep our shipments moving.

I was stationed in Saudi Arabia in 1990 when the Gulf War happened, and I don't think we lost one day of operation.

You talked about sanctions, and that reflects obviously the shifting nature of geopolitics. So let's say you had the Russian invasion of Ukraine or the Hamas attack on Israel, and in the case of the Russian invasion on Ukraine, sanctions followed. There are sanctions, as you said, on many countries. And within those sanctions, things keep changing. So what's the DHL internal system that's tracking this, and how is it constantly updating, let's say, the operation side of it? And how does that work?

Yeah, so big companies need to behave like big companies. Big companies need to follow the rules. Big companies need to have very close relationships with the local regulatory bodies. I ask every single country manager to know the federal aviation side of things in that country, to know the post office, to know the customs authorities and so on and so forth. So it's really a question of, over time, how, you know, these relationships have been built. Some of them are on a DHL group level.

Let's not forget we're a company of over $100 billion revenue with very strong resources on all these regulatory aspects, compliance, public policy and customs and so on and so forth. You know, it's quite a seamless operation in one sense, that when certain things happen, we know exactly how to navigate through the rocky shores and shoals of that particular situation. And that is one of the strengths of our network.

And in 1969, when we moved our first shipment from San Francisco to Hawaii, some of the very first countries that we opened, what I call we moved around the back of the world into Fiji, Tahiti, Noumea, Australia and New Zealand. By 1973, most of the Pacific islands in Australia and New Zealand were open. And then you could see a sort of red mist going across the world, a red and yellow mist–Now, you might say—Hong Kong was ‘76, you know, Bahrain was ‘78. And it wasn't much more than 10 or 15 years that we sort of got back to the start and completed our offices in Europe and the US. And then it was a question of filling in the white spots. There are certainly countries that didn't open until 1982, ‘84, ‘88, but they were the minority.

The point I'm making here is I'm not really digressing those relationships and those local people situated in those countries have been working hand-in-hand with the authorities. Border control is a great example of an organisation, we would work closely with to assist in making sure that the wrong things aren't arriving into their country and at least helping out with our systems, with our knowledge of what's coming in, that something doesn't get into Bangladesh or India or anywhere else, China that shouldn't be coming into that country.

And, you know, obviously, companies like DHL play a critical role in supply chains. And as companies even build those supply chains, I'm sure they talk to you to understand, you know, how things can move around at what speed and reliability and so on. So what are your clients, the larger ones, telling you today? Which in some ways is a reflection of what they are planning in the next couple of years in their own business and business growth.

I think companies, logistics and infrastructure set up changes. So companies would be asking for advice or telling us that, for example, their DCs, as we call them, their distribution centres, we're going to involve, and you might have an e-commerce merchant in the UK. And e-commerce, by the way, is one in two of our shipments now. And the UK is a country that has very large e-commerce merchants. They might be currently storing their merchandise in the UK for global distribution.

There comes a level where their volumes grow so much that they start wanting to put a facility in Europe. They might put it at the end of the runway in Leipzig…They can go on our plane. It can be in Paris by 06:00 in the morning. So I think about the evolution of people's own supply chains, distribution centres, and how they're looking at their international growth.

And on that very point, I think one of the things that came through the Global Connectedness Report is how, and I know you're aware of this topic, is how India is on the sort of radar screen. But firstly, international expansion and international sales and international revenue is more on companies' radar screens and board meetings agenda than ever before. That was something that the Global Connectedness Report told us. And as well, you know, the second most heavily invested country beyond the USA was India.

So in line with your question about what a company is telling us, in many cases, they're telling us they want to set up something in India because the infrastructure in India is so much more advanced now and sophisticated. The National Logistics Policy has kicked in. I remember talking to journalists in India about three years ago about that very thing, and I came back, as you know, we came back and chose India as the launch site for our Global Connectedness Report for that very reason, one of the fastest growing economies or the fastest growing economy in the world.

It is still that as I speak here today, there is a strong sense of progress around helping international companies come into India. And what do they find in India when they come in terms of infrastructure and local support in order to be able to satisfy their export goals and their international distribution goals from India.

So I think there's a little bit of a hats off to some of the policymakers there that are driving GDP or what we like to say PMI. That's one of the key indicators for us is a PMI score. So I think that's a great example of how things ebb and flow. Countries and policymakers sometimes more help the tide to rise than at other times. And we see that across 219 countries.

