New U.S. 'de minimis' policy could cut DHL's profit by 3%

DHL's chief financial officer said Tuesday that the company's express shipments have fallen sharply since the U.S. government recently eliminated duty and tax exemptions for low-value shipments from China and Hong Kong. The worldwide application of this new rule at the end of August could reduce the company's projected full-year operating profit by $231 million.

DHL Group grew its profits in the second quarter, despite a rise in protectionism and Middle East conflicts dampening shipping volumes, thanks to successful structural cost removal and improved yield management.

The integrated logistics and express giant reported a 3.9% drop in second-quarter revenue to $22.9 billion, but operating profit rose 5.7% to $1.6 billion, with the profit margin improving by 0.7 percentage points to 7.2%. Slowing trade activity and negative foreign exchange effects weighed on the results.

"We anticipate continued volatility in the global economy in the second half of the year. Our focus on efficiency improvements and growth markets is paying off in this situation. We have adjusted our capacities to the volume development and achieved structural cost improvements," said CFO Melanie Kreis in the announcement. "This combination has significantly contributed to earnings growth. We are working to further improve our efficiency and leverage growth opportunities in the current environment."

Overnight express B2C (business-to-consumer) shipments fell 20%, largely due to the U.S. imposing tariffs on low-value parcels from China and Hong Kong that previously enjoyed duty-free access. Meanwhile, B2C volumes at DHL eCommerce in Europe were very strong, growing by 11%.

Last week, rival UPS described the elimination of the de minimis exemption as causing a 35% plunge in average daily volume on the China-U.S. trade lane during May and June. That is UPS’s most profitable trade lane, but DHL is less exposed.

Only 8% of DHL Express's overnight shipments move from China and Hong Kong to the U.S., while only 4% of DHL Global Forwarding's airfreight volume is on that route. Management said during a May 2 earnings presentation that last year it began culling low-yield, lightweight e-commerce traffic by raising prices and selling space to freight forwarders with higher-density goods.

Last week, the Trump administration declared that the de minimis crackdown will be extended to the rest of the world on August 29. Kreis said the new regulation could wipe out as much as $231 million – or 3.3% – of full-year operating profit, but she said that is a worst-case, and unlikely, scenario.

"It’s not the likely scenario. That is why we have not included it in the guidance," she told analysts.

DHL maintained its forecast for at least $6.9 billion in operating profit and about $3.5 billion in free cash flow in what is expected to be a subdued macroeconomic environment.

Management said its "Fit for Growth" plan, launched this year with the goal of removing $1.1 billion in structural costs by the end of 2026, along with regular capacity adjustments have allowed DHL to control costs.

For example, DHL Express experienced an overall 10% volume decline for its core time-definite international air product (down only 2% in the B2B segment), but was able to increase operating profit and margin through effective capacity management and other savings. DHL cut its air capacity by 7%, mostly on the China-U.S. lane, which helped reduce air network costs by 8%. DHL Express also cut pickup and delivery costs by 5%, mainly by reducing capacity in the U.S. to adjust for lower import parcel volumes from China and consolidating delivery routes. The division was also able to reduce its full-time equivalent staff by 3.2%, while maintaining price discipline.

Earlier this year, DHL began to streamline the number of partner airlines that support its owned-fleet transport. Kreis said DHL can easily flex capacity because it has a mix of long-, medium- and short-term leases with many third-party carriers and can move planes from less-busy routes to busier ones as needed.

"When volumes come back, that will allow us also to flex back up," she said.

All divisions recorded lower revenue, led by a 5.7% decline at DHL Express. The German postal operator's revenue was down a slight 0.2%.

Global Forwarding and Freight had the worst year-over-year comparison, with earnings before interest and taxes (EBIT) falling nearly 30% on a 5.3% revenue decline. It is the unit most susceptible to market fluctuations. The division saw a slight increase in airfreight volumes, while ocean freight volumes fell 6% year-over-year. Ocean volumes would have been flat if two companies that are no longer customers were excluded. Operating results were significantly impacted by the economic downturn and weakness in the German and European road transport sector.

