DHL drops domestic service in U.S.

DHL drops domestic service in U.S. In the face of a global economic slowdown that is impacting the shipping industry, Deutsche Post World Net announced Monday that it has opted for a full shutdown, instead of partial downsizing, of its DHL Express domestic ground and air service in the United States.
      Last May, the semi-private German postal and logistics conglomerate said it would cut DHL’s domestic ground infrastructure by about 30 percent and its workforce by roughly 10 percent to stem annual losses of more than $1 billion. The revised restructuring means DHL is also scrapping earlier cost-cutting plans to contract with UPS for its U.S. domestic airlift to replace two incumbent carriers.
      DHL said it will end domestic ground and air package pickups on Jan. 30 to focus on its core international express service. The company said it will serve the entire United States for deliveries, and 99 percent coverage for pickups. The U.S. market is still critical for DHL as part of its global network.
   The move represents a full circle for Deutsche Post, which acquired Airborne Express in 2003 and began an expensive construction program to build a ground hub network to compete with FedEx and UPS. DHL is now returning to its international roots handling shipments into and out of the United States.
      Under the radical restructuring, DHL will close all 18 ground hubs, cut the number of package stations from 412 to 103, and eliminate 9,500 jobs on top of the 5,400 positions already eliminated since the beginning of the year.
      DHL plans to take a restructuring charge of $3.9 billion over two years to implement the changes. The cost is $1.9 billion more than the earlier streamlining plan because of the greater scale of shutting down more facilities and aircraft.
      DHL Express Chief Executive Officer John Mullen said at a press conference in Bonn today that DHL and its parent company took the latest measures to preempt damage associated with the economic downturn spreading around the world and to speed up cost savings.   
Since the original network reduction plan in May the global economy has begun to slow considerably, which would have exacerbated losses DHL was already trying to correct.
      “So even if revenue projections fail to meet targets, we’re structurally limited to lower levels of loss,” Mullen said.
      The other advantage is that DHL can more quickly begin to realize savings — starting in the second half of 2009 instead of sometime in 2010. DHL estimates it will reduce operating costs from $5.4 billion to less than $1 billion.
      The restructuring will be nearly complete by the middle of next year, he said. It will also simplify operations by reducing from 600 information technology systems, many linking to ground franchises, down to less than 100 systems.
      DHL will go from moving 1.2 million shipments to 100,000 shipments per day via air under the new arrangement, Mullen said. DHL Express will retain about 3,000 to 4,000 employees.
      Deutsche Post said DHL Express will lose about $1.5 billion in
2008 and $900 million in 2009 on an operating basis. It expects to stabilize losses by the fourth quarter of 2009 at a level of about $400 million per year.
      Deutsche Post also reported third quarter group results showing an operating profit of 1.6 billion euros ($1.65 billion), up 1.3 percent from a year ago. DHL Global Express, however, saw earnings drop $63.6 million to $210 million due in large part to $109.4 million spent for the U.S. restructuring and a shift to Day Definite products from higher margin Time Definite products in the U.S.   
market. ' Eric Kulisch