And I'm going to come to the last question on sustainability in a moment. But before that, what's your travel schedule like? Where do you travel from a work point of view and why do you travel to those places? And what do you look to take back? Picking up on your India visit and what that inspired you to do?

Firstly, I think we say our presence is our purpose. So we believe that travelling is a necessary part of being in an international company. Visiting our people, thanking our people, seeing the shining eyes and getting a real smell of what's happening locally on the ground. I can't do that from my office in Bonn.

Secondly, I tend to travel to a mixture on one side, trying to throw in two or three of the smaller markets every year, I was recently in Nigeria, as in Kenya. Nigeria is not a small market either. Kenya, but they're countries that I hadn't necessarily visited from a DHL point of view before. But inevitably, our time will go into where our regional hubs, our big hubs and pipes are. It might be a Central Asia hub or it might be a North Asia hub. It might be in our largest markets. India I typically visit every year.

I'll certainly visit every region. We have five or six regions every year. I'm in China next week celebrating the employee of the year award and meeting an airline that we intend to have a stronger partnership with. So that's how I spend my time geographically. Then, importantly, when I get to a country, I like to say, you know, people, facilities, customers, media, not necessarily in that order.

And I'm spending time with the media, so to speak, today. But I like to make sure that we have that time very well carved out to make sure we achieve as much as possible in a one or two or three day visit. It's very important to me that we don't waste time. And I like to get full coverage across customers, media, employees and facilities.

And the sustainability question, you touched upon it in the beginning. You talked about everything, right? From the technology and of course the aircraft that you own, the fuel that powers them, the vehicles that are at the last mile, the electrification. So you talked about all that.

Talk to us a little bit about what's the overall sustainability goal in the near and the medium term, for DHL express.

We have four global themes in the DHL group. Globalisation, sustainability, e-commerce and digitalisation. We've talked quite nicely and interestingly about digitalisation. We talked about globalisation and global trade, talked a little bit about e-commerce and how that's been a big thing in the last decade. I first noticed that in 2015, I started seeing customer names in our customer lists that I'd never heard of before. And I noticed they're rather large. In fact, sometimes they came in from nowhere and they were in our top ten within the space of six or twelve months.

That is not how B2B behaves. It's taken Siemens and Adidas and Honeywell and General Electric — 20 years to become some of our largest customers. That's not how B2C works. We talked a little bit about e-commerce and sustainability is the fourth one. So I'm pleased that we've landed on that. That's the four themes that drive our management attention in the DHL group, not just in DHL Express.

We have aspirations to get to carbon zero in 2050. We have aspirations to get a certain reduction in our carbon emissions by 2030. We have aspirations as to electrification of the last mile. So that means if we had 1000 vehicles on the planet, and we have many more, that 600 of them would be electric. We have aspirations for carbon neutral buildings, that they have solar panels on the top that not only enough solar panels to run that facility, but to put electricity back in the grid, so to speak. So every building that is built is carbon neutral going forward.

And in my particular division in DHL Express we have a big focus on sustainable aviation fuel. Now I'd say to your listeners, and it's interesting that three years ago, certainly two years ago, possibly if you asked 100 people what SAF or SAF stood for, most people wouldn't know. And this is the beauty of things, that suddenly things come onto people's desks and people's environments and the need to move quickly and understand things is extremely important. Now, everyone in Express would know that sustainable aviation fuel is something that we aspire to buy and put into our aircraft or put into the system. Currently got a sort of two and a half percent blend, and we seek to have a 30% blend by 2030.

The price of sustainable aviation fuel has changed and risen since we first launched those plans. And we're selling a very effective product, Go Green Plus, to our customers in India and in every country in the world.

In fact, the last point I'd make there, which symbolises perhaps the extent to which the DHL Group and DHL Express are pushing fast, and not just thinking and talking, but doing things in terms of the E of ESG, is that as an organisation, we bought 15% of all the available sustainability aviation fuel feedstock on the planet last year. Which, given how many people are seeking to buy it, 15% is rather a lot, some might say.

Amongst all the airlines and all the companies out there, we might have only bought 1% or 2%, but we are running fairly fast on this, and our customers are thanking us for it, and sometimes on occasion, suggesting they wouldn't switch from us because our other competitors aren't able to provide them with a product such as Go Green Plus. So it's a big part of our global four themes. It's a big part of strategy 2025. Will be an important part of strategy 2030. And it's something upon us that we have to be leading from the front as a market leader and a large organisation, and demonstrating how companies need to move fast in this space.

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