During the analyst call, Kreis said it is too soon to determine how the new U.S.-EU trade agreement will impact import/export activity because details are still being finalized, but the 15% U.S. tariff could impact transatlantic volumes.

Last week, UPS also said U.S. tariff policies and economic weakness dragged down its volumes and revenue, but unlike DHL, its cost-cutting campaign was unable to prevent a drop in operating profit. About 14% of DHL’s international trade volume is to the U.S.

Kreis said DHL will apply a demand-driven surcharge during the upcoming peak season, as it did for the first time last year, but is still working out the details because of the uncertain macroeconomic environment.

DHL's other divisions also had mixed results in the second quarter.

 
DHL Supply Chain increased its operating profit and margin with increased deployment of digitalization and automation. Its revenue would have been flat, instead of down 3.9%, without foreign exchange headwinds. The sluggish global economy, said Kreis, is reflected in lower company warehouse throughput, which is a drag on revenue.

Meanwhile, DHL eCommerce experienced a slower pace of volume growth due to economic conditions in some markets. The company said operating profit declined as it continues to invest in network expansion.

Post & Parcel Germany

DHL noted that yield management and cost improvements helped stabilize profit at Post & Parcel Germany, despite slower parcel growth amid weak economic conditions, a continued decline in mail volumes, and higher costs from new labor agreements. Mail volume was down 9% year-over-year. DHL said the German postal division needs to earn at least $1.2 billion per year to be able to finance investments for the transformation from mail to parcel business and into clean energy vehicles.

The company said last month that by the end of this year, Post & Parcel Germany will have 4,900 Ford Motor Co. electric vans in its delivery fleet after taking delivery of 2,400 two-ton E-Transit and one-ton E-Transit Custom vans. The total number of EVs deployed at P&P will increase to about 35,000, making it the largest electric delivery fleet in Germany. DHL uses the E-Transit, which has a battery-electric range of 196 miles, for urban parcel delivery. The smaller version, with a 203-mile range, is used for mail and parcel delivery in more rural and suburban areas.

DHL is still investing heavily in products and infrastructure, especially in growth markets, but cut its capital expenditures by 4% to $703.5 million during the second quarter in response to the uncertain economic environment.

Q2 Milestones

During the quarter, the company announced plans to invest more than $570 million in Gulf Arab states, which are benefiting from shifting trade flows, through 2030. In July, DHL Supply Chain took majority control of the Saudi Arabian joint venture ASMO Advanced Logistics Services. It also expanded its capabilities in pharmaceutical logistics by completing the acquisition of Nashville, Tennessee-based specialty express courier CryoPDP and expanding its life science and healthcare campus near Frankfurt, Germany. The quarter was also marked by the acquisition of IDS Fulfillment, which expanded Supply Chain's e-commerce warehousing network in the U.S.

DHL Express was forced to shut down its Canadian service for nearly three weeks in June as the company and employees reached an impasse over a new labor contract.

At the end of June, DHL Global Forwarding held a formal opening ceremony for a new airfreight hub at Frankfurt Airport, consolidating existing facilities into one location and minimizing truck movements. The 264,000-square-foot warehouse has 54 cross-docks and allows for the processing of up to 300,000 tons of airfreight for both German and international customers.

The new facility also houses the European headquarters for in-house air charter operator StarBroker, which is responsible for booking and coordinating airfreight capacity for DHL Global Forwarding and managing controlled flight operations. The new hub facilitates services such as airfreight consolidation and deconsolidation, customs clearance, handling for road feeder services, and charter flight organization.

Last month, DHL announced several management changes in its forwarding, supply chain, and e-commerce divisions. In a Q&A on DHL’s website, Kreis praised outgoing DHL Global Forwarding CEO Tim Scharwath for making the division more profitable, customer-oriented and efficient. His replacement, Oscar de Bok, led DHL Supply Chain in 2024 to an operating profit of more than $1.2 billion for the first time.

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Source: Phaata.com (According to Freight Waves)

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