Blue Dart, DHL: Flying in new formation

Hindu Business Line : New Delhi

Monday, 16th September 2002

When the world's No.1 player in the air-express industry and the leader in India come together in a unique alliance, what happens? Obviously, the customer benefits. In this case, it is the shippers and the exporters for whom delivery of consignments on schedule is of the essence.

Come October, and exporters with packaged consignment can just walk into any Blue Dart office - or call centre - and book his shipment to any corner of the world. That's a convenient "one-stop" shop for the customer, explained Mr Bryan Jamison (BJ), Area Director, South-East Asia, DHL Worldwide Express, and Mr Clyde Cooper (CC), Managing Director, Blue Dart, in an exclusive interview with Business Line soon after announcing the five-year strategic alliance.

For now, the two partners will only be leveraging each other's strengths in the industry to provide the best service to the customer and thus grow in volumes, together. Something they could not have done separately.

Excerpts from the interview :

Was there any problem with FedEx that led Blue Dart to go in for a change in alliance?

CC: Essentially, the contract was up for renewal. We listened carefully to our customers, we explored our options to look at the best alternative and superior services, if any, for our customers and we chose DHL, the World's No. 1, India's No.1, with unmatched cross-border infrastructure and specialisation and operational flexibility. And taking it all together, we found that we would get improved customer satisfaction which would result in improved growth and volumes. We looked at this path-breaking alliance as one where Blue Dart's vision towards domestic and regional infrastructure and tradition of trade services could be maintained and grown. And that Blue Dart's customer base could be leveraged to the world's No. 1 player for increased customer satisfaction. So this, in a nutshell, is really how we look at this new alliance with DHL. The alliance is for a five-year term and the beauty of this relationship is the flexibility to leverage each other's strengths and, at the same time, grow each other's businesses. Clearly, the power of this relationship should bring sales because it will bring customer satisfaction.

BJ: We believe that both of us will grow faster working together than we could separately. We haven't set down financial figures or obligations on each other. We just know that it's the right thing to do, the No. 1 and the best domestic company, and the No. 1 and the best international company working together must be good for the customer.

For DHL, is this the first Indian partner?

BJ: For DHL, the reason for entering into this alliance is that Blue Dart is the No.1 domestic air-express company. DHL is No.1 globally. So, basically, it's a perfect match. It's a win-win situation. Blue Dart has a very extensive geographical coverage, they also have a relationship with the segment of customers in India which we don't have ourselves today. So this alliance allows us to further penetrate into the Indian market, and for Blue Dart's customers to have services and advantages that we can provide. And it is an alliance between two very strong brands. In the Indian market, we do not do any domestic business at all and so there's no conflict of interest. It's an alliance which is totally complementary.

What type of a venture is this alliance?

CC: It's really a very simple venture. What you have to look at is that Blue Dart is focused at its regional and domestic customer base. It has a 30,000- plus customer base which uses Blue Dart for its domestic and regional services. Customers use Blue Dart across various product lines and these customers have international needs as well. And so they come to Blue Dart for the same reliability, as a convenient one-stop shop. And clearly out here, being Blue Dart customers and having the DHL advantage on our side, it would be a network type of agreement. All Blue Dart customer sales would move through DHL for the international market, post-October. This is the sales alliance that we have entered into.

That's for the customer, but what is the arrangement between the two companies? Is it a new joint venture company that is being floated?

BJ: There has not been, and will not be, any discussions on equity. This has nothing to do with equity and nothing to do with setting up a joint venture. It is a sales alliance which will benefit Blue Dart's customers across India. That's what it's all about. How we work it out... it is very much like a telephone talk arrangement where you make an international telephone call, you call your local PTT and that call is routed through an international network which may actually go through two or three networks. In our case, it will be our own network but it is very complex because we go to over 220 countries and, within those countries, we have different financial arrangements. So, put very simply, Blue Dart is going to offer the DHL sale, perform the service, invoice and collect the money from anybody who wants to use an international service in and around the world. Besides, this alliance does not work both ways. Let me explain this. This alliance is only for out-bound traffic - out of India. So, simply put, somebody with an out-bound shipment, has only to go to the Blue Dart office or call centre and book his consignment for any place in the world.

Why is the alliance only for out-bound traffic? You won't entertain traffic into India?

CC: No, this agreement is purely on the out-bound business, out of India. I think, here we were looking for a relationship which will allow flexibility, with both parties leveraging their common strengths. And, at the same time, drawing our own core competent areas. And if you look at Blue Dart's vision, we are very focussed on our domestic and regional services and clearly here, in the alliance with DHL, we will be able to offer our customers the world-class international offerings. So, I think, this is very much in our visions, definitions, DHL being the world's No. 1 air express company in packages, distribution and solutions and Blue Dart being the domestic No. 1.

That's well taken. But what about those customers who want to send shipments or parcels into India, DHL won't entertain that?

BJ: DHL does that business today, and has been doing that business for the last 33 years around the world and selling. Our organisations around the world sell into India. So it comes back to what are the advantages that each party can bring to this alliance. Blue Dart, obviously, is not represented all around the world. Most of the business that comes into India, or a large majority of the business, is sold by DHL offices around the world. That is not an area of expertise or even an area that Blue Dart is even involved in. Blue Dart's expertise is in the domestic air express business where it has a tremendous coverage. And that's where we are looking to leverage that from Blue Dart, their extensive coverage to sell international services out of India.

Even outside this alliance, DHL has had a greater presence in South India. Any plans to expand to the rest of the country?

BJ: Our focus in the short-to-medium term is on the major metros. That is where investments which we are making and continue to make, the major metros. This alliance with Blue Dart allows us to go out into all of these other geographical areas in India where we are not present today and nor have intentions of being present in the near future.

