Hi,

DHL recently announced a major reorganization of its DHL USA operation.  This DHL reorg will have a major impact on the US parcel shipping industry.  We at PARCEL feel it is our responsibility to shed as much light as possible on this breaking development in the parcel shipping industry. PARCEL asked DHL and several leading industry consultants to comment on possible ramifications. This special edition of the Parcel e-newsletter contains their responses.

As usual, we will continue to provide updates to this and other industry development as they become available.

Please note that the opinions expressed herein are those of the individual commentator and do not necessarily represent those of PARCEL or its employees, nor should they be construed as endorsement by PARCEL.

Thanks.

Dan ORourke,

Editor, PARCEL

DHL has attempted to become a key player in the USA market with the purchase of Airborne Express in 2003. However, they have quickly learned that both Federal Express and UPS are highly competent and well funded. They have made DHLs push into the USA a very difficult one. DHL Express (USA) had a great marketing launch of the new brand in the early days of the merger. However, they had a difficult time in integrating the legacy DHL and legacy Airborne networks together. In fact today, they still run parallel IT platforms of the two legacy organizations. The shareholders of Deutsche Post World Net (DPWN) have lost patience and have called for drastic changes in the USAhence all of the proposed changes.

What is Changing

DHL Express (USA) is reducing the scope of their network and service partners. Some of these changes are as follows:

·         Reducing local facilities by 34% (150+)

·         Pick-up/Delivery Routes rationalized by 17%

·         Ground Line haul Network rationalized by 18%

·         3600 zip codes will be delivered by the USPS (7.8% of all US Zip Codes)

·         Closing the Wilmington Hub (6000+ Jobs)

·         Moving Aviation Network to UPS

There are 46,000 zip codes in the USA and DHL claims that they will continue to service 99% of them. This new network will not be competitive compared to other providers but will have a significant financial impact to their bottom line. DHL Claims that only 4% of their shipments will be impacted by these changes. However, these changes could impact their overall service performance of their clients. This could mean that their customers may go from a 98% on-time performance to 94% or lower. Most shippers will need to determine how to handle these zip code changes and how to manage their customers expectations.

Impact to Shippers

DHLs customers will be experiencing a degradation of service over the next 6-12 months. As they fine tune their network, DHLs customers  will learn to understand their new rationalized network and make decisions on which zip codes to give them. The utilization of UPS for their air network should improve the effectiveness and on-time performance of their network but it will go through a transition period which will negatively impact performance levels in the short term. Their international business will be impacted by these changes but once the package is out of the USA, DHLs international network is Best in Class. DHL has seen competitive pressures from TNT Express and the USPS (in addition to FedEx and UPS).

Next 6 Months

The next 6 months will be a very challenging time for shippers and carriers. The soft economy and high fuel prices are adding to these pressures. Many customers are re-evaluating the value proposition that DHL brings to their supply chain. We are also seeing many customers looking at the USPS as they are offering more competitive Package services. The changes at DHL may spur the largest price increase (January 2009) in the history of the shipping industry in the USA.

Shipper Options

During these tenuous times, shippers are looking at all options in minimizing their cost increases and here are some examples:

1.       Move some zip codes to Fed Ex or UPS (at a higher cost)

2.       Put business out to Bid

3.       Re-negotiate current contracts

4.       Re-evaluate own shipping patterns

5.       Make no changes (not recommended)

In summary, DHL is making these changes to improve their financial position and to be a stronger player in the USA. Once DHL has completed and optimized its network in the USA, they will be a stronger competitor against the duopoly in the USA.

Michael J. Ryan is the VP Business Development Parcel Solutions at GENCO Supply Chain Solutions which specializes in reducing clients shipping cost from 5-20%. He has been in the parcel industry for 25 years and can be reached at 708-224-1498 or ryanmj@genco.com.

For DHL's response, please click here.

For Jerry Hempstead's take on the subject on DHL's reorganization, please click here.

To read the USPS press release, please click here.

To read the UPS press release, please click here.