And looking at prior trends, airfreightis always a very good leading indicator ofthe economy and the first signs of a globalrecession have always been detectedin Asia, before it becomes apparentelsewhere,†Dearnley says. And once therecession bottoms out, the recovery isalso seen here first, “so hopefully historyrepeats itself.â€Â
“Fundamentally we’re upbeat aboutour longer term future here, but clearlyit’s going to be a tough year,†he adds.
“We are still investing in Asia, so itsnot like things have ground to a halt,â€Âhe adds. DB Schenker’s Vietnam unit,Schenker Vietnam Co Ltd opened a newflagship facility close to Ho Chi MinhCity. The US$5.5 million investment wasmade jointly with the European-group’spartner Gemadept.
The new facility will function as alogistics hub for manufacturers, originalequipment manufacturers (OEM),contract manufacturers and distributors,particularly those companies involvedin the high-tech and industrial zonesin Binh Duong Province and Ho ChiMinh City.
“More than ever, this facility will notonly serve as an important hub for the Vietnammarket, but will also be an integralhub in our regional and global network,as we continue to strengthen our logisticsfootprint to better serve our customersneeds in Vietnam, Asia Pacific and therest of the world,†said Dearnley.
“The opening of this facility is testimonyto the strong support from ourcustomers, employees and partners, forour steady development and growth inthe Vietnam market,†added JuergenBraunbach, managing director, SchenkerVietnam. “At the same time, it also demonstratesthe long-standing commitment which DB Schenker has to this dynamicmarket.â€Â
Later in the year a large, new freightterminal will open in Melbourne alongwith a significant logistics facility in Sydney,consolidating a number of smallerleased facilities. And during the secondquarter a new 400,000 sq ft facility willopen in Singapore’s Tuas district, withSchenker targeting the pharma/healthcare and clean energy sector. A new facilitywas earlier opened in Th ailand.
“Amidst the doom and gloom we aremoving forward and continuing to invest,we’re taking a longer term view and veryconfi dent about the region overall,†saysDearnley.
Extensive regional footprint
Across Asia DB Schenker has a largenetwork, with a “sizeable presence†inall key markets which can be brokendown into three key segments – thedeveloped markets of New Zealandand Australia, Japan, Korea, Singapore,and so on; the developing markets likeMalaysia, Indonesia, Philippines, etc; andthe traditional high growth markets ofChina, India and Vietnam.
The Schenker group was given a boost,particularly in Asia where the groupdoubled its size with the 2006 acquisitionof Bax Global, who was virtuallythe same size in terms of revenue andhead count and even covered some ofthe same markets.
“It was almost a duplicate but if youlook at underlying business it was verycomplimentary,†Dearnley adds.
“If look at size now, we’re over €3billion in revenues for the region with12,500 employees, operating in all majormarkets across the region – so we’ve gota great base of business.â€Â
The US was last country to integratehaving completed it in January. Overallthe whole process has gone extremelywell he said with Asia, completing theintegration in early 2008.
On the surface he said, most peoplewould see a lot of duplication, “but thetruth is when you looked beneath thatyou would see the business was verydifferent.â€Â
He added that with a 135-year historyin Europe, the customer base was moreslanted towards the big European bluechips. If you looked on the air and oceanfreight side, the cargo flows were a fargreater volume to and from Europe.
By contrast, Bax had a far greaterconcentration of American companies,a lot of Fortune 500 companies and thefreight flows tended to be more on thetranspacific and Intra-Asia regions. “Verycomplementary,†he says.
Schenker was also far stronger on theocean freight side, whereas Bax was quitea lot stronger on the third party logisticsside. “We both had a fairly good andgrowing base of Asian business, MNCsand so on.â€Â
“Putting it together has given us farmore breadth in terms of the geographiesthe trade lanes and so on and the mix ofcustomers. What it did for Schenker, wasdoubled it in size and really broadenedits capabilities in this part of the worldand also the US.
It made the group less Euro-centricand more of a global entity, he says withmany synergies when you look closer.
While DB Schenker is number twoin air freight and number three in oceanfreight globally, air freight forms the largestpart of the Asian business, followedby ocean fairly close behind and 3rd partylogistics being number three.
Feeling the pinch
But even with its expanded scale andscope, the global forwarding and logisticsgroup has – like virtually every businessin the world, felt the pinch of the globalrecession.
“We’re feeling the impact across theregion and its impacting some countriesworse than others,†he said noting that Indiaand Vietnam have held up extremelywell, while Japan was probably the worst hit in the region.
In terms of its vertical markets, theones most impacted have been theautomotive (which hurt Thailand) andsemiconductor industries, both taking abig hit. But he notes that pharmaceuticalson the other hand have been holding upextremely well – not the same growthrates they would have had, but holdingup well.
Our goal always has been to ‘growfaster than the market’, but it has become‘decline slower than the market’which is currently seeing Schenker’s Asiaregion down five per cent less than themarket. “It’s not insignificant,†Dearnleyadded noting that the group is doing twothings to cope with the downturn.
“We’re trying to be more and moreexternally focused, listen to what ourcustomers’ concerns and problems areand work with them to try and findsolutions.â€Â
One of the inevitable results of globalcost cutting is the migration from air toocean. Prior to the crisis Schenker wasalready off ering a sea-air service, knownas DB Schenker Skybridge.
