DB Schenker plans to change U.S. air operations from dedicated to non-asset fixed model
July 25, 2011 - LM Editorial
Less than a month after reports indicated that Deutsche Bahn was considering shuttering its United States-based DB Schenker Logistics, a third-party logistics, trucking, and airfreight services provider, Schenker Inc. said late last week it is making significant changes to its North American business model.
The company said it will transition from operating its own dedicated air fleet to a non-fixed asset model and focus on a smaller number of customers who require North American domestic transportation management services. Schenker added that it will continue to provide shippers in North America with international ocean, air, contract logistics, and warehousing operations and services.
“As a result of the prolonged recession and spiking fuel prices, more and more of our customers are opting for expedited ground-based solutions instead of domestic air freight, and they are looking for partners who can provide transportation management services rather than transactional transportation,” said Heiner Murmann, CEO of Schenker Inc., in a statement.
Schenker added that the company’s dedicated air fleet represents less than 10 percent of its business in the Americas and the “phasing out” of the fleet will occur in the coming weeks. They explained that this move is in response to changing marketplace conditions. The company built its U.S-based air fleet by acquiring BAX Global in early 2006. As a result of this decision, roughly 700 positions at Schenker’s U.S. hub location in Toledo, Ohio will be eliminated.
Schenker officials were unavailable for further comment at press time. They did note that even with the exodus of its dedicated air fleet, it is ranked second, fourth, and fifth in U.S. air freight, ocean freight, and contract logistics, respectively.
An industry expert told LM that when it comes to service and price in the domestic air cargo market, UPS and FedEx hold significant advantages over a company like Schenker, as they can handle any size shipment going to any location, coupled with various services ranging from express to deferred, as well as holding critical mass in the small package space to underwrite a network that can fly anywhere.
“Schenker tried to provide speed with a price point that had to compete with forwarders and has struggled with the competition,” said Jerry Hempstead, president of Hempstead Consulting. “They were operating a dedicated air fleet and a dedicated hub and had great control, but the model did not allow them to make an acceptable margin for shareholders.
I’m sure they learned lessons from how DHL exited the USA for domestic express yet is able to provide service to a small number of national accounts.”
He said that this is a logical move in light of the weak outlook of the global economy, noting that if things pick up they can always jump back into the dedicated model where it makes sense.
An industry source that declined to be identified told recently LM that the BAX purchase “has always been problematic for DB and they might give up [in the U.S. air freight business].” The source added that Deutsche Bank has been bothered by defections and Joey Carnes, former advisor to the Board at Schenker Deutschland AG
and former BAX president and CEO, who now serves as chairman and CEO of MIQ Logistics, is now directly competing against Schenker and has “also raided DB Logistics ranks.”
Competitors serving the North American air cargo market appear to be acting quickly on the customer service front in the wake of this news regarding Schenker.
Top management at DHL Global Forwarding sent a letter to customers stating that its Domestic Air Freight Services Group is in contact with its airline and ground providers to ensure it is in the best position to protect customers’ best interests and those who may want to come back to DHL as a result of this announcement. The customer letter added that its preferred carrier—DHL Aviation—plans to increase system capacity to offset Schenker’s departure, effective September 2.
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