Economic climate, market and competition

Demand for our mobility services and, in particular, for our transport and logistics services is dependent on overall economic development, among other things:

• Economic growth fuels the trends underlying our strate­­gy in our markets.
• Macroeconomic shocks such as economic and financial crises or economic downturns resulting from, amongst other things, conflicts or epidemics can have a negative impact on our business.
• Risks arising from depleted public sector budgets in some European countries could have negative effects (par-
  ­ti­c­­­u­larly in the form of spending cuts), especially on DB Arriva activities. The market volume here is greatly deter­mined by the financial situation of the contracting or­­­ga­­nizations. However, this creates the possibility that new markets ­or market segments will be opened for competition. DB Arriva is set up in such a way that opportunities in already open or opening markets can be taken advantage of effectively.
• Developments in the competitive environment are of particular importance for DB Group:
  • In long-­distance transport, we are exposed to heavy intermodal competition, particularly with motorized individual transport as the dominant competitor, but also with long-­distance bus services and air transport.
  • There is intense competition in regional transport throughout Europe for securing long-­term transport contracts. There is a risk of performance losses. To be able to remain competitive in this market, we are constantly working to optimize our tender management and our cost structures. In addition, risks arise from the implementation of transport contracts if the parameters of the underlying calculation do not materialize as planned. In order to continuously increase quality and customer satisfaction and improve our efficiency, we have put together appropriate programs at DB Regional and DB Arriva.
  • In rail freight transport, there is a high level of com­pet­itive pressure. Risks arise from the fact that, to some extent, competitors can operate with less expensive cost structures while enjoying greater flexibility. Further risks result from possible future efficiency gains of trucks, for example by digitalization. Several measures have been implemented to tackle these challenges.
  • In the freight forwarding business, there is, on the one hand, intense competition with other providers and, on the other hand, a concentration of the market in the carrier market that causes changes in the offering of cargo space with corresponding effects on the purchase and sales prices. We are responding to this by continuously optimizing our networks and improving our cost structures, services and IT infrastructure.

Overall, a general risk is a loss of competitiveness. A key com­­ponent in facing the competition is improvements in service quality. For the integrated rail system, we are implementing the Strong Rail strategy in particular to significantly improve product quality.

Key opportunities for performance enhancements result from the trend towards digitalization:

• more efficient and customer-­focused processes,
• improved and new digital services, and
• easier access through online portals and apps.

In the medium-­term, changes in the competitive environment may result from the following developments:

• New competitors: In addition to established competitors, providers that have so far remained outside the industry, such as automobile manufacturers, IT groups and start-­ups are increasingly active in our markets.
• New platforms/data-­driven business models: Digital platform providers are increasing the intensity of competition and transparency, and are also changing the perception of prices. Start-­ups in particular are the driv­­ing force behind the platform business and aim to occupy the digital customer interface.
• Shifts in added value: Added value in the mobility and logistics sector could shift towards additional services.
• Integrated on-­demand mobility: Mobility-­as-­a-­Service (MaaS) concepts are becoming a standard offer in the long term. The customer can order, book and pay for trans­­port easily and in real time.
• Demographic developments are increasing pressure on the public sector to make use of favorable offers. Ordering behavior could also change and tenders expand to include on-­demand, minibus and shuttle services. This increases the cost pressure on established providers.
• Supply chain visibility: Transparency in the value-­added chain is one of the top trends in logistics. Start-­ups and established players see data and analysis solutions as a significant business opportunity.
• Goods structure effect: The production share of highly specialized goods such as pharmaceuticals and high-­tech products is growing strongly. At the same time, types of goods with a generally lower weight and higher value density, such as electronic components, are growing at an above-­average rate. Heavy, bulky goods, such as steel, paper and chemicals are becoming less important.

To adequately tackle the resulting risks and opportunities, we have developed, among other things, our comprehensive Digitalization strategy.

We are also responding to opportunities and risks arising from changing demand patterns and from shifts in traffic patterns throughout the Group with intensive market observation and by continuously upgrading our portfolio and our products.

The demand for our products and services is partly dependent on the development of our customers’ sales markets:

• Our customers’ economic development dictates their need for storage and transport services, which in turn affects our freight forwarding and logistics businesses. In addition, there may be structural changes in the production structures of our customers. The rising costs of globally distributed production make more regional production more efficient. Another reason for regionalization is the use of production innovations, such as automation, modularization and 3D printing with the potential to relativize wage cost differences and economies of scale.
• Rail freight transport is partly dependent on industries that are stagnating. The decline of coal as an energy source, for example, is having an effect.
• The development of demand in track infrastructure is dependent on rail transport’s ability to compete on the upstream transport markets.