Rumors had been fluttering around all spring and summer of 2015, but the gravity of the situation at DHL-Global Forwarding, Freight (DHL-GFF), didn’t hit home until August. That’s when the company announced that it was “temporarily suspending” the rollout its new, comprehensive IT management system, the New Forwarding Environment (NFE). In early spring, the CEO of the division, and overseer of the NFE deployment, Roger Crook, abruptly resigned, citing “personal reasons.” In short, things looked bleak for the world’s largest freight forwarder.
All through the crisis, Frank Appel, CEO of parent company Deutsche Post DHL Group (DP-DHL) had been traveling to various sites where the NFE rollouts had been attempted to get a first-hand account of the problems. “I saw what the people were doing and I felt, ‘Hmm, if that’s how the new system works, I have serious doubts.’ That changed my mind,” he said.
Three months later, a few days before Halloween, DP-DHL issued another statement, saying that the €345 million NFE was being scrapped entirely and that the overhaul of the forwarder’s aging IT system would start again from scratch. The news had devastating consequences on the forwarding arm of DP-DHL, sending third-quarter operating income on a harrowing plunge, to a loss of €337 million.
“The first thing you have to do as an executive is realize when you’ve made a mistake,” Appel recently told Air Cargo World, a year after the debacle began. “It’s better to admit it and correct it instead of trying to defend what is not fixable anyway. And that, of course, takes guts. Usually this is not very well received internally, nor by the shareholders, nor by the press.”
Appel asked his Global Forwarding team “What can we learn from this?” and “What is the right way going forward?” What seemed at first like a change-management issue turned out to be a fundamental operations problem that limited the division’s flexibility. “What we actually tried to achieve was too aspirational,” Appel said. “We really wanted to make a revolution for the industry by saying we can standardize the forwarding industry, and that is not possible.”
The NFE, he concluded, was far too strict. “It didn’t allow much variation, and therefore it didn’t fit our purpose,” considering that DHL-GFF regularly handles more than 2 million tonnes of airfreight every year around the globe. “The variability of factors is so huge. You can harmonize processes, but you can’t standardize them.”
At times like these, Appel said, being a CEO can make one feel “pretty alone.” He added, “You get the feedback from the team and then they look at you and say ‘now make a decision.’ What ends up on my desk is usually the stuff that others couldn’t decide or didn’t want to decide. But that’s what we are paid for.”
In hindsight, he said, pulling the plug was “100 percent” the right decision. “It was difficult on one end, to tell everybody that this was a big hit for the P&L. From the other, it was any easy decision because it created positive momentum going forward.”
By March of this year, rumors began to swirl again about how it was time to break up the DP-DHL behemoth and sell off the underperforming forwarding division. Rather than remain tightlipped, Appel challenged his critics head-on during a keynote address at the Trans-Pacific Maritime Conference in Long Beach, Calif. In sharp tones, Appel said the rumors of a sale of DHL-GFF were “completely nonsense,” adding that he was proud of the 200-year-old forwarding arm, that there were no financial downsides beyond the charge for the abandonment of the NFE system and that, under no circumstances, would he consider selling the division.
The speech seemed to galvanize DHL-GFF, and it began a robust comeback. In its third-quarter 2016 report, released on Nov. 10, net income for DHL-GFF, was hit by lingering NFE charges, so revenue was down by 6.3 percent, but EBIT rebounded from the disastrous Q3 in 2015 to show €63 million in operating profit. For all of DPDHL Group in the quarter, EBIT almost tripled to €755 million.
“We went through some challenges, and I think what we see now is more or less a consequence of a lot of work we have done in 2014 and 2015,” Appel explained. “Last year, we said this is a year of transformation and we have to invest in certain areas. To be honest, [the turnaround] didn’t come as a surprise for me. I felt that the team was doing very well on many dimensions. And that is paying off now.”
For his adept handling of the New Forwarding Environment fiasco, his willingness to take calculated risks to defend his company, and for the dramatic financial turnaround that he has shepherded ever since that dark day in October 2015, Air Cargo World is pleased to bestow Frank Appel with the honor of Air Cargo Executive of the Year for 2016.
More on DP-DHL’s turnaround | Frank Appel’s surprising background
