June 3 2008 11:20 AM

DHL has completed a comprehensive network plan to restructure its express and ground parcel operations to reduce costs, while maintaining a competitive choice for U.S. and global customers.

Our go forward plan includes: 1) changes to our infrastructure and aviation operations with a 30% reduction in overall network capacity, and 2) accelerating growth in more profitable segments of the market through new channel development strategies, such as the recently announced Walgreens partnership.


The restructuring of our U.S. air and ground network will remove excess capacity, better integrate our air and ground network and better align our network to where the majority of businesses do business. DHL will continue to pick up more than 99% of current volume and deliver to 100% of current coverage.


DHL shipments will also largely be handled the same way as before. DHL will continue to provide a comprehensive delivery network for all national and international shippers even to remote areas; and DHL will continue to offer delivery services to the same number of ZIP Codes it services today.


Moving forward, in low volume areas of the country that have the highest cost to serve, we will expand our current arrangement with USPS for final mile delivery service. This will significantly reduce our cost structure, yet have minimal customer impact. Shipments to these areas represent just 2.4% of our current customer volume.


Less than four percent (3.9%) of our total current shipment volume will affected in any way: we will no longer offer pickup services for 0.6% of current volumes, and 3.3% of volume will see a change in transit time.


We have also agreed to develop a contract with UPS for air uplift, an arrangement which represents both a prudent financial move for DHL and UPS given current market conditions and an innovative arrangement for the U.S. industry. UPS provides a comprehensive solution to serve our domestic airlift needs in a cost effective and reliable way.


Clearly, DHL and UPS will continue to compete in the marketplace. We know that our customers want us to continue to bring true choice and value to the U.S. domestic market.


While the principal purpose of the new network model is to reduce costs and maintain a competitive choice for U.S. and global customers, we do anticipate that DHL service reliability will further improve as a result of the network changes. Improved segregation of priority product will allow for a more resilient operation, and customers can expect still greater reliability through a less complex, more focused and cost-efficient network.


Nothing about our network changes represents a change in our commitment to the U.S. market. On the contrary, offering a high-performance range of products and services in the U.S. helps to guarantee our business success in other regions; and we are committed to serving our U.S. domestic customers.


The recent partnership with Walgreens plus the extension to our ShipReady product line, as well as our reseller and telesales channels to serve small and medium businesses (SMB), demonstrate our commitment to this important market. By the end of 2008, DHL will have the largest retail footprint for Express shipping in the U.S. with more than 10,000 retail locations, making DHL the most accessible express shipper in the country.

We will also continue to be a flexible, responsive organization and will continue to invest in the areas that enable us to provide even higher levels of service with a customer-focused orientation.


In fact, as part of the network restructuring, we will be adding new infrastructure to our regional sort centers to increase throughput capacity; and we will make investments in service centers and systems to allow for greater efficiencies and improved sorting capacity. We will also make changes to staffing plans and employ enhance route planning to avoid peaks in our operations.


We continuously review our network operations to ensure we have the right network in place to support our customers needs. And we believe this plan represents the smartest possible combination of savings and presence in the U.S. market today. The restructuring will create a platform for growth, allowing us to go forward with a robust, integrated network and operations properly scaled to compete well in the current U.S. market.


To read Jerry Hempstead's commentary on DHL's reorganization, please click here.

To read Michael J. Ryan's commentary on "Why All the Changes at DHL?" please click here.

To read the USPS press release, please click here.

To read the UPS press release, please click here.