DPWN takes hit on DHL writedown, plans to announce U.S plans in May

Jeff Berman, Senior Editor -- Logistics Management, 3/6/2008

BONN, Germany—Deutsche Post World Net, the parent company of express delivery and logistics services provider DHL, said today its fourth quarter profit dropped 61 percent to $392 million, which was largely due to an $874 million non-cash writedown on DHL Express operations in the U.S, according to a Bloomberg report.

Despite this quarterly decline, DPWN is committed to remaining in the U.S. market, said DPWN Chief Executive Officer Frank Appel at an investors’ conference held today. Appel said that DPWN will present its U.S. plan in May.

“We have performance issues in our DHL Express business in the U.S. and will continue to have challenges this year,” said Appel. “A pullout is not in the offering; the U.S. is an integral part of the group’s growth strategy.”

Appel added that DPWN is currently looking closely at its U.S. operations and reviewing possible options, and he added that it has narrowed down its options and are fairly close to reaching a solution.

For much of the first quarter of this year, there has been much speculation of DHL’s future in the U.S. Investment banks Morgan Stanley and Bear Stearns issued reports that exiting the U.S. market or scaling down operations may be the optimal move for DHL.

And the Financial Times Deutschland ran a story in late January, indicating that DPWN was 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 report also noted that DPWN was in talks with FedEx with the possibility of FedEx taking control of the whole parcel delivery business of DPWN in the U.S., with DPWN assuming control of FedEx’ European services.

As it turned out the FT report was speculation, and 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.

In 2003, DHL purchased Seattle-based Airborne Express for $1 billion and since that time it has faced a largely uphill battle for market share against UPS, FedEx, and the United States Postal Service. DHL has invested more than $3 billion into the U.S since 2003, including $1.2 billion in infrastructure and distribution.

This earnings news comes days after DPWN announced plans to separate its Logistics corporate division into two operating units—Supply Chain and Global Freight and Forwarding.

DPWN said in a statement that “the decision to split Logistics into two separate units is a structural move without any immediate costs or gains associated with it, and there will be no changes to the Group’s reporting structure for the time being.”

Michael A. Regan, CEO of transportation rate analysts TranzAct Technologies, said that breaking up the Logistics division may mean more than DPWN is letting on.

“When I see them doing this, the question I ask is why,” said Regan. “Strategically, a company will say it is better for the business. But it could be viewed as a move made to restructure the business and create some options. If you are going to get out of a market, you can sell off one part and keep the other.”