DPWN may consider selling DHL Express U.S. operations, says recent news report
Jeff Berman, Senior Editor -- Logistics Management, 1/25/2008
BONN, Germany—A report from the Financial Times Deutschland published yesterday stated that Deutsche Post World Net (DPWN), the parent company of express services and logistics services provider DHL, is contemplating selling DHL’s Express operations in the United States by the end of May as part of a wider turnaround plan that could be announced.
The FT reported that DPWN is currently in talks with FedEx CEO Fred Smith. And it noted that one potential scenario could have FedEx taking control of the whole parcel delivery business of DPWN in the U.S., with DPWN assuming control of FedEx’ European services. Not surprisingly, DPWN declined to comment on this rumor, according to the FT. But DPWN Chief Financial Officer John Allan did say that DPWN has “several options. Some can be realized in the short term—some not.”
But as it turns out this report was nothing more than speculation, LM has learned. DHL Director of Corporate Communications Jonathan Baker told LM that any withdrawal of DHL Express in the U.S. market can be completely ruled out.
“There is no questioning of us exiting the U.S. business,” Baker said in an interview.
A report from investment bank Bear Stearns published today noted that while CFO Allan has been unequivocal in saying that DPWN will not dispose of the DHL Express U.S. business, it represents a source of confusion. And in Bear’s view, it maintains that DPWN may look to dispose all or most of its U.S. domestic operations while keeping a significant U.S. international presence.
What’s more, the FT report said that DPWN Chief Executive Klaus Zumwinkel is planning to sell the DHL Express U.S. unit, as well as merge Postbank, DPWN’s banking subsidiary, with another bank in light of criticism from investors and industry analysts that have called out Zumwinkel for financial losses at DHL Express in the U.S. LM reported yesterday that DPWN took an $874 million non-cash writedown on DHL Express operations in the U.S., indicating they are committed to remaining in the U.S. market. And the FT report said that DHL Express U.S. operations have generated losses up to $7 billion Euros or approximately $10.2 billion U.S.
A potential takeover of DHL’s U.S. operations does not make a ton of sense on various levels, said Doug Caldwell, executive vice president of ParcelPool, an Orem, Utah-based small parcel delivery consultancy and services provider.
“FedEx would essentially be buying a duplication of what they already have..in the U.S. market,” said Caldwell. “They would be buying redundant facilities, which they would not need. They would also be buying a customer base, and customers with DHL often pay less than they would with FedEx, so they would be buying customers at a lower rate than many of their current customers are paying [with FedEx]. It would upset current FedEx customers that would be wondering why they are paying premium for FedEx services.”
Another problem standing in the way of FedEx acquiring DHL Express U.S are regulatory issues, said Caldwell. If FedEx were to take over a large competitor like DHL, there would be a “mountain of regulatory issues to hurdle” and there would not be much in it for FedEx, he added.
If a deal between FedEx and DPWN were to occur, one possibility would be to have FedEx leverage DPWN’s breadth in the European market, which it does not possess, said Caldwell.
“Could there be an agreement where FedEx might handle some [DHL] U.S. operations in exchange for more access to the European market?” asked Caldwell.
This report also does not fit in with what DHL has previously disclosed, regarding its U.S initiatives, such as the recent strategic partnership announcement by DHL and Walgreens, a national pharmacy chain, which will provide small businesses and consumers with access to DHL’s overnight, ground, and international delivery services at more than 6,500 Walgreens locations by the end of this year.
“If DHL had been considering pulling out of the U.S., they would have not signed this Walgreens deal, nor would DPWN had announced its global IT outsourcing deal with HP, which specifically includes DHL operations in the U.S.,” said Caldwell. “What would they have to outsource if they were not gong to be here?”
In terms of current European operations, FedEx acquired England-based ANC Holdings Limited, a domestic express service provider in December 2006, which now is known as FedEx Ground in Europe. Caldwell said this is a good operating model for FedEx in this market and said the company is interested in having an expanded local ground presence in Europe, but is unsure if acquiring DHL is the way to do it.
“It is possible that there is some type of future cooperation between FedEx and DHL, but I don’t think it is in the cards at the moment,” said Caldwell.
View All On-Demand Webcasts-
rumors persist with all companies the size of DHL, the problem as I see it is that DHL jumped into a deal to purchase AirBorne that only benefited the union side and the former executives of Airborne. The company made a huge error in allowing Airborne to negotiate a bad contract with the union, that contract has now expired. The deal that is being voted on now should help streamline the operations. The union mentality that the company owes them should go, how about stepping up and working with management to get our collective acts together; if not we are all out of work.
michael p glennan - 2008-24-4 22:35:00 EDT -
I work for DHL,& have done so for 14+ years.I am a Driver/courier.I have never seen anything like what is happening here in my region.To make a long story short,it almost appears that DHL is intentionally trying to drive the business into the ground!Making demands of lower level customer service oriented employees(P?U,&Delivery for example) that frankly, make their day to day responsibilities almost impossible to attain.From gigantic cuts in manpower,to unbelievable cuts in budgeted hours,it seems as though it is a purposeful attempt to simply give up,& possibly start all over w/a smaller,non-union based work force.I THOUGHT THAT THE MERGER OF Airborne Express,& DHL Duetsch Post was going to a plus for all employees. It has not turned out that way whatsoever.
Ray Reichart - 2008-26-3 00:44:00 EDT -
A lot of people do not know but FedEx has a branch that is handling this type of product. It is called FedEx SmartPost. Ground is the carrier from Hub to Hub, which nearly gives SmartPost better on-time service then Ground or HD. With a cheaper rate. There is 20 Hubs in the SmartPost network with 4 to 5 more on the way in the coming years. And yes this would be great for FedEx. Also the USPS has been told by Congress to out source more and get out of the BMCs. FedEx already has the relationship with the USPS, Express and SmartPost. So to pick up this volume would be a true test of what FedEx as a company is really made of. "I will make every FedEx experience outstanding."
Troy Tobin - 2008-15-3 14:02:00 EDT -
This makes a lot of sense for FedEx. It sets them up to take over handling all the parcel, tub and tray mail, nationwide for the United States Postal Service. FedEx would take over handling all this USPS type of mail, that is currently processed in all the USPS Bulk Mail Centers and Regional Distribution Centers, or Processing and Distribution Centers. Congress has mandated that the USPS get out of the parcel handling business. And the USPS had recently issued a nationwide "Request For Information", and has received proposals from companies to handle this mail, nationwide. Therefore, a very, very smart move by FedEx, to prove to the USPS and Congress, that FedEx does have the existing capacity in facilities, equipment and personnel to handle all this mail nationwide. Great strategic planning by FedEx Management, and a great end run against their competitors for this USPS business.
Ed Zak - 2008-30-1 22:39:00 EST