How does DHL view the Indian market in the Asia-Pacific region?

BJ: Let me try and answer that in another way. I look after what is called South-East Asia but, basically, it's the Indian subcontinent and the Asean. India is the largest market within those 16 countries that I am responsible for. Within Asia-Pacific, we have three identified strategic markets - Japan, China and India. Those three markets are extremely important for us from a strategic point of view. So India is the largest in the South-East Asian market, both strategically and in revenue terms (we do not divulge financial figures). It is not larger than China at the moment. But it could be, and should be.

What impact has the arrival of companies like Panalpina been on DHL's business prospects?

BJ: Very little. Panalpina is predominantly in the traditional air freight market - airport to airport, larger consolidated shipments of more than a tonne. Our target market is predominantly in the 0-250 kg range. They are not into our market. They are not really our competitors in the express market. Globally, there are four players that account for the express freight market share. There's DHL, with sales of over Euro 6.2 billion in 2001, we have 38 per cent of the global market share, which is more than double that of our immediate competitor. Then you have Federal Express, UPS and TNT. Those four major players are all present in India in one shape or another. Traditional freight forwarders are really not our competitors.

Has the slowdown in the global economy affected business to and from India?

BJ: Absolutely. The 9/11 event had an impact on global trade. We are in the business of trade facilitation and the slowdown in global trade did definitely have an impact on our business. So it did cost us in terms of business last year. But we see that business is gradually picking up. It's not a spectacular increase in business but there has been a gradual improvement month after month over the last six months. Our business, in the Asia-Pacific, just to give you an idea, this year is on track to grow double digits. And India is in step with that.

Did the border tensions or the Gujarat violence have any fall-out on your business?

BJ: Two ways to answer that question. From DHL's point of view, as a company, it did not affect us at all because we are here for the long term. We have been here for two decades, we are staying, so we just continue investing in our services and every thing irrespective. In Gujarat, yes to some extent, as some of our stations in Ahmedabad and Baroda were affected for some time as it was not possible to transact business at that point of time.

With the Government likely to allow 49 per cent FDI in the aviation sector, will there be any change in your business plans?

BJ: One of the benefits of the alliance we spoke of today - Blue Dart is one of the only if not the only all-cargo airline in India and one of the benefits of working together is that we will be looking to leverage that cargo network. So, irrespective of the change in foreign ownership laws, we will be looking to leverage our relationship with Blue Dart on the aviation side. That isn't to say that at some point, we wouldn't ply our aircraft in and out of India because Blue Dart has an aviation division and there may be a possibility we could do something there together. But none of those have been talked about at this stage.

CC: Here, we are talking about not trying to ensure equity participation and we have had none. We are talking about leveraging each other's alliance capabilities. And what Bryan just mentioned was the opportunities of the aviation infrastructure of Blue Dart to be leveraged for international cross-border benefits. These are opportunities and really, they are ahead of us. We will probably just leave them as we move forward.

BJ: Absolutely. This is an alliance and there is no discussion about equity or any other thing.

Any plans to invest in the development of infrastructure in India?

BJ: DHL? Well, yes, absolutely. But that is a story for another day. The answer is yes, we are very committed to this market. There are some sanctioned investments that we got to be making but that's not what today's story is about. That will be a separate story in a month's time. Today, we want to focus only on the alliance. But that (the investments) will come.

The general complaint of cargo airlines has been that movement of freight in India has been in one direction. What has been your experience?

BJ: Well, I think, Clyde touched on it before. One of DHL's philosophies and policies which I think is one of the reasons we have remained the No. 1 global air-express company. We have a deliberate policy of being very flexible in the use of a combination of our own dedicated aircraft, we have a fleet of about 250 aircraft globally while fully leveraging the commercial airlines. Now that combination and an intelligent use of those two give you extreme flexibility. Our business, for example, the difference between the load on a Monday as opposed to a Friday in traditional Monday-Friday type businesses is 40 per cent. There's 40 per cent more volume on a Friday than on a Monday. Therefore, if you, with fixed cost or fixed capacity and you also have to plan for the future for the highest ever Friday in five-six years' time that you are likely to have on a Friday so that you can carry that capacity. Then you got to look at your lowest ever Monday and that gap can be horrendous. So, that's how not only have we been able to manage our costs but also provide superior service because we are not purely relying on a fixed owned air network. Which some of our competitors do. They have a strategy and they believe that their strategy is a winning strategy. We believe that ours is, and the fact that we are No. 1 and continue to be No. 1, I think we probably got it right. At the end of the day, you got to be flexible in the way that you draft material, firstly to provide the best service and secondly to give you the best cost position.

What is DHL's typical `bread and butter' shipment?

BJ: Bread and butter? Well, I can describe it to you. Basically, it is a shipment somewhere between zero and 250 kg, each piece weighs no more than 50 kg and it goes across an international border, we pick it up and deliver it door-to-door in a definite time. That is it. The type of commodities? We are so totally left to trade, it depends on every country. Whatever their trade profile is, that will be exactly what our trade profile will be. So, in India, while textiles, garments, fashion and leather is a predominant part of its exports, a large part of our business in India is the same. If you go to somewhere like Taiwan, you will find that a lot of our business is related to semi-con business. So we very much match the in and out trade flows of countries, with the exception of perishables and oil, of course. Our business predominantly reflects exactly the trade patterns of each country. You go to some place like Hong Kong or Singapore, where there are a lot of financial institutions, we have a higher proportion of trade finance documents because that's what those countries are about. So we are very linked to the imports and exports of countries.