Deutsche Post World Net’s LOGISTICS Corporate Division implements complex logistics solutions for
customers all around the world. We recognized at an early stage that, given the highly fragmented nature of the logistics market, only globally active providers offering a wide range of services could survive. Consequently, we acquired the Danzas group in 1999, thereby laying the foundations for the Group’s logistics activities. Danzas boasts an international logistics platform with high-performance IT systems. In 2002, the LOGISTICS Corporate Division contributed around 22% of consolidated revenue. By bringing together our Group wide express and logistics services under the DHL brand name, we will be able to leverage existing growth potential even more efficiently in future.

1) For a detailed explanation of the Corporate Division’s financial development, please see the “Business Developments” section of the Group Management Report
2) EBITA/revenue

One-stop global logistics
In the LOGISTICS Corporate Division, we aim to meet the growing demand among high-quality goods manufacturers for comprehensive, one-stop logistics services. The Solutions Business Unit takes over the management of the entire supply chain, from the procurement, storage and packaging of goods, right through to invoicing and order processing; we also ensure that information and goods flows are tightly interlinked. Our expertise is focused on selected industry sectors: automotive, pharma/healthcare, electronics/telecommunication, fast moving consumer goods, and textiles.

The air and ocean freight activities of the Intercontinental Business Unit connect all of the world’s commercial centers. We do not maintain our own air and ocean fleet; instead, we buy loading space and charter capacity as required. Integrated value added services for coordinating and monitoring goods flows are becoming increasingly important. We have also been successful in the area of complex project shipping for a number of years, with a particular focus on industrial and energy projects.

The services provided by the Eurocargo Business Unit cover general domestic and European cargo traffic, full loads carried by road and rail, and specialties such as trade fair logistics. All in all, we have 180 transshipment centers across Europe, which we intend to incorporate within an integrated European distribution network as part of the Group-wide bundling of express and logistics activities. In order to implement this quickly and efficiently, Eurocargo will be transferred from the LOGISTICS Corporate Division to the EXPRESS Corporate Division effective from January 1, 2003.

Outsourcing of logistics services offers potential
The market for logistics services has changed in recent years. Industry has started to produce and sell its goods in more and more countries around the world. The complexity of goods flows is increasing – and so, too, are requirements for workflow management. If companies were to organize their own logistics activities, this would mean substantial investment using funds which could be better employed for strengthening their core business. As a result, a growing number of companies are coming to the conclusion that outsourcing their logistics services is the right solution for them.

Deutsche Post World Net is benefiting from this trend. We have developed IT systems to monitor goods flows at all times, manage the flow of information, and incorporate all of the units involved in the logistics chain from procurement to distribution. Thanks to this special expertise and the leveraging of synergies within the Group, we were able to further strengthen our position in the various segments of the logistics market in 2002.

Our position on the highly fragmented market for contract logistics – which we define as the granting of longer-term logistics contracts as part of outsourcing – is stable. However, growth in this market has been slowed for the time being by the ongoing weakness of the economy and the consumer reluctance this has triggered, particularly in Europe.

This also applied to the air freight market; in the first half of 2002, demand for volume fell, leading to overcapacity. The weak economic situation also saw a certain shift in customer demand from air freight to the cheaper alternative, ocean freight. Thanks to our leadership on the air freight market we benefited directly from the recovery in transportation volumes in the second half of the year. Viewed over the year as a whole, the market for ocean freight developed more positively than in 2001.

The market for European overland transport also suffered from weak demand – particularly in the key German market – and increased pressure on margins.

Revenue remains stable
Overall, the LOGISTICS Corporate Division reinforced its position in 2002, primarily through acquisitions. Lower freight prices and the weakness of the US dollar, which hit the Intercontinental Business Unit particularly hard, could only be partially offset by volume growth. All in all, revenue in the Corporate Division remained stable year-on-year at €9,152 million.

In the Solutions Business Unit, we won a number of major outsourcing contracts and increased revenue by 1.6% to €1,492 million, as the following table shows:

Revenue in the Intercontinental Business Unit fell year-on-year from €4,390 million to €4,233 million. Although freight volumes picked up over the course of the year, this was not enough to fully offset the impact of low prices and unfavorable exchange rates.

