Deutsche Post DHL is the world’s largest logistics company. The Germany-based contract logistics provider moves hundreds of millions of parcels each year in Europe and around the world, but struggled to establish a foothold in the U.S. market. As of 2017, the company delivered about 500 million parcels per year in the U.S., compared to 400 million during the holiday season alone for FedEx.
But DHL has since been investing heavily in the American market. In 2016, the company announced a $137 million investment in seven new or expanded U.S. fulfillment centers. In 2018, they launched DHL Parcel Metro, a last-mile delivery service reliant on a network of third-party couriers.
DHL Supply Chain, a division of the company, claims to be the world’s leading supply chain management and third-party logistics provider. This division offers specialty services to specific industries, including chemicals, energy, automobiles and engineering.
DHL’s next big investment in the U.S. is aimed at expanding its life sciences business.
DHL Supply Chain is planning a $150 million investment in its distribution network for medical devices and pharmaceutical supplies, the company announced in June. By the end of 2019, the move will add nine new sites dedicated to healthcare product distribution to DHL’s network, including locations in California, Indiana, North Carolina, Tennessee, Virginia and Pennsylvania. The company already operates 21 such sites, so the expansion will bring DHL Supply Chain to 30.
The sites will be fully licensed and in line with government regulations, DHL says, with temperature-controlled space for pharmaceutical storage. They will also be specifically designed for packaging and transporting goods in the life sciences industry.
“This expansion allows DHL Supply Chain to continue to deepen the connections between our customers and the patients they serve,” said Scott Cubbler, President of Life Sciences & Healthcare at DHL Supply Chain, in a statement. “This most recent expansion also helps us leverage differentiated routes to market, driving even greater efficiency and productivity across the supply chain for our customers.”
The DHL Supply Chain Expansion
The $150 million investment will expand DHL Supply Chain’s distribution network capacity for medical devices and pharmaceutical supplies by 40 percent. The expanded footprint will give DHL the opportunity to serve new shippers, move more volume for their existing clients, and potentially add new services to their suite of offerings.
Life sciences logistics typically includes the storage and shipping of products to wholesalers, doctors’ offices, hospitals and testing labs. This can include everything from flu vaccines to tissue samples to devices for medical procedures. The manufacturing, transportation and use of medical products is highly regulated, and everyone involved in the supply chain management must be in compliance. Logistics providers who have proven track records of success tend to win contracts in these industries.
In addition to expanded volume, these nine brand-new facilities will include state-of-the-art warehouse technology. Reuters reported: “DHL’s investment also covers technology that reduces labor and inventory costs — including robots that assist with ‘picking’ products; glasses that guide warehouse workers to the location of particular items; and computer ‘dashboards’ that allow customers to track goods.”
Although this expansion is costly, DHL Supply Chain will reap the benefits of increased efficiency for as long as these new warehouses operate.
What this means for DHL
The expansion also gives DHL Supply Chain a leg up on the rest of the industry.
The life sciences are a good opportunity, albeit a complex one, for shipping carriers. Medical devices and pharmaceuticals often have to be kept cold or at a very particular temperature, requiring specialty vehicles and logistics facilities. Damage to these products can be expensive and, at times, dangerous.
Pharmaceuticals and medical devices are also tightly regulated, meaning that only well-capitalized players can build the specialized facilities that are necessary to break into the business.
DHL Supply Chain is already active in this sector. Life sciences make up about 10% of the company’s North American business, and it grows by about 15% annually, according to Supply Chain Dive. The carrier already offers warehousing and temperature-controlled air and ocean freight service.
Because DHL Supply Chain and its service offerings are already well-established, they are likely a popular choice among shippers in the healthcare industry, especially newcomers. And they have an opportunity to grow much faster than new-to-market competitors, who will have to invest heavily in new facilities to comply with regulations.
At the same time, this market is growing fast. Research and Markets estimates that the logistics market for pharmaceutical and medical products will grow at an annual rate of 4.5% until 2022. The growing market has third-party logistics providers scrambling to establish a foothold.
As UPS and FedEx invest in this industry too — as well as Amazon, as of last year — DHL Supply Chain has something of an advantage. It will soon be able to absorb 40% more of the market than it currently does. But their advantage may not last long.