The service was initially started afew years ago out of Hong Kong andChina to Europe via Dubai. The first legby ocean and then by air from Dubai.“We’re chartering two 747s a week fromEmirates, flying into our hub in Hahn,Germany.â€Â
But with the popularity of the serviceit was expanded and “we’re now movingsome fairly extensive volumes from anumber of SE Asian countries, includingVietnam, Thailand, Indonesia andso on.â€Â
“With the present conditions this isa very viable service that offers fastertransit time than ocean and lower freightrates than air, which is one way of helpingour customers,†he said.
The group is always looking at thirdparty logistics to design solutions to takecost out as well, he said. “We’re trying tobe as customer focused as we can,†andaside from that the group is undergoingthe usual ‘belt-tightening’ with hiringfreezes and reducing other expenseswhere possible.
“Obviously the goal is that whenthings recover, you emerge from it inbetter shape.â€Â
Future growth
Looking ahead, Dearnley said one ofthe fi rst orders of business will be puttingup the rail service from Beijing to Europe.“If the economy hadn’t tanked we wouldhave started this quarter, but I think itwould be imprudent to start it now.â€Â
Each train will carry 100 TEU (20-footshipping containers) and will start witha once weekly train and once the level ofdemand is determined, it will be rampedup accordingly.
While Dearnley concedes the volumesare modest, he describes it as being“more than symbolic – it’s basicallycreating something new and means wewill have a full range of services – air,ocean and rail – to offer our customersin Asia.â€Â
He insists the air cargo carriers havenothing to worry about by modal shiftsas “globalisation is here to stay and therewill always be demand for air freight.†Hecites the example of flat panel displays,of which Korea is a big producer.
“When they first started it was a bigair freight market, but two or three yearson it was all converted to ocean freight,even before the downturn.†It’s all part ofthe ever changing product cycle.
He also notes the increasing demandfor land transportation services,particularly in large land mass countrieslike China, India and Australia.
With many of the integratorsdeveloping a domestic road networkthroughout China and into SoutheastAsia, he says Schenker is doing the same.“We’ve got a big footprint in China, weoperate in over sixty locations and have4,000 full time personnel plus contractworkers.â€Â
The mix of the business is the same– air followed by ocean and 3rd partylogistics. “We have seen an increaseddemand for land transport services,initially what I would call distribution– goods coming in and distributed backout to various points.â€Â
We’re fairly good in the 3rd partylogistics and movement betweenhubs. But as economy has taken adownturn we find increased demand ina number of countries for other forms oftransportation and land is clearly one tooff er as an alternative.
He says the land network across Asiais clearly going to develop and it willprovide more opportunities for growth,but the infrastructure and border controlissues, etc are holding it back somewhat.“But there’s progress being made in thatarea and we definitely see it as a growtharea for us.â€Â
Moving forward Schenker will continueto focus on the high growth marketsof India, China and also Vietnam wherethe group has seen substantial growth,albeit from a low base.
“We’ve seen a lot of growth fromVietnam, less a shift from China, butrather just companies spreading therisk a little bit as Vietnam offers thesame benefits of China. So I see it ascomplementary.â€Â
As an example of Vietnam’s growth,Dearnley notes that 5 years ago, theexport freight market was essentiallyfor three commodities: Wearing apparel,footwear and prawns. “It has alteredout of all recognition over last fiveyears,†he says, “with big semiconductorcompanies, contract manufacturers,mobile phone companies – people likethe Intels, Samsungs, Foxconns andFlextronics all in there big time.â€Â
While the downturn has slowed thepace of development somewhat, he saidthe commitments have already beenmade, so the factories are all openingone-by-one, but the production rateshave been slowed.
An eye on new verticals
Aside from growing faster thanthe market, the other strategic goalfor Schenker’s Asian business is to bebalanced in terms of air and oceanlogistics, as well as be balanced in termsof freight flows on air and ocean. Theperfect situation, according to Dearnley,is Euro-Asia a third, transpacific a thirdand intra-Asia a third.
Expanding their vertical coverage isalso key, not just for growth, but to helpride out the economic bumps. Currentlythe key vertical markets include,aerospace, automotive, electronics,semi-conductors, solar, pharma andhealthcare, oil and gas and chemicals.
“The more we’ve got capabilities overa broad range, the more it helps becausesome will always be faster growing thanothers and some will hold up better ina recession. The broader we are the betterpositioned we are for growth or themore cushioned we are should there bea downturn. That will continue to be afocus for us,†he said.
“We’re targeting certain new verticalmarkets and looking to strengthen ourposition in others,†he said. Solar energycompanies and the aerospace industryare two such areas.
Schenker was recently awarded AsiaPacific Aerospace Logistics Company ofthe Year by Frost and Sullivan, a globalresearch and consulting firm. The awardaims to showcase best practices in theindustry segments.
Schenker offers dedicated Aerospacelogistics services and has more than15 years of specialised expertise in theaerospace industry, in managing regionaldistribution centres for leading aircraftmanufacturers, MROs (Maintenance,Repair & Overhaul) and OEMs (OriginalEquipment Manufacturers).
In 2007, Boeing located its IntegratedMaterial Management Asia RegionalCentre at DB Schenker’s SingaporeMegahub – the largest freight andlogistics hub located at the AirportLogistics Park of Singapore (ALPS)within the Free Trade Zone, to service itscustomers and network suppliers.