May 11, 2017 / 6:47 AM / 2 months ago

UPDATE 1-Deutsche Post freight unit grapples with higher rates

3 Min Read

* Q1 EBIT 885 mln eur vs poll avg 915 mln

* Margins at freight unit under pressure

* Shares seen down 3 percent (Recasts, adds CFO comments)

BERLIN, May 11 (Reuters) - German postal and logistics company Deutsche Post DHL reported lower than expected first-quarter profit after its freight forwarding division was unable to pass on higher freight rates to customers.

After years under pressure, rates for transporting goods via ocean and air have started to increase this year thanks to rising volumes and tight capacity, exacerbated by the bankruptcy of South Korea's Hanjin Shipping.

However, that puts margins under pressure at forwarders, because they cannot typically pass on the rates to their end customers so quickly, Deutsche Post finance chief Melanie Kreis told reporters.

Freight forwarders arrange transportation of goods for customers, usually by booking space on ships and aircraft and dealing with customs.

Deutsche Post's freight division is also undergoing restructuring after a planned renewal of its IT systems ran into problems and had to be reviewed.

"Our rivals have also seen this pressure but we are in the turnaround phase so we have less room for manoeuvre," Kreis said, adding that rising freight volumes made the company optimistic that it could start to pass on higher rates in the second half of the year.

The freight division's operating profit dropped almost 22 percent to 51 million euros ($55.5 million) in the quarter.

Overall, Deutsche Post reported first-quarter earnings before interest and tax (EBIT) of 885 million euros, below the average analyst expectation in a Reuters poll for 915 million euros.

The post, eCommerce and parcel division, which is being driven by demand for deliveries of goods bought online, also had a slower than expected start to the year, DZ Bank analyst Dirk Schlamp said in a note.

The group said it was on track to reach its 2017 profit target for EBIT of around 3.75 billion euros and also confirmed targets under its 2020 strategy, although Kreis said the freight division had work to do to catch up.

$1 = 0.9194 euros Reporting by Victoria Bryan; Additional reporting by Matthias Inverardi; Editing by Georgina Prodhan and Maria Sheahan

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