Parcel shipping: DHL in talks with multiple air carriers to handle U.S.-based international cargo
Initial proposed deal with UPS not a sure thing; DHL now in talks with ABX, ASTAR Air Cargo
Jeff Berman, Group News Editor -- Logistics Management, 3/16/2009
PLANTATION, Fla.—When global express delivery and logistics services provider DHL announced last November it was eliminating United States domestic-only air and ground services to focus only on international import and export offerings U.S.-based major metropolitan areas, effective at the end of January 2009, many industry observers commented that it left the status of the proposed ten-year, $10-billion deal between DHL and UPS up in the air.
The reason is that when this deal was initially announced in May 2008, DHL still had a presence in the domestic U.S. parcel delivery market. Had DHL remained in the U.S. market as a domestic-only air and ground services provider, UPS would have provided all airlift services for DHL Express U.S. domestic and international shipments from airport to airport within North America, giving DHL a single airline partner in the U.S., and UPS would provide main hub package sorting services at UPS’ Lousiville, Kentucky-based hub. And since that time, the status of the pending deal has remained status quo, in that an agreement has not been reached between DHL and UPS. It was originally expected to be completed by the end of 2008.
What’s more, a recent report from the Dayton Daily News indicated that DHL has had conversations with its current air cargo partners ABX Air and ASTAR Air Cargo—to handle, sort, and fly DHL packages in the U.S. since the deal with UPS has not materialized to date. ABX Air and ASTAR Air Cargo are DHL’s current airlift partners and are based out of the Wilmington, Ohio Air Park, which has served as the home base for DHL’s domestic air and ground hub.
DHL Director of Corporate Communications Jonathan Baker told LM in an interview earlier today that in mid-February, DHL parent company Deutsche Post World Net (since re-named to Deutsche Post DHL) said on an earnings call that the window of exclusivity for UPS and DHL to hammer out a deal officially expired at the end of January, and since that time DHL has been talking to other air cargo service providers, too, including its current airlift providers, as well as UPS.
Since acquiring Airborne Express and establishing a domestic footprint in the U.S. in 2003, DHL invested more than $5 billion into U.S. operations. Despite this investment, domestic market and economic conditions—and an uphill battle for market share against UPS—took a toll on DHL. Over time, its domestic problems were exacerbated, with reports of ongoing service issues, and large job cuts.
UPS CEO Scott Davis said on an earnings conference call earlier in February that talks with DHL are continuing, but the company is finding it difficult to make an agreement, given the reduced scale of DHL’s needs within the U.S., according to a Wall Street Journal report. Davis added that UPS is seeing “significant new volume” with DHL’s exit from the U.S. market and he expects that to continue.
Like UPS CEO Davis, Doug Caldwell, executive vice president of ParcelPool, a small parcel delivery consultancy and services provider, observed that the current situation between DHL and UPS differs significantly from the initial scenario—in terms of anticipated volume, scale, and scope—compared to when the deal was first announced in May 2008.
“The discussion between DHL and UPS kept changing from the distribution of DHL’s intra-U.S. shipments at that time, and now that is not on the table anymore,” said he said. “It is a much smaller piece of business that they are talking about now, and I think what is happening is either party is wondering if this deal is really a good fit at this point.”
And given that DHL is only focused on international shipments in the U.S in major metropolitan areas, which gives it a much smaller footprint, Caldwell said the company’s primary U.S. focus is to determine how to best distribute and move shipments to those specific geographic areas. The possible best scenario for doing so, he noted, may be to stick with ABX Air and ASTAR Air Cargo, because of the limited amount of airlift they are going to need, coupled with DHL’s efforts to improve service performance for international shippers in the U.S. by having earlier deliveries and later pickups than it previously had.
These efforts, he said, center on providing better service than other carriers for its large international customers—which they still have several of—in the U.S. And ABX Air and ASTAR Air Cargo are carriers, which Caldwell said are used to running a “lean and mean” operation and are capable of providing a high level of service performance at a reasonable cost. At the same time, he noted that this does not necessarily mean DHL will not eventually reach some sort of agreement with UPS, but it is by no means a done deal because the scope has changed significantly since the original concept was rolled out in May 2008, which, in turn, may make it “less interesting” to UPS, as well as it having potentially less appeal on the DHL side as well.
The proposed deal between UPS and DHL has also received a fair amount of scrutiny in the courtroom, too. In September 2008, the House Committee on the Judiciary held a hearing to determine if the proposed contract was in violation of anti-trust laws or decrease the competitive landscape in the parcel delivery arena.
At the time of the hearing, UPS spokesman Malcolm Berkley said in an interview that the arrangement between DHL and UPS would be a customer-vendor contract, which does not pose any anti-trust issues.
“You would not call what DHL currently has with ABX or ASTAR antitrust issues, [so] why would you with this? It is changing vendors. The agreement will be similar to what we and others in the industry have with the United States Postal Service. The nature of the vendor-customer relationship we are pursuing historically has not posed any antitrust issues. We are still in negotiations and will have to wait and see as a result.”
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