DHL retreats from USA with 14,900 casualties

DHL.

DHL said its withdrawal from the US domestic market was "a very difficult decision", but "the right move".

(Image courtesy of DHL)

DHL Express has announced it would exit its US domestic-only services by the end of January 2009, in a desperate attempt to restore its balance sheet in deepest red. 

The restructuring of the company, Deutsche Post’s delivery business, will see all of its US ground hubs closing, dramatically slashing the number of stations from 412 to 103.

On top of some 5,400 jobs already cut since the beginning of this year, a further 9,500 US-based workers will find themselves jobless as the restructuring continues.

DHL Express global chief executive John Mullen said while the company had been progressively restructuring its US operations, the bleak market forced it to make “a difficult decision”.

“Given the current background of unprecedented uncertainty and risk in the global economy, we feel that it is critical and prudent to take additional measures to combat what we believe will be an extremely challenging 2009, and to do this ahead of time,” Mr Mullen said.

“Losses in US express revenue and volume were unsustainable. More had to be done to protect the interests of our customers and employees around the globe as well as our shareholders.

“It is the right move for our US express operations given the current economic climate and for the long run…we decided to focus on what we do best as a company, and that’s international shipping,” he said.

Here to stay, still

Despite the withdrawal, the company said it would remain committed to the US market as a continued US presence was essential to its entire global express network.

Nearly half of its top 200 business partners are based in the US, with US trade lanes representing half of its global volume.

“We are here to stay,” Mr Mullen said.

The remaining restructuring process will cost the company an additional $1.9 billion, bringing the total costs to $3.9 billion over two years.

By cutting its US domestic operating costs by 80 per cent to less than $1 billion, the company wants to keep losses from the market at $900 million, with the losses expected to taper down to $400 million by the end of 2009.

Stronger focus on international services

DHL’s operation overhaul will see the company dropping out of the US market race with UPS and FedEx, with the two key players set to take up almost 80 per cent of the market operations.

However, the company said the restructure would make its US international express service “extremely competitive”, with improved transit times.

The company’s international network builds on partnerships specific to regions, with AeroLogic and Lufthansa Cargo serving its European and Asian markets, Polar Air Cargo for trans-Pacific services, along with its self-owned Boeing fleet covering the trans-Atlantic region.

The restructure is not expected to have impact on other US-based services such as global forwarding and freight, supply chain and customer information services.

All international shipments into the US will still be delivered, while 99 per cent of the outbound shipments will be picked up.

Deutsche Post CEO Frank Appel said at a press conference in Bonn that stronger actions were needed to protect its delivery business from the economic storm.

“By taking a realistic view and defining clear actions towards reducing costs, I am confident we are now on the right track to secure the group’s long-term growth,” he said.

Deutsche Post posted results for the first nine months of the year. Its underlying earnings before tax from continuing operations slightly rose 1.3 per cent to 1.6 billion euros, with revenue in the period increasing by 2.3 per cent to 40.5 billion euros.

Express freighters flock to rail

FedEx Express.

Express freighters are increasingly choosing rail over air transport.

The long-buried potential of rail is at last to be realised with the help of the global express delivery industry, a market analyst has argued.

Datamonitor’s transport logistics analyst Sraavani Rao said large swings in oil prices, coupled with the economic downturn, were leading to a gradual shift in customer demand away from express and parcel delivery services via air to rail and road.

She argued key international players such as DHL, TNT, UPS and FedEx were seeing the rail network as a competitive alternative with service capabilities as well as economic and environmental benefits.

Express operators, especially in the European market, are increasing the use of the rail sector, already offering services through rail to serve same-day and next-day delivery requirements.

US player FedEx is also planning to team up with the French rail network in a bid to provide time-definite rail deliveries and help cut reliance on air networks for domestic and international deliveries within the EU.

This is also expected to streamline critical overnight express deliveries, as rising noise concerns at the airports continue to put more pressure on operators, according to Ms Rao.

She pointed out rail seemed to be a more viable option than road as congestion charges in some capital cities would make road transport on certain occasions costlier than rail.

“Additionally, rail transport makes environmental sense, as the emission levels are significantly lower than those of road,” she said.

She said the shift favouring rail transport over road and air would become more salient in the medium to long term.

“An alternative mode of transport that offers great potential is rail, as most companies come to realise the potential of rail express delivery.

“This is expected to increase the share of rail in the modal mix of transport in the years to come and also provide opportunities for express companies to both compete effectively and satisfy shippers’ requirements,” Ms Rao said.

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