By Jonathan S. Reiskin, Associate News Editor
This story appears in the Nov. 17 print edition of Transport Topics.
Deutsche Post, owner of DHL Express, said it would close the parcel carrier’s U.S. operations after an unsuccessful five-year, $10 billion attempt to crack into a $61.1 billion market dominated by UPS Inc. and FedEx Corp.
The express unit will shut down Jan. 30, but DHL International will maintain its freight forwarding, contract logistics and international parcel shipping operations in the U.S., for which it will still try to complete an agreement with UPS by year’s end to handle airlift.
Deutsche Post, the German post office, bought DHL International in 2002 and acquired Airborne Express in 2003 as a platform for U.S. operations. But it never was able to rise above fourth place in market share, behind UPS, FedEx and the U.S. Postal Service, and by the third quarter of 2008, it actually had lost market share.
“The U.S. market is a highly concentrated duopoly,” John Mullen, global chief executive officer of DHL Express, said Nov. 10. “In spite of our investing massive amounts of money to be a credible third choice, the reality of the lack of scale [for DHL], the productivity that [UPS and FedEx] have, the market reach and the brand awareness make it impossible for us to make it economically viable,” Mullen said in a conference call with reporters.
Including the $1.1 billion paid for Airborne and other investments and losses posted, DHL Express in the United States cost Deutsche Post nearly $10 billion, Mullen said.
Satish Jindel’s SJ Consulting Group said UPS and FedEx in 2003 had a combined market share of 79.4%, the U.S. Postal Service had 11.7% and DHL/Airborne had 6.8% of the U.S. market.
For the 12 months ended Sept. 30, SJ Consulting said, UPS and FedEx had 82.2% of the market and the Postal Service had 12.5%, with 5.3% for DHL, and by the third quarter, DHL’s share had fallen to 4.8%.
Mullen and DHL said the change to an international-only role for the organization would mean a drop to 100,000 packages a day in February from the current daily level of 1.2 million. Its physical footprint would drop to 103 U.S. sites from 412 currently, plus another 18 ground hubs.
Employment already has been reduced by 5,400 jobs and another 9,500 positions will be cut before reaching a level of 3,000 to 4,000 jobs next year.
DHL’s record was “a disastrous five-year experiment in the U.S. market,” stated Bill Hamilton, director of the Teamsters union’s express division, in a Nov. 10 message to DHL Teamsters.
On May 2, an 82% majority of the 7,000 DHL Teamsters voted to ratify a new five-year labor pact. The union had represented workers at Airborne Express.
UPS agreed with Mullen’s statement that the two companies would continue with plans announced earlier for DHL to use UPS cargo planes for its North American airlift (6-2, p. 3), and a deal might be reached by the end of the year. UPS once had estimated this could mean an extra $1 billion a year in revenue, but now a potential contract would be worth much less.
The U.S. demise of DHL has been particularly difficult for Ohio, because the company used an airport in Wilmington, Ohio, as its main hub. The state has asked the company to donate the airport to Ohio for economic development purposes, and Mullen told reporters DHL probably would do so.
Ohio Gov. Ted Strickland (D) and Lt. Gov. Lee Fisher issued a joint statement after DHL’s announcement.
“We are extremely disappointed to learn about DHL’s decision to discontinue its domestic delivery service in the United States. This is heart-breaking news for the city of Wilmington and southwest Ohio,” they said.
Industry consultant Jindel said DHL shippers should expect to pay more for UPS or FedEx services, and customers of those two companies should not expect discounts to be as generous after DHL leaves the market. Price-sensitive shippers might move to the U.S. Postal Service’s Priority Mail, he said.
“DHL didn’t realize the differences between Europe and Asia, where they had experience, and the U.S. market,” Jindel said, noting that yields of revenue per package are usually higher in Europe, where border crossings are more commonplace.
Bruce Carlton, president of the National Industrial Transportation League, a shippers group, said it was too early to judge the exact fallout of the change, but “shippers as a general rule like choices, and if they’re limited, they are less happy.”
“In recent weeks, we have seen FedEx’s and UPS’ pricing firming with respects to DHL customers as it has become more clear DHL would be forced to close, compared to the past several months when FedEx and UPS were jockeying to win that business,” stock analyst Edward Wolfe wrote to his clients.
“Still, we don’t expect a material improvement in pricing until the economy improves. We would expect the DHL announcement will lead to pricing getting less worse in the near term,” Wolfe stated.