Recently I've gotten a lot of email from readers asking my opinion regarding DHL's US restructuring and in particular, the selection of UPS Airlines to handle DHL US domestic air linehaul carriage.
First, as a DHL employee, I am not an official spokesman for the company. (Disclaimer: any and all opinions published here are strictly my own.) Secondly, its very early days yet. The implementation will occur over an 18 month period and doesn't even begin until June 30th, 2008.
What I can say is that I am a believer in the plan as announced. The creation of a DHL US domestic air network based on a single, very reliable carrier with a modern fleet and good fuel economics makes logical business sense. On the surface, this might seem like a big deal competitively between UPS and DHL until the broader picture is examined.
I spent 20 years in the ocean freight industry. Ocean carriers have been sharing ships in consortia and vessel sharing agreements since the late 1960's. Ocean carriers share ships, chassis, containers, as well as terminal and other operating expenses, yet still compete vigorously for traffic as independent marketing companies. Shippers are used to this and think nothing of it!
Both the DHL and UPS air fleets have excess capacity. This deal can alleviate costs for both carriers. Good for UPS, good for DHL, good for customers and especially good for the environment. I believe DHL and UPS are being innovative in leveraging the best air network in the North American parcel market.
Use of the US Post Office to make remote location deliveries is something DHL already has experience with through its @home product, which relies on the USPS to make residential deliveries for B2C type traffic already. As a friend of mine says routinely, the Post Office visits your house six days a week whether you like it or not. That's a network worth leveraging.
Reductions in ground service are a realization that the DHL ground network doesn't have the lane density to compete for every single piece of freight available. Third party vendor systems are going to have to adjust to this. This includes Kewill, Pitney Bowes, and others.
This deal will take a lot of adjustment by the industry and the story will unfold in the months to come. There's going to be a lot of hard work to make the integration work smoothly.
At the end of the day, DHL is committed to the US market but the shape of the commitment will be on DHL's terms, not as a clone of FedEx and UPS.
Eric
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Rich, thanks for the clarification note.
You are right I'm not a spokesman for DHL, but I'm not an apologist either. I'm a realist.
The DHL/UPS contract is not complete. However this deal presents a billion dollars a year in incremental revenue to UPS, so I feel pretty confident it will get done. With fuel and the economy being what it is, UPS would be foolish to let this deal get away. DHL similarly needs the economic benefit of a modern air fleet in the US market. This is a major win-win. It also shows that the integrators can share assets to serve markets. Thats unique.
The big delta in the deal is what happens with the politics. On that we will see over time. The fact that Ohio is a valuable political state in an election year, and that union jobs are involved present some significant gray area.
Im less concerned about the removal of the @home product. Thats a product level decision and based on profitability.
Eric
Posted by: Eric | June 14, 2008 at 10:17 PM
Eric,
In updating this story, am I current in thinking that:
1. The UPS airlift deal is not a "done deal", even though you have an estimated launch date and rollout time. I understand that the final agreement has not yet been struck between the parties.
2. The @home service is being phased out and a new residential service using DDU and the USPS that better matches the post-restructuring coverage and capabilities will be put in its place.
We appreciate your insight and never hold you out as the official DHL spokesperson!
Posted by: Richard Palarea, COO | June 14, 2008 at 08:06 PM
Eric - like you, we've been fielding e-mails and phone calls from both clients and the press on what this all means.
I wrote a commentary analaysis for the Gerson Lehman Group to an article that appeared on the Atlanta Journal-Contitution (see http://www.ajc.com/search/content/business/stories/2008/05/28/ups_0529.html ).
I think there are two ways of viewing this announcement - from a consumer's "brand-centric" standpoint and from an industry/business decision standpoint. The first assumes that its a silly move to give away business to your fierce competitor. The latter looks at all angles of the objective attempting to be acheived and objectively weighs the decision. The media has been too quick to focus on the former.
The Gerson Lehman Group site is a platform for expert consultants and requires a login to view its contents. As such, I have posted a print copy of my analysis to our corporate website, if this is of interest at http://www.paaa.com/advisory/GLGNewsDHLRestructure.pdf
As always, Eric, you provide good and timely information.
Posted by: Richard Palarea, COO | June 02, 2008 at 02:20 PM