DHL Reduces North American Presence

Faced with continued losses and a weakening US market, DHL was unable to turn its express operation around sufficiently to maintain a full presence in the US market. Even with the anticipated outsourcing of domestic air lift to UPS, DHL's competitive position in the US domestic express market was unsustainable.

Having said that, DHL's international express services remain intact, operating through 103 facilities in North America. And its supply chain and freight operations will continue.

POLL: How does the DHL decision to end US domestic express service affect you?

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A statement from DHL's Exel supply chain group explains: “As you know, DHL Express is now focusing US efforts on international products and services, and is therefore discontinuing US Domestic Express and Ground products effective Jan. 30, 2009. This announcement is limited to the US Express domestic business only. With the exception of a small percentage of our US customers that have integrated solutions that include an Express component, this announcement does not affect Exel and the service we provide to customers. For the customers impacted by this decision, we have been working closely with them and the appropriate DPWN global counterparts to ensure a successful transition to another domestic parcel carrier. While Exel and DHL Express do share the same parent company, Exel operates under a separate corporate division, Supply Chain/Corporate Information Solutions.”

John Mullen, global CEO of DHL Express, stated that after $10 billion in total investment from the Airborne Express acquisition to the present, DHL was unable to overcome the effects of a “highly concentrated duopoly market” and the recent downturn in domestic express volumes. DHL invested a significant amount of money to become a third option for US customers, said Mullen, but its competitors had the market reach and brand awareness to make this difficult. In better times, he said, DHL may have been able to hold on longer, but the dual effects of competition and the economy were too much.

There were execution errors along the way, admitted Mullen, but they would not, in themselves, have made the difference between strategic success and strategic failure. Airborne was a small niche player of low quality, said Mullen. Following the acquisition, DHL was unable to bring the operations up to DHL standards. US shippers weren't willing to pay a premium to have a third choice in the market, he added.

DHL will now handle an estimated 100,000 shipments per day through five international gateways in the US. Pick up and delivery will flow through 103 remaining DHL facilities and local contractors (or through existing contracts with the US Postal Service). The regional head office for DHL Express will remain in Plantation, FL.

DHL's exit from the domestic express market takes the operation from $4.5 billion in revenues to an estimated $1 billion plus level. It will also put 1.2 million shipments per day into the domestic market that had been handled by DHL.

Contracts with ABX and Astar, DHL's current domestic air lift providers, will be terminated after the first of the year, says Mullen. DHL hopes to have a contract in place with UPS by the end of the year that will be executed in the first months of 2009. Failing that, DHL could consider new arrangements with one or both of the current providers, albeit for greatly reduced volumes. But in effect, the elimination of the domestic express service removes the last ground operation at the Wilmington, OH hub that had provided air lift prior to the earlier announcement that DHL was negotiating to outsource that function to UPS.

Mullen said that outside the US, DHL sees little reason why it should lose any revenue. There are no structural reasons for that, he said. DHL has not lost much international business related to the US announcement, it was overwhelmingly domestic. There may have been some international loss from “bundled shippers” who used other DHL services in conjunction with Express, but Mullen said they were working to retain that business.

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