The opening of a large regional hub in Atlanta this year is the next big step by DHL Express to expand its U.S. air network — but the growth doesn’t stop there. A new hub in Ontario, California, and a gateway in Texas to support a massive increase in e-commerce shipments also are part of DHL’s ambitious plans, the top executive in the U.S. told American Shipper.
The development and exploration of new airport facilities comes as the global express carrier wraps up a three-year, $360 million expansion program for the Americas, including a major renovation that doubled the shipment capacity of its hub in Miami.
Deutsche Post DHL (OTCUS: DPSGY) is using extraordinary profits to bankroll new airport infrastructure. The integrated logistics giant generated a 23.5% increase in revenue to $23 billion during the third quarter of 2021, with operating profit up 28.6% to nearly $2.1 billion. Net income doubled for the first nine months of the year. The company raised its full-year 2021 guidance for earnings before interest and taxes to a record $8.9 billion.
DHL officials say the increasing shift by consumers to online shopping and robust cross-border trade are fueling globalization and the need for infrastructure investment.
DHL Express anticipates opening a large aircraft ramp and sort facility at Atlanta’s Hartsfield-Jackson International Airport during the third quarter, in time for the peak shipping season leading into the major holiday shopping events. The regional hub will bring more direct flights from Europe and Asia into Southeastern states, building on recent growth at hubs in Chicago, New York, Los Angeles and Miami, said Greg Hewitt, CEO of DHL Express U.S., in an interview.
The Atlanta terminal will be able to handle a third of the volume currently flowing through Cincinnati/Northern Kentucky International Airport (CVG), one of three global hubs operated by Deutsche Post’s express package arm. The 785,000-square-foot Cincinnati facility has about 7.3 miles of conveyor belts and can sort up to 300,000 pieces a night.
“It will take a significant amount of volume from the network and that will feed the Southeast,” Hewitt said. “It theoretically takes some pressure off Cincinnati. It also allows for less chance for something to get held as it goes through a transfer point because those parcels will go direct from Europe and Asia to those markets on large intercontinental [DHL] or commercial flights and put the product closer to market for delivery.”
Construction of the Atlanta hub is taking longer than anticipated because of slowdowns related to COVID, permitting challenges and the ongoing shortage of steel, the U.S. chief said.
The addition of large hubs in Atlanta and Miami enables more direct air service that helps speed inbound and outbound delivery times in the rapidly growing Southeast region. Both sites were added because there is now enough volume from the main Asia and Europe hubs, and back, to sustain direct flights. Shipments from airports in those regions are consolidated in Hong Kong and Leipzig, Germany, and can go straight to the regional hubs. Parcels from Canada, Latin America and the Middle East will get routed through Cincinnati rather than going direct to Atlanta.
DHL Express is already looking beyond Atlanta to ensure it has adequate infrastructure to handle the huge influx in e-commerce business. During the past two years, the company has experienced unprecedented volume growth equivalent to what is normally achieved in 10 years.
In the U.S., DHL projects 2021 business-to-consumer shipment volumes increased 29% year-over-year on the heels of 49% growth the prior year versus pre-pandemic levels. Final results will be available in a few weeks when Deutsche Post announces 2021 results.
The company says it delivered 484 million shipments globally in 2020 for direct-to-consumer and business-to-business shippers, about 9% more than in 2019.
Hewitt said parcel and freight shipments out of China were very soft in January leading up to the Lunar New Year, which normally triggers a forward push of orders from companies trying to get products exported before factories pause operations for a week or morel. Two-way volumes only grew 1% to 2% for the month – well below expectations and the 12% to 15% year-over-year growth seen at the start of 2021. The five-year compound average rate of growth for U.S. inbound shipments is 15% to 20%.
COVID restrictions that forced manufacturing slowdowns in many cities or unfavorable comparisons coming off an unprecedented year in 2020 could explain the lower numbers. If pent up demand after the holiday doesn’t quickly make up the difference, DHL will probably need to lower its growth forecast to 10% or less, Hewitt said.
Regional hub buildup
Hewitt said Deutsche Post DHL headquarters is expected within months to decide on investing in a new air hub at Ontario International Airport and a gateway in Dallas, with Houston also still in the running.
The goal would be to open a facility at a Texas airport in 2024 and the Ontario hub in 2025 or 2026.
Ontario would eventually replace Los Angeles International Airport as DHL’s main West Coast hub because landlocked LAX doesn’t have room to grow.
“Los Angeles is a major air hub for commercial airlines. So long term, our plan would be to keep commercial lift through Los Angeles and the big network flights, with the big DHL birds going into Ontario,” Hewitt said.
DHL Express uses commercial airlines for some parcels to supplement its own network flights.
Ontario airport, located 56 miles east of LAX, is a major cargo facility. FedEx Express (NYSE: FDX) opened a large operations center there in November 2020, tripling its size to 251,000 square feet of terminal space. UPS (NYSE: UPS) also has a regional hub in Ontario. Amazon Air (NASDAQ: AMZN) uses Ontario for point-to-point flights, with a new hub in nearby San Bernardino.
Capital expenditure in the air network isn’t limited to the U.S. Last fall, DHL Express opened an expanded international parcel hub at Paris-Charles de Gaulle airport. The $200 million site is 10 times larger than the original facility. In September 2020 it transformed the gateway in Milan, Italy, into a regional hub for $123 million. The investment pipeline also includes tripling the size of the parcel hub at Incheon International Airport in South Korea, scheduled for completion in the second quarter, and a $370 million expansion of the Hong Kong hub that is scheduled to be turned on in the fourth quarter.
On the fleet side, DHL last year started an Austria-based intra-European airline with freighters previously based in the U.K. to prioritize e-commerce deliveries within Europe in response to Brexit. It also ordered electric cargo jets, as well as new freighters from Boeing.
DHL Express invested $360 million with the goal of increasing capacity in the Americas network by nearly 30% by the end of 2022. Of that amount, $200 million was devoted to the U.S.
A $78 million project to expand DHL’s facility at Miami International Airport was completed last summer, opening the door for additional flights to and from Europe, Asia-Pacific and South America, including Chile and Mexico.
Miami has long been a primary base for operations into Latin America and the Caribbean, but the expansion strengthened the company’s connections to the rest of the world. The capital expenditure includes a high-tech, automated package sort system, which nearly doubled sorting capacity. The facility now has 206,000 square feet of warehouse space, twice the load positions for packages going on the conveyor system and two X-ray machines for explosives detection.
DHL Express now operates an average of 193 weekly flights (arrivals and departures) at the Miami hub, through a combination of narrow and widebody aircraft. CVG, by comparison, processes about 116 flights per day.
Last September, DHL Express also quadrupled the size (244,000 square feet) of its gateway building in Hamilton, Ontario, where it invested $79 million to meet significant increases in volume.
In the past two years, DHL has hired about 5,000 new employees, including 1,000 at CVG.
Express recently opened two new service centers in Philadelphia and New Jersey. The $20 million investments establish more conveniently located and roomier facilities, with greater capacity and capability to process shipments 30 minutes faster than before. The move addressed the need to accommodate future growth by splitting DHL’s previous facility in Philadelphia into two locations that are more geographically centered with the core customer base.
In December, the company also opened a $10.6 million local delivery center in Miami Gardens, Florida,
DHL has more than 3,000 service centers around the world.