DHL preps to leave Wilmington air hub as a result of pending deal with UPS

Jeff Berman, Group News Editor -- Logistics Management, 5/30/2008

BONN, Germany and PLANTATION, Fla.—As reported in LM earlier this week Deutsche Post World Net’s announcement regarding the future plans for DHL Express U.S. is expected to improve its domestic operations, in terms of efficiency and productivity, according to company officials.

The biggest takeaway of its announcement is its plan to work with UPS on a ten-year, $10 billion contract for airlift capacity, and reducing costs in its ground infrastructure operations, which is expected to commence later this year. This contract is not yet finalized. DPWN said that DHL and UPS have agreed to develop a plan in which UPS will provide airlift for DHL Express U.S. domestic and international shipments from airport-to-airport within North America. DHL currently uses ABX Air and Astar Air Cargo for these services. DPWN said this contract will provide DHL with a single airline partner in the U.S., and it added that it will continue to operate its courier and ground network, as well as pickup and delivery services within the U.S.

Due to this pending deal, DHL will begin phasing out operations at its main U.S.-based air and ground hub in Wilmington, Ohio. 

DHL Express CEO John Mullen told LM in an interview that the UPS integration and the phasing out of the Wilmington, Ohio hub will take place over the next 12-to-18 months.

“While the air function at Wilmington will go away, it is still going to be a ground hub for us and certain functions—like customs clearance and international sorting—will remain there for now, but it may end up moving somewhere else,” said Mullen.

Regardless of the Wilmington Hub’s future, Mullen said partnering up with UPS as its domestic air partner, in conjunction with the other components of its U.S. restructuring plans, helps end the uncertainty regarding the future of DHL over the last six months.

“Large shippers told us they were nervous about the future of DHL,” he said. “This is a confirmation and a positive message internally and externally and in terms of UPS it is a big positive for shippers, too.”

Mullen explained that DHL had always outsourced its air linehaul with two legacy air— carriers ABX and Astar and is now partnering up with the biggest air cargo fleet in the U.S., which he said “can’t a bad thing, because it will bring added reliability and efficiency.

“We are confident that these moves will result in an improved product,” said Mullen.

DPWN said it expects to spend up to $2 billion to finance the restructuring plan, which will go towards termination costs, leases, severance, aviation assets, and pickup and delivery optimization. Mullen said the “biggest chunk”—about two-thirds—of this expenditure will go towards winding down operations with ABX and Astar, as it has ongoing contracts with both operators, along with other related expenses for service and air crew operations, leases, buildings, and terminals. He added that DHL and UPS will run two parallel networks between now and the end of 2009 in which it will gradually take its air volume off of its current air network and onto the UPS network. 

Jonathan Baker, DHL Corporate Communications Director, told LM that even though air operations will be transitioned out of Wilmington first, this facility is DHL’s largest ground sorting facility and it is also serves as an international gateway, with some international flights coming in as part of its customs clearance operations and international air sorting operations as well.

“We will have a need for those operations going forward, but we have not made a determination as to their location,” said Baker. “The extent of the impact would not be determined until we reach a final contract with UPS. The contract with UPS does not determine it necessarily on the ground sort facility, but given the reductions we will have with the air sort which is the majority of the volume, it makes sense for us to consider whether or not there are alternative locations in the area for us to handle our operations. But none of those decisions have been made yet and won’t be made until we finalize specifics of the UPS arrangement.”

Also included in the restructuring of U.S. operations are 1,500-to-1,800 job eliminations in the U.S., according to Mullen, with 34 percent reduction through closing and consolidating its 480 U.S.-based stations.

A report by the Associated Press stated that DHL’s pending deal with UPS is expected to cost 6,000 ABX employees their jobs at the Wilmington hub. The report added that DHL told ABX Air President John Graber it planed to reduce the number of flights it needed from ABX by 39 jets over a 12-to-18 month period.