BONN, Germany and PLANTATION, Fla.—Sending the message that they are still committed to the U.S. market, Deutsche Post World Net (DPWN), the parent company of express services and logistics services provider DHL, said last month it is taking an $874 million non-cash writedown on DHL Express operations in the U.S.

An AFX news report said this writedown includes adjustments on the value of some of DHL’s fixed assets, such as aircraft, trucks, property leases and office equipment.

This news followed reports from investment banks Morgan Stanley and Bear Stearns that indicated that pulling out of the U.S. market and scaling down domestic operations may be DHL’s best move. In 2003, DHL purchased Seattle-based Airborne Express for $1 billion. Since then it has faced an uphill battle for market share, with DHL competing against industry bellwethers UPS and FedEx, as well as the United States Postal Service (USPS). DHL said it has invested more than $3 billion into the U.S. since 2003, including $1.2 billion in infrastructure and distribution.

Shortly after the analyst reports were released and the writedown was announced, a Financial Times Deutschland article reported that FedEx was in talks with DPWN to discuss the possibility of the Memphis-based carrier taking control of the whole parcel delivery business of DPWN in the U.S., with DPWN assuming control of FedEx European services.

However, according to officials at DHL, despite the writedown and rampant speculation regarding its future in the U.S., one thing remains clear: DHL Express is not abandoning U.S. operations.

DHL Director of Corporate Communications Jonathan Baker confirmed this, telling 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.

DPWN Chief Financial Officer John Allan added that the U.S. Express business is a key management priority, and DPWN is looking at a variety of options to improve performance. In doing this, said Allan, DPWN is committed to maintaining a significant presence in the U.S. market.

Allan’s stance differs from the Bear Stearns report, which said the acquisition of Airborne has financially been “a disaster” and that the strategic rationale for the acquisition remains unproven almost five years later. The report added that the best strategy for DHL would be to pull out of the U.S. domestic express market.

The Morgan Stanley report suggested DHL should reduce the size and scope of its controlled network by withdrawing to metropolitan areas and offer both domestic and international services, with pick up and delivery being outsourced to FedEx, UPS, and USPS or regional players; or withdraw to metropolitan areas and offer just international services.

“They are not leaving the market as far as I can see, but if you are having a writedown of that size it won’t be business as usual in the U.S. market,” said Doug Caldwell, executive vice president of ParcelPool, an Orem, Utah-based small parcel delivery consultancy and services provider. “I think what they are going to probably do is scale back. They wouldn’t have announced the Walgreens deal if they were planning to pull out of the market entirely.”

DHL and Walgreens, a national pharmacy chain, announced a strategic partnership earlier this month, 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 2008.

Despite its current situation, DHL’s domestic performance has been particularly good of late, which is consistent with the commitment it has made to improve domestic operations, explained Michael A. Regan, CEO of transportation rate analysts TranzAct Technologies.

And an industry source told LM that DHL said its 2007 Peak Season performance was in line—and performed slightly better than its original expectations. But DHL’s real problem, said Regan, is that it is competing against UPS and FedEx, two competitors with very deep pockets.

From a shipper perspective, Regan said shippers need to really hope DHL makes it in the domestic U.S. market. If it were to cease operations, he said, that would have a very favorable effect on UPS’ and FedEx’s surface ground operations—and it would also be easier for the two to raise future rates.

“If you subtract out DHL, I don’t think it is unreasonable to assume that shippers could see their parcel costs increase by anywhere from 3-10 percent within the two years after that occurs,” said Regan. “And that is after netting their GRI (general rate increase) and their accessorial charges.”