Deutsche Post to Spend EU750 Million Upgrading Parcels Unit

Deutsche Post AG, the world’s biggest carrier of air and sea freight by volume, said it will spend 750 million euros ($1 billion) on upgrading its German consumer parcel delivery unit to boost quality and reliability.

The investment, to be injected over the next two years, is Deutsche Post’s biggest in parcels since the 1990s, according to the Bonn-based company, whose DHL unit carries more than 2.6 million packages a day, on average.

“It’s one of the growth pockets within the German and European parcels market, so it’s definitely a good idea,” said Axel Funhoff, an analyst at ING Group in Brussels who recommends buying Deutsche Post shares. “The business is good, no doubt about it, but the price tag is questionable.”

DHL handled 199 million parcels within Germany in the second quarter, up 9.9 percent from a year earlier, with revenue climbing 7.8 percent to 667 million euros, buoyed by a trend toward transactions over the internet rather than in shops.

“We think that this segment of the business both has room to grow and that it will do so,” Deutsche Post’s head of mail, Juergen Gerdes, said at a press conference in Hamburg. “The aim is that a parcel will in future be delivered throughout Germany at the same speed as a letter currently is.”

With Deutsche Post aiming to deliver at least 95 percent of parcels the next day, from 90 percent, the faster process should aid an expansion into areas such as drug and food delivery, according to the company, which plans to increase its overall share of the consumer market to 15 percent from 8 percent.

Deutsche Post shares rose as much as 3.8 percent and were trading 3.2 percent higher as of 3:23 p.m. in Frankfurt, paring the declining this year to 19 percent and valuing the company at 12.5 billion euros.