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German rail operator Deutsche Bahn sells logistics unit to Danish group

Troubled German rail operator Deutsche Bahn announced Friday the sale of its logistics unit Schenker to Danish group DSV for €14.3 billion as it focuses on overhauling Germany's creaking train infrastructure.

Published: 13 September 2024 14:34 CEST

An ICE Inter City Express train of the German railway operator Deutsche Bahn (DB) is seen at a platform of the main station in Dortmund, western Germany, on July 10, 2024. (Photo by Odd ANDERSEN / AFP)

The state-owned German group, which has faced mounting criticism due to frequent train breakdowns and poor punctuality, said the deal would provide fresh investments into Europe’s biggest economy and help pay down its monster debts.

DSV chief executive Jens Lund hailed his logistics group’s acquisition, saying it would “bring together two strong companies, creating a world-leading transport and logistics powerhouse that will benefit our employees, customers and shareholders”.

The new entity will aim to compete with other heavyweights in the sector, like DHL, UPS and FedEx. DSV, founded in 1976, said the deal was its biggest transaction to date.

The combined companies will have 147,000 employees in more than 90 countries and generate revenue of €39.3 billion. The transaction is expected to close in 2025.

Despite expectations of job cuts following the sale, DSV insisted Germany will remain a “key market” for the company and it will retain Schenker’s offices in Essen, western Germany.

‘Important step’

Deutsche Bahn launched the sale of Schenker, its most profitable subsidiary, at the end of 2023, seeking funds to pay down a 30-billion-euro debt and plough desperately needed investments into Germany’s ageing railways.

Deutsche Bahn CEO Richard Lutz said that the sale was the largest transaction in the operator’s history and “provides our logistics subsidiary with clear growth prospects”.

The Danish group plans to invest one billion euros in Germany over the next three to five years, Deutsche Bahn said.

The German group said the sale will enable it to focus on its top priority – improving rail infrastructure and operations, which are also seen as key to helping Germany reach climate goals.

A transport ministry spokesman in Berlin welcomed the move, saying Deutsche Bahn needed to “focus on its core business of rail transport in Germany. The sale of Schenker is an important step in this direction”.

Once a symbol of German efficiency, Deutsche Bahn has been blighted by problems in recent years, with critics blaming chronic underinvestment.

Breakdowns and delayed arrivals are now commonplace on the German railways. Last year 36 percent of long-distance trains arrived six minutes or more past their scheduled arrival time, well above the European average.

The network’s woes were painfully apparent when Germany hosted the Euro 2024 football tournament in June and July, with fans complaining frequently about problems.

Its net losses soared 16-fold year-on-year in the first half of 2024, with the operator blaming extreme weather, strikes and upgrades to its network.

By reducing its vast debts, the sale of Schenker “will make a substantial contribution to the group’s financial sustainability,” Deutsche Bahn chief Lutz said.

The sale of Schenker has left its employees in Germany fearing for their jobs, with staff protesting against the move outside the subsidiary’s office this week.

DSV has promised to maintain, and even increase, staffing numbers in Germany in the long term but an initial phase of cuts looks likely.

The Danish group plans initially to cut about 1,600 to 1,900 jobs at Schenker, many of them in administration, sources close to the matter told AFP.

However even before the sale, Schenker had been planning to cut several hundred positions, the sources said.

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Intel’s delay

The US chip giant announced Monday it is postponing plans for its project in Germany for two years as it focuses more on the United States.

This is a blow to Berlin, which had pledged 10 billion euros ($11 billion) – a third of the cost – to build the production plant in the eastern city of Magdeburg.

While Intel’s own struggles are the immediate cause for the delay, it has also fuelled concerns that Germany is becoming less attractive as a place to do business.

In this year’s ranking of the most competitive economies by Swiss business school IMD, Germany slipped two spots to 24th, with taxes, bureaucracy and poor infrastructure cited as major handicaps.

Volkswagen stalls

Auto titan Volkswagen announced earlier this month it could take the unprecedented step of closing factories in Germany for the first time in its 87-year history.

Europe’s biggest carmaker is struggling with high costs, problems in the transition to electric vehicles, and fierce competition from local rivals in key market China.

Employees of German car maker Volkswagen (VW) protest at the start of a company’s general meeting in Wolfsburg, northern Germany, on September 4, 2024. Photo by Moritz Frankenberg / POOL / AFP

A week after VW’s shock announcement, BMW announced it was recalling 1.5 million vehicles due to problems with their brakes and downgraded its outlook for the year, also citing problems in China.

Steel storm

Efforts by Thyssenkrupp to spin off its loss-making steel division and get its business back on track ran into trouble last month when a host of senior executives quit in protest at the what they said was the unacceptable behaviour of the group’s CEO.

The row centres around plans to restructure the division, which operates Europe’s largest steelworks in Duisburg, western Germany.

The conglomerate wants to separate the steelmaking unit from its other activities, which include building submarines, as it faces higher manufacturing costs and competition from cheaper Asian steel.

It already announced that it plans to cut jobs in Duisburg and reduce production.

Firms face being gobbled up

Deutsche Bahn announced last week that logistics unit Schenker, traditionally one of its most profitable arms, is to be sold to Danish group DSV, with unions fearful it could lead to thousands of job losses in Germany.

Meanwhile Italian bank UniCredit is targeting a takeover of Commerzbank after building up a nine-percent stake in Germany’s second-biggest lender, a development that reportedly blindsided Berlin and has angered German unions.

Still some say such takeovers also highlight that German firms remain attractive, despite the woes of the broader economy.

Poor indicators

After starting the year on a positive note, recent surveys – from business morale to consumer confidence – have been on a downward trend, denting hopes of a strong rebound.

Some economic institutes have cut their forecasts, and now expect either stagnation or a slight recession for the whole year.

In its last official forecast in April, the economy ministry still expected growth of 0.3 percent this year, but it may downgrade that forecast when it updates the figure soon.

Commenting after a recent batch of negative data, ING economist Carsten Brzeski summed up Germany’s problems: “Years of stagnation, and underestimating technological trends and international competition do not come without consequences.”

By Sophie MAKRIS