Logistics News: DHL, UPS end negotiations for domestic airlift deal
Low volumes due to DHL exiting U.S. market seen as driver for deal collapsing; should not hamper international service, analysts say.
By Jeff Berman, Group News Editor -- Logistics Management, 5/1/2009
PLANTATION, Fla. and ATLANTA — 
Low volumes due to DHL exiting U.S. market seen as driver for deal collapsing;
should not hamper international service, analysts say.
PLANTATION, Fla. and ATLANTA—While it was far from a done deal, the proposed partnership for domestic airlift capacity between UPS and DHL is now officially off the table, according to company spokesmen.
UPS spokesman Norman Black told Logistics Management that talks between UPS and DHL have ceased and declined to disclose additional information. DHL officials said, “We have not been able to come to a conclusive agreement that is acceptable to both parties.”
The deal was initially announced in May 2008, prior to DHL’s announcement last November that it would eliminate U.S. domestic-only air and ground services to focus on international import an export offerings in major metropolitan areas by the end of January 2009. When DHL officially exited the domestic market, many industry observers noted that it left the status of the proposed 10 year, $10 billion airlift deal in flux.
Under the terms of the deal, DHL Express would have worked with UPS for airlift capacity in an effort to reduce its ground infrastructure operations costs. 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. UPS would have provided main hub package sorting services at UPS’ Louisville, Ky.-based hub. The deal was originally supposed to be completed by the end of 2008.
One factor for the deal being shuttered centers around the decline in volume being handled by DHL now that it has left the domestic market.
Before DHL officially left the U.S. market, its air network handled about 1.2 million daily shipments for domestic and international shipments compared to its current levels that are around 100,000 per day. It also employed roughly 13,000 people, but will pare that down to 3,000 to 4,000 U.S. employees after it makes U.S. staff reductions. The job cuts are commensurate with DHL going from 412 stations and 18 ground hubs when it still had a domestic footprint to 103 ground stations and no ground hubs with an international-only U.S. presence.
“On the domestic front this announcement does not herald anything new for shippers,” said Doug Turner, president of Toronto-based Obsidian Consulting. “The main event was last November when DHL announced the withdrawal from the U.S. domestic market. This withdrawal removed an important element of price and value competition from the U.S. domestic market.”
In March, it was reported that DHL was in talks with its current air cargo partners—ABX and ASTAR Air Cargo—to handle, sort, and fly packages since the UPS deal had not been inked. ABX and ASTAR have long served as DHL’s airlift partners out the of Wilmington Air Park in Ohio, which has served as the home base for DHL’s domestic and air ground hub.
However, DHL will be moving its U.S. hub operations to the Kentucky-based Cincinnati/Northern Kentucky International Airport (CVG) by mid-to-late summer, said DHL Director of Corporate Communications Jonathan Baker. The driver for this move is nearly $2 million in tax incentives to relocate from Wilmington to CVG, noted reports.
At this time, no information has been disclosed in regards to what provider will serve as DHL’s air carrier at the new location. Baker said DHL will continue to use ABX and ASTAR to provide the airlift services that UPS wanted to take over, but he would not discuss any potential agreements with other providers. DHL worked out of CVG from 1983 until it moved to Wilmington in September 2005.
A noted parcel delivery analyst said future success for DHL out of CVG is by no stretch guaranteed.
“When it opened, DHL’s hub at CVG had all kinds of issues when they brought it on line. Shipments were delayed and mis-sorted for a protracted period,” said Jerry Hempstead, president of Hempstead Consulting. “When DHL moved the Cincinnati operation to Wilmington, it was a complete operational disaster. Packages were delayed and missing for days and weeks after they brought the two operations together.”
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