International Financial Management: DHL Express (Essay Sample)

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DHL Express
DHL Express is a subsidiary of Deutsche Post DHL which is a Germany company dealing in logistics. It provides parcel, express mail and courier services globally.Deutsche Post DHL is the largest logistics company globally. It does international express deliveries by sea, road, air and rail. It also provides warehousing solutions ranging from repairs, packaging, and storage. It also offers other logistical services that are customized. The America headquarters are situated in Plantation in Florida US and the one for Asia-Pacific are in China, Malaysia, Singapore and Hong Kong. The European Headquarters are in Leipzig in Germany. The Group Headquarters are in Bonn( Walter 33).
It was founded in 1969 in the United States purposely to deliver documents between Honolulu and San Francisco. By 1970, the company had the company had expanded globally. After it became international, the founders wanted to do inter-continental and offshore deliveries. However, the success that FedEx experienced made DHL start an intra-US expansion in 1983.In the year 1998, Deutsche Post started the process of acquiring shares from DHL.In 2001, it commanded a majority ownership and in the following year December 2002, it attained 1005 ownership.DHL was absorbed into the express division of Deutsche Post. It then began expanding the use of the DHL brand to other Divisions of Deutsche Post and the other business units. Currently, DHLExpress is a big brand with some business units like DHL Supply Chain and DHL Global Forwarding. All the DHL Express yearly financial results are published in their post. In the year 2016, the revenue f the division went up by 2.7 % to record €14 billion. In the year 2015, the total earning before taxation went up by 11.3 percent to €1.5 billion ( Walter 37).
Airborne Express was acquired by Deutsche Post in 2003.Immediately the process of integrating it into DHL began. The Airborne Express Airline was renamed ABX air and was to the contract ACMI service till 2011. A political crisis was created in Belgium when the DHL Express planned to expand its services in Brussels Airport. In November 2004, DHL Express became a majority shareholder in the Indian domestic courier called Blue Dart by investing €120 million. In December 2005, DHL Express completes acquiring Exel plc.DHL won a ten-year contract in 2006 of £1.6 billion to manage and run NHS Supply Chain.NHS is part of the United Kingdom Health service. The contract entailed the provision of logical services to more than six hundred hospitals as well as other health services. In September 2007, the company co-founded a cargo airline called AeroLogic which was headquartered at Leipzig Airport. This was a joint venture with Lufthansa Cargo. By 2012, the carrier had 12 Boeing 777 aircraft in operation (DHL).
The DHL Company ends the provision of delivery and pickup services in the United States. This left the UPS and FedEx as the two major companies providing parcel delivery services in the US. Still, there is very limited service offered domestically by DHL on condition that the parcels are given to USPS to be delivered locally. As at March 2016, RockAuto and NewEgg were the two companies using this option.
International Financial Management
The financial management of the Group includes the proper management of the cash and liquidity, taking stock of the commodity and currency risk, the hedging of the interest rate and the issuance of guarantees. The company also ensures that there are group financing and issuance of letters of comfort as well as working closely with the agencies that do the rating. All the financial processes are managed centrally with the aim of ensuring that there are efficiency and successful management of risks. The responsibilities of making sure that all the processes run smoothly rests with the corporate finance group situated in the headquarters in Bonn. This team at the headquarters gets support from the regional centers of the treasury which are in Bonn Germany, the United States, and Singapore. The regional centers act as the interfaces between the headquarters and the operating companies. The centers also advise the company on all the issues that are related to the financial management of the company. They equally ensure that all the requirements are met globally ( Bahar 30).
The primary task of the corporate finance is to make sure that the cost of capital and the financial risks are minimized. They do this while ensuring that the financial flexibility and stability of the company are maintained. The company aims at getting the crediting rating which is important in this sector so that it can maintain its unrestricted access to the capital markets. The company does a close monitoring of the ratio of the operating cash flows in relation to the adjusted debt. The company’s adjusted debt means the net debt of the group that allows for pension obligations and liabilities that are unfounded. This is under the operating leases(Nishith 66).
Foreign exchange market
When dealing in foreign currency, the exchange rate fluctuations can affect the business. This is because when making an agreement for the price of goods and services, there is a possibility that the exchange rate will change in between. This is the date that the quotation is made and the time the payment is settled. If this happens, it is possible to suffer a financial loss. To minimize the risks that are associated with using the local currency, DHL Express has entered an agreement with their banks for a forward exchange contract. This is an agreement that is formal that fixes the number of dollars that the company will receive when the payment is made using the foreign currency. The company also makes checks with the customers to make sure that they are not insolvent. The company takes the Export Credit Insurance in low and high-risk countries to cushion it against any eventualities. The change of the value of the dollar in the processing of finalizing a business deal can render huge losses to a company ( Bahar 35).
The foreign market cannot work devoid of the foreign market risks. This is the possibility that the profitability of a business will be seriously affected by the fluctuations in the foreign exchange rates. A change in the exchange rate that happens suddenly can strip thousands of dollars from an order that was pre-existing more especially if the business pays its invoices weeks or months later after receiving the goods.
Market Derivatives
This is a financial market that is meant for derivative and other financial instruments like the future contracts or options. They are derived from different forms of assets. The market is divided into: over the counter derivative and the exchange-traded derivatives. The nature of these two markets is different though some companies participate in both of them.DHL being a global market in delivering parcels by air, road sea, and railway as well as other customized logistics it is expanding its scope to the emerging markets.Curently, it is operating in 220 both in the developed and developing world. For the purpose of meeting the projected targets as well as the growth that it anticipates its scope of operations is being expanded. Other providers of logistics also rely on DHL so that they can get knowledge of the local market as they expand to the emerging markets like China. This is because DHL has the necessary expertise and knowledge by the sheer years it has been in operation and the extensive nature of its business. Nishith 75).
Hedging and Speculation
Hedging involves taking an offsetting position in a derivative. This is done for the purpose of creating a balance of any losses or gains that are made to the asset that is underlying. The aim of hedging is to reduce the volatility that has an association with the asset price by taking positions that are offsetting. The main aim of speculation is to benefit by betting on the directional movement of an asset. The company does hedging and speculation with the sole objective of mitigating the risks. It does this by taking an offsetting position in a related security.
The Impact of the exchange rate
The impact of the exchange rate on exporters cannot be underplayed. When a dollar is weak it creates competition on the side of prices. According to the export barometer released by DHL in 2016, when the dealer is strong, the effect by the business is positive. The DHL uses the dollar as the currency of its payment so that its business is not affected in losses due to the fluctuating rates of the currencies. The company also has agreements with its bank on the currency to be used as the mode of payment(Hau 55).
Quantitative analysis
The company has a very balanced business risk profile as well as a stable contribution to the main mail products. There is a significant growth on the parcel services that are driven by the internet. The company has a very strong presence in more than 220 countries both developed and developing. The presence in these countries is in all its divisions. It is significantly represented on air, road, sea, rail and other customized logistical services. It is the world’s largest logistics company with a very strong business presence in Germany. It is undertaking serious restructuring programs that will make it double its profits. The total earning of the company before taxes for the year 2016 was €3.491 billion which was a 44.8% increase from the previous year. In the same year, it had a net profit of €2.64 billion which was on the generated revenue of €57,334 billion. The total return on equity was 27.7 % .The Company is li...