DHL Increase Rates in Malaysia by 4.9%

According to the article “DHL increases rates in Malaysia by 4.9%” by theSun daily on the 27th Septermber 2012, this news article says that DHL Express, a German express service company will increase its price for its services by 4.9% effective by Jan 1 2013. The main factor for the raise in price is due to the general price inflation for the express industry and the company CEO also states that the increase in price will bring a better delivery performance for the customers.

DHL Express is a company that offers parcel delivery services from one country to another or from within a country. Based on my opinion, an increase in price for the services from the company would lead to two scenarios. First of all, if DHL Express were to increase the price for the services, then the quantity supplied of the service by the company would increase as well because by increasing the price charged to customers per service, it would lead to a greater profit per service. Therefore, more services will be supplied by DHL Express in order to maximize their profit. The 'The Law of Demand' states that when the price of a good or services is increased, then the quantity demanded would decrease. Therefore, the demand curve will shift to the left due to the decrease in quantity  demanded.  The 'The Law of Supply' also states that if other things remain the same but the higher the price of a good or services, the higher is the quantity supplied. This would shift the supply curve to the right. The demand of services for this company is also affected by substitution effect, which says that when the relative price of a good or services rises, people seeks for substitute  for it, and this will decrease the quantity demanded of the goods or the services. In this case, consumers might seek for other companies such as Skynet or FedEx. Besides that, the demand is also affected by the income effect as when a price of a good or services rises relative to the income, this will cause people to not be able to afford all the things they previously are using or are buying, so the quantity demanded for the good and services decrease. For example, if the price of services increase and income remains the same, consumers would have to cut the use of the services and seek for cheaper substitute. On the other hand, quantity supplied is affected by the prices of factors of productions, when the price of a factor of production used to produce a certain good or service increase, the minimum price that the supplier is willing to accept for producing each good and service rises. In my opinion, DHL Express uses transportation such as trucks and lorries to deliver their services and if the price petrol increase, then they would have to increase the price of their services. This is one of the reasons why DHL Express has to increase their price in the coming year because there will be an increase in offsetting and external cost that could not be control by the company.

Price elasticity of demand is the responsiveness of the quantity demanded when there is only a change in price. As there are many other companies in the market that provides similar services as DHL Express such as FedEx or Ups, which is also the competitor of DHL Express thus making it a fierce competition in the market. The services provided by DHL express would have a high elasticity of demand. This is because when a customer wants to choose a company that does the same services, the customer would usually compare the prices between both the companies and choose the company that gives the best price. Hence, if DHL Express’s price is higher compared to their competitiors, customers would usually choose the company that is cheaper which makes DHL Express a company that has a high elasticity of demand because there is a perfect substitute for it.  There would also be a rise in the cross elasticity of demand for the other companies if there were to be a increase in price of DHL Express, the substitute companies would have an increase in cross elasticity of demand as they are close substitutes. The other factor that influences the price elasticity of demand is the proportion of income spent on the services, for example, if DHL Express were to increase the price of its services, then it would have a more elastic demand because now people would choose other company for its services as it may be cheaper.

In order for DHL Express to maintain their market sales, a latest technology and innovation would have to be offered by the company to have an edge over their competitors. To maximize the company’s profit, the technology constraints that almost every firm faces would have to be overcome by DHL express because technology constraints means that a company is stuck as they need latest technology in order to speed up the process or smoothen the operations. If DHL Express were able to come out with the latest technology to enhance the speed of transportation for parcel delivery from one destination to another, it would have and edge it's competitors and consumers would still pay for their services eventhough its slightly more expensive. From my point of view, DHL Express should be in the long run. The long run is a time frame by which the quantities of all resources can be varied and the decisions are not easily reversible. Thus, DHL Express should establish more headquarters around the world and purchase more transportation vehicles such as ships, airplanes, trucks and employ more labor forces so that the operations would run smoothly and make parcel delivery faster for the benefit of the customers although this maybe costly to the company.

In my opinion, DHL Express should not increase the price of their services higher than their competitors as consumers will start looking for substitutes if prices are charged too high as DHL Express is a company that has a high elasticity of demand. The company also has to come up with new technology to fasten the speed of delivery so that consumers would not hesitate to pay a higher price for better services.

 Author: Student ID- 1001A76785