Wednesday, July 29, 2015

Strikes and Storms Blamed by National Multimodal Freight and Logistics Group for Problems

Deutsche Bahn to Undertake Major Restructuring
Shipping News Feature

GERMANY – Deutsche Bahn (DB), the multimodal freight organisation with the German Federal Republic as its majority shareholder, is launching an extensive restructuring programme in an attempt to make the Group ‘fit for the future’. Starting August 1, the company will begin the process of six major cost cutting procedures which the company hopes will save over €700 million by 2020 and could see the partial privatisation of its logistics arm, this at a time when industrial action negatively impacted the group’s financial results for the first half of 2015. Speaking at DB’s interim results presentation, DB CEO Dr. Rüdiger Grube, said:

"DB is going to become leaner, faster, more efficient, and even more customer focused. Leaner management and structures, and more focus on customers, will enable us to successfully tackle the rapidly changing challenges in the world of mobility and logistics.”

The first point of the six point restructuring programmes sees a reduction in the number of Group Management Board Members, from the current eight members to six with the position of Chief Representative eliminated. Second, DB Mobility Logistics AG, which was created years ago in anticipation of a potential IPO, will be merged with DB AG, the Group holding company. This step will reduce duplicate structures and is intended to simplify coordination and approval processes.

Thirdly, the current Technology and Environment Division will be reassigned. Technology, DB Systemtechnik and Safety and Quality Management will be offloaded to the new Infrastructure, Services and Technology Division, while Procurement and IT (CIO) will be assigned to the Finance/Controlling Division; Environment will go to the new Economic, Legal and Regulatory Affairs Division and responsibility for Sustainability to the Chairman and CEO.

Fourth, the allocation of duties on the Management Board will be modified. One key aspect of this change is that DB's integrated rail operations in Germany will be linked more efficiently than before, DB Schenker Rail will join DB Long Distance, DB Regio and DB Sales in the new Traffic and Transport Division.

Fifthly, the service functions and DB-internal services will be reorganised and brought together in a DB Global Service Centre, with a focus on ‘transparency, cost and efficiency’. Finally the option will be available for DB Arriva and DB Schenker Logistics to be partially privatized to boost strategic development and finance further growth. Though nothing on this sixth point has been decided yet, DB has firmly ruled out selling off the companies completely.

The measures that have now been approved include additional savings compared with the previous budget of more than €100 million at the corporate level. When previously approved measures are also taken into account, corporate associated functions alone will represent a saving total of over €700 million by 2020 according to the Board. The efficiency measures also include streamlined decision-making bodies and reporting processes, a review of the Group's real estate portfolio, and the decision that Board Members will each have only one office going forward, instead of offices in multiple locations.

The next step will be to address areas for action at the level of the business units and tap additional potential for ‘overarching synergies’. These measures will be developed in the second half of the year and presented to the Supervisory Board together with the medium-term planning for the period until 2020 at the Supervisory Board's meeting on December 16, 2015.

In his discussion of the figures for the first half of 2015, Dr. Grube noted that the multiple strikes by the German train driver's union (GDL) over many months, and the excessive amount of recent storms in Germany, had had a very negative impact on Deutsche Bahn during thet period. Revenues rose by 1.3%, year on year, to €20 billion, but the rise was due in part to positive currency effects. Adjusted earnings before interest and taxes (EBIT) fell by 18.2%, to €890 million. Grube explained:

"The strikes demanded enormous patience from our customers, cost our employees a great deal of time and energy, and lost our company key revenues. We saw a negative impact on our earnings of some €500 million in 2014 and 2015.

"Had it not been for the strikes, which cost us €252 million, our EBIT would also have been slightly above that of the previous year; but that cannot hide the fact that we are also facing structural challenges, which we are determined to tackle with the transformation we have set in motion.”

Train drivers walked out nine times in under eleven months to May this year and rail freight transport also felt the negative impact of the storms as well as the industrial action. Metric tonne kilometres fell 6%, from 52 billion to 48.9 billion, in the first half of the year whilst logistics at DB Schenker grew in the first half of the year. The number of Land Transport consignments was up 3.8% year on year, Air Freight saw a rise of 1.1%, and Contract Logistics even rose 16.6%. Only Ocean Freight saw a drop, 3.5% in the first half of the year.

Photo: Members of the GDL union making their position clear in May this year.