DHL to partner with UPS as part of U.S. restructuring

DHL to partner with UPS as part of U.S. restructuring

   German mail and logistics provider Deutsche Post World Net announced Wednesday that its DHL Express unit will contract with UPS for its domestic and international airlift needs within the United States as part of a major restructuring to stem heavy losses in the U.S. market.

   The express package courier will cut one-third of its station network through closure or consolidation of facilities, trim its pickup and delivery routes by 17 percent and its line-haul routes between stations by about 18 percent.

   Deutsche Post officials said DHL would still cover the entire country, but will expand its relationship with the U.S. Postal Service to handle pickup and delivery in remote areas. The ground network changes will only impact about 4 percent of DHL’s customer base, but the minimal coverage reduction is justified by the huge cost reductions DHL expects to realize, they said.

   The combined moves will save the company an estimated $1 billion per year.

   DHL expects to conclude within the next three months a 10-year contract with UPS worth $1 billion per year to provide air transport to, from and within the United States, said John Mullen, DHL Express chief executive officer, during a press conference Webcast from Deutsche Post headquarters in Bonn.

   The move means DHL will terminate its existing relationship with ABX Air and Astar Air Cargo, both of which have provided U.S. airlift ever since DHL entered the domestic parcel market in 2003 with the acquisition of Airborne Express.

   Mullen said DHL expects to spend up to $2 billion to finance the restructuring, including costs to terminate contracts, exit leases, meet obligations to ABX and Astar, and transition costs to run parallel networks while integrating cargo flows to UPS.

   “I am confident we have found a sustainable way forward for U.S. Express in the best interest of customers, employees and investors,” said Frank Appel, Deutsche Post World Net CEO, in prepared remarks. “Taking a pragmatic approach, we will go on to be a smarter player in the challenging U.S. Express market. We will continue to offer premium service to customers who rely on DHL as the leading network operator across the globe.”

   DHL will begin realigning its package sort facilities this week and expects the full program to be in effect by the end of the year. The bulk of the airlift switch to UPS will start in 2009, Mullen said.

   Deutsche Post said it was also revising downward by 100 million euros to 400 million euros its corporate Express earnings guidance due to uncertainty in the U.S. economy. ' Eric Kulisch