In the Eurocargo Business Unit, the first-time full consolidation of Kelpo Kuljetus and the first-time consolidation of the Cargoplan/Cargoline group, as well as the incorporation of a number of smaller business units from the EXPRESS Corporate Division had a positive effect on business development. In the year under review, the Business Unit generated an increase in revenue of 4.0% to €3,427 million.

Strong increase in profits
Profit from operating activities (EBITA) grew at a higher rate than revenue in fiscal year 2002, from €159 million to €224 million. In line with planning, we further increased the return on sales from 1.7% to 2.4%. For further information on earnings development, please see the “Business Developments” section of the Group Management Report.

The integration of the acquisitions made in recent years also had a positive effect on the earnings and cost situation. Our work in this area is bearing fruit: the companies which we acquired in 2001 and 2002, whose activities are primarily local in nature, now form a concrete part of our global network. These companies previously worked exclusively for Air Express International (AEI), a leading air freight service provider which we took over in 2000. The more or less complete integration of these units has served to successfully complement and strengthen our Intercontinental Business Unit.

Strategic investment in high-performance technology
In 2002, investments decreased by 15.0% to €381 million. They were primarily channeled into the development of specific IT systems for logistics in order to safeguard one of our major competitive advantages. In addition, we expanded our activities with a number of smaller units.

Eurocargo added full load transport to its European network for consolidated loads. We also improved network management in this area by employing new technologies.

Individual customer commitment
We are expanding our customer contact management activities all the time. For global companies with comprehensive requirements, we are increasingly employing specialist teams which can offer our customers exclusive strategic and operational support.

We are meeting the increasing demand for sector-specific supply chain management solutions by developing best practice models for selected sectors. We have introduced cross-divisional conferences for various sectors in order to pass on knowledge within the Group and promote its exchange with external experts.

We are also expanding our service offering in order to meet the demands of the market. In 2002, for example, we entered into an alliance with SPAN International for the electronics/telecommunication and automotive sectors, allowing us to offer highly specialized solutions for manufacturing supply.

We were able to fill strategic gaps in our global network. As well as strengthening our market position in Eastern Europe with the integration of the Cargoplan/Cargoline group, we experienced considerable success in the Chinese growth market, where Deutsche Post World Net is one of the few international logistics providers with A licenses and certification to operate as an NVOCC. This means that we are allowed to exercise direct control over all logistics and transport services we perform in China.

Outlook
We expect to see new revenue and income potential in the Solutions Business Unit, as manufacturers and retailers in most sectors of industry are increasingly focusing on their own core activities. This means that parts of the logistics supply chain will be outsourced to service providers to an even greater extent. Since procurement, production and sales are all becoming increasingly global in their nature, the demand is for logistics providers who can offer their customers value added services and also follow them into new markets. Our focus on key sectors such as automotive, textiles /fashion and electronics/ telecommunication allows us to offer our customers best-practice solutions; at the same time, by bundling our express and logistics activities, we are also able to provide them with global logistics solutions on an even wider scale than before.

We are forecasting that ocean freight volumes will increase at a higher rate than global GDP. We also expect prices to increase as against fiscal year 2002. In the light of the escalating conflict in Iraq, it is difficult to make estimates of future price and volume trends on the air freight market. For the time being, we expect volumes to remain essentially unchanged, with the possibility of a slight increase in the second half of the year.

In terms of individual regions, we expect the further expansion of activities in the Asian region in particular to provide new momentum for both ocean and air freight. China and India are the particularly promising growth markets in this region. In our opinion, our strong positioning gives us every opportunity to expand our overall market position. At the start of 2003, for example, we formed a joint venture in India in cooperation with Lemuir, which allows us to offer air and ocean freight services, as well as warehousing and domestic distribution, to customers across the whole of India.

In the Eurocargo Business Unit, which will be included in the EXPRESS Corporate Division for reporting purposes from 2003, we believe that there is growth potential in the area of road and rail transportation to and from Eastern Europe. However, forecasts for Western Europe are rather muted; we expect the key German market in particular to stagnate.

All in all, customer requirements for overland transportation are also increasing. As well as fast service, customers are looking for providers who can offer IT expertise, an international presence, and the ability to help them with planning and designing logistics processes. We consider ourselves to be well-equipped to meet these demands in conjunction with the other Group units. We are aiming to slightly outperform the market in 2003 in terms of overall growth.