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Interview Frank Appel, CEO, Deutsche Post DHL, from the World Economic Forum 2017

Following are excerpts from a CNBC interview with Frank Appel, CEO, Deutsche Post DHL, from the World Economic Forum 2017 with Geoff Cutmore and Steve Sedgwick.

GC: Well, let's talk some more about deliveries, parcels, packaging and so on. Frank Appel joins us, the CEO of Deutsche Post, DHL. Good morning Frank, nice to see you.

FA: Good morning.

GC : Steve read out a bunch of statistics here, but just break it down for us. What direction are we moving in, in terms of freight forwarding, and your operations now?

FA: Yes, so if you go through that, you know, I think we will see a solid year this year. You know, freight forwarding is doing okay, and express business is doing fine, but the letter business will decline further, in Germany significantly less than in other markets, due to the high quality. Parcels will grow significantly all over the place. So I think we are in a robust situation at the moment.

GC : Yes, and consolidation has obviously been a part of the industry trend, and we talked here a little bit about the latest deals you've done, but does that stop for a little while now, it's a period of bedding in? Or is there more to be done?

FA: So we have been at the forefront for many years, and we have stopped acquisitions for a long time. That is the biggest acquisition, or was for us a small acquisition, for a long time. I believe there will be some acquisitions from others, but the major consolidations took already place, and that is not something I can envision, at the moment, for further big consolidation.

GC: So as outsiders look at your industry, what do you think is going to be the next big step forward, for your business and your rivals?

FA: I think that digitalization is not only a theme for manufacturers, it's also for us, and I see that as a huge opportunity for many parts. The western world has suffered from no economic growth because of low productivity within service industries, and digitalization will allow to improve productivity significantly, and that creates a new opportunity to also share that among the citizens. You know, the problem is that people don't feel included any longer. Digitalization is something positive. Many people see that as a negative. I have a completely different view, it's a huge opportunity for our generation.

SS: Frank, I want to talk to you about Mrs. Sedgwick, my wife, because over the Christmas period I received many, many packages and a lot of them came via your organization, so Deutsche Post, DHL, and all other delivery companies as well. Let's face it, it's incredible the amount that's being done direct to home now, rather than us buying in shops, as well. The business model is changing very aggressively for retail, as well, but also the competition seems to me to be vicious, the price that the logistics companies can charge seems to be lower than ever. Are you seeing any flattening, or perhaps increase in the price you can charge, or is it still vicious and seemingly a race to the bottom?

FA: No, I think we have seen already for a while destabilization. If I look into our own numbers, we have seen price increases even in recent times, so I think there's an understanding that these services create a lot of value for the e-tailers, but also for the consumers. So I think we've seen the bottom already, of the curve.

SS: And the retail scenario, and you'll be watching it with the rest of us, the footfall at major stores is very worrying, but actually the digital sales, the online sales are still very healthily double digit in many cases, as well. It continues, then, this bonanza, as far as you're concerned, but also with prices stabilizing or even rising.

FA: Yes, so, you know, this is always the question, what will happen. I believe, you know, we will see a stabilization, you know, the deliveries are important, and we will continue. But you're right, you know, every industry has to ask themselves, 'How can I cannibalize my business? Because if I don't do it myself, somebody else will substitute.' I mean, I tell that to our folks all the time, you know, we should be paranoid about who can about substitute us, and then better cannibalize. And that's-, for the food industry, for instance, I think the grocery chains should jump on the ecommerce, as well.

GC: Well, let me come in on that, because I think there is some interest as far as Amazon are concerned, getting into the logistics space. I know Uber have been making noises. How worried are you that they will begin to encroach on your traditional business?

FA: You know, I think Amazon is an important partner and customer for us. You know, what you should do as a company, you always should think how can you stay the quality leader? If you are the quality leader, if you are the edge of what is possible, you obviously have a right of existence. If you get lazy and think, 'Nobody can hurt us anyway,' then you've got a problem.

SS: And Frank, look, I know you're a fan of drones, and I know that Amazon are a massive fan of drones, as well, but come on, it's never going to be practical on a massive scale, is it? I know there's going to be the idiosyncratic areas where a drone could be used for the last mile maybe, but do we really think, despite you being a fan of digitalization and of innovation, do you really think drones is the way forward?

FA: You know, not in the short-term, but in the mid-term potentially, yes. You know, you never know. I think in a business, you should prepare for the uncertainty, and that's also interesting about the current situation. Complexity and uncertainty is good for companies who are willing to deal with it. You know, that creates business opportunities. We make life for our customers easier, so if things are getting more complex, that's a moment of truth for us, and I tell our people, 'Don't worry, see that as a huge opportunity that we can then gain, we can grow,' and that is what an organization should do all the time.

GC: And let me just wrap up, I just want to come back to this point about Amazon and others, though, who are trying to be disruptors. What's the one thing that they underappreciate about coming into your space? What is it that makes you and your business good at what you do, that makes it hard for others to get into it?

FA: I think the quality level, to get it to the consumer and bring it back, is tremendously difficult. It's undervalued because logistics are not visible. And I think what we do every night, with millions of parcels, is completely underestimated. You know, I think Amazon has not an underestimation, that's the reason why they are working with people like us, because they appreciate the quality we have, but mainly people think, 'That's easy, everybody can do it.' But think about that we have a human solution, and we have 100,000 parcels and everybody delivers five, just make the, you know, the math. How many cars have to stand in front of a depot? That will never work, it is just chaotic. So it might be good for some remote areas, for some places, but not for the mass. And that is completely underestimating-, in the B2B business-, we are really B2B2C business, and that's different from consumer business where you make independent decisions all the time. If you step out of this, you can call a Uber car, if it doesn't show up, you call another one. If a parcel gets stuck, what should the parcel do? It doesn't speak, it doesn't communicate, so some human intervention is necessary there, and I think that complexity is completely underestimated for many people.

GC: Frank, always a pleasure to see you, thanks so much for joining us here.

FA: Thank you.

GC: Frank Appel, joining us.

SS: From Deutsche Post DHL.