DHL / Deutsche Post says “goodbye” to the U.S. domestic express market
November 10, 2008 by SwizStick
Filed under 3PL, Air Cargo, Integrators
Update: 11-24-08
For much, much more on Deutsche Post World Net’s decision to pull DHL out of the U.S. market, check out this in depth article from Air Transport World. Key excerpt:
DPWN cited three key factors that drove the decision to focus only on international shipping to and from the US, a move that means DHL’s daily air volume in the country will drop from 1.2 million shipments to just 100,000. First, it simply had to “face reality,” DPWN CEO Frank Appel said at a recent press conference in Germany, explaining that the company had to acknowledge it could not figure out a way to operate profitably in the US. Its annual costs in the market averaged more than $5 billion and it could not generate enough revenue to earn money, losing an average of $1.3 billion per year. UPS and FedEx have long-entrenched, integrated networks in the US as well as tremendous brand awareness among American consumers and shippers, advantages that proved too significant for DHL to overcome.
Second, its business in other parts of the world, particularly Asia, has grown enough in the last five years that it no longer believes the US market holds the same strategic importance. Finally, the global economic downturn makes pouring money into a loss-making market prohibitive. DHL estimates it has lost $10 billion in the US since it purchased Airborne Express in 2003 and tried to battle UPS and FedEx on their home turf (ATW, January 2008).
It’s long been reported that their U.S. express unit has been losing money hand over fist, but this is still pretty dramatic. They are pulling out of the domestic express market completely while still offering international express services to and from the U.S.. Via JOC Online:
Deutsche Post in a press conference in Bonn said the downsizing of DHL Express in the U.S. will cost $1.9 billion on top of a charge of $1.5 billion charge for an initial restructuring announced in May that cut 5,400 jobs.
Deutsche Post stressed it will continue to offer international express service to and from the U.S. The successful contract logistics and freight forwarding units, which employ around 25,000 people, are unaffected by the $3.4-billion, two-year restructuring.
“There is no alternative…this is absolutely necessary,” according to Deutsche Post CEO Frank Appel, who said the company had to act to stem “unacceptable” losses at the U.S. express unit which are expected to reach $1.5 billion this year — $200 million higher than forecast in May.
Appel said the restructuring, which will be booked mostly in 2008, is expected to cut DHL’s U.S. losses in 2009 to $900 million and under $400 million on an annualized basis by the fourth quarter of next year.
Possibly a result of acquiring/growing too big, too fast? I don’t know enough about the details of the inner workings of Deutsche Post, but with so many different business units acquired and absorbed so quickly over the years some growing pains were inevitable.
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