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  Transportation Management Focus : Our Weekly Feature Article on Transportation Management Strategies, Best Practices and Technologies for the Transportation and Logistics Practioner  
 
 
  - June 2, 2008 -  

Logistics News: What’s the Real Story Behind DHL’s Revamped US Plans?       

 
 

Company Shrinking Network, Outsourcing Key Steps to UPS and USPS; Shippers Need More Answers from DHL Now, Leading Parcel Consultant Says

 
 

 

SCDigest Editorial Staff

SCDigest Says:
“There is much for your readers to be concerned about and little time for many shippers to react,” Hempstead told us. 

Click Here to See Reader Feedback

In a move that perhaps tried to find a middle ground, DHL announced last week it was remaining in the US parcel delivery market – but in a scaled-down fashion that would involve potential outsource deals to both UPS and the USPS.

After denying rumors that the company would totally leave its money-losing US operations (see Are Reports of DHL’s Possible US Exit Premature?), the company announced plans for a hybrid presence that would lower costs and outsource some operations to rivals.

That includes plans – not yet finalized – to turn over all of its air freight movements to UPS, shutting down DHL’s massive air freight operations in Wilmington, OH - facilities acquired when DHL purchased Airborne Express. It said it would also close down 30 of its local operations, and outsource additional local deliveries to the United States Post Office.

Since 2003, the USPS has provided last-mile delivery for DHL in more than 20,000 ZIP codes nationwide, primarily in rural areas. The new plans call for using the USPS in an additional 3,600 zip codes, including many more populated areas.

So, with these moves, what’s really left of DHL in North America, and what can current customers really expect?

More Questions Raised than Answers

While the company plans to offer more details, the current announcement leaves shippers with a lot of questions and concerns, says Gerry Hempstead, a parcel industry consultant at Hempstead Consulting.

“There is much for your readers to be concerned about and little time for many shippers to react,” Hempstead told us. “For example, DHL is closing 60 or so facilities on June 30. There is no plan to use UPS in the next 3 months. They hope to get a contract negotiated within 3 months!”

(Transportation Management Article - Continued Below)

 
 
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Hempstead says DHL will begin pulling down scores of feeder flights  - flights from local areas to the Wilmington sortation hub - on July 1. For example, cities like Fort Myers, FL, Corpus Christi, TX or Myrtle Beach, SC will no longer be served by their own DHL plane. That likely means much later arrival times because the shipments will have to be trucked in from somewhere or much earlier pick up times because the freight will have to be trucked to a plane in another city. That may cause shippers problems, if a UPS deal is not negotiated by then.

It is assumed that if a UPS deal is done, UPS planes would move parcels through its hub in Louisville, KY and deliver those packages to remaining DHL stations in local markets for delivery to local business and residences – with that last mile perhaps performed by the USPS.

Hempstead says DHL customers need more detailed information from the company: “DHL has no details at this time of what flights are coming down on July 1, nor have the told sales what stations are closing June 30,” he said. “What zip codes are being handed off to the USPS? What level of service will be used via the USPS? Tracking within the USPS is almost non-existent except for the final delivery scan” he noted.

Hempstead also wonders if DHL and UPS shipments will be co-mingled in the UPS airline system. If so, that could mean that DHL will have to wait at the destination until all the UPS shipments are sorted before it can receive its parcels to take over to its local terminal.

“If that's the case, then the UPS delivery drivers will have a one or two-hour head start on the street making deliveries before the DHL drivers can begin deliveries,” Hempstead says.

Supply Chain Havoc for Some Companies?

Some major shippers such as Solectron in Memphis or Lab Corp. in North Carolina have built their business models around very early morning DHL deliveries that are accomplished through what are called “red dog flights,” according to Hempstead.

“These customers have thousands of air express shipments a day. The red dog flights will be down before the end of this year. These shippers now have no place to go,” Hempstead said.

Hempstead also says that there are scores of companies that have put their business at the end of the DHL runway in Wilmington so they can begin their process at 4 AM on inbound or that they can ship as late as 1 AM and make the outbound aircraft.

“The customers using DHL in Wilmington or Columbus just got hit by a bus and nobody saw it coming, nor is anyone communicating with the shippers how DHL intends on keeping them whole,” Hempstead adds.

It remains something of a mystery why DHL would make the announcements, especially regarding the UPS piece, before a final deal with its competitor had been finalized.

What’s your take on the DHL plans? Is the company providing enough information to shippers? Is there going to be enough of a network left to make it a viable choice? Let us know your thoughts at the Feedback button below.

 
     
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Feedback
2008-06-03

June 3, 2008

Gerry is right on the money! Something might smell fishy in Denmark, but is smells even fishier in Germany! DHL and UPS are up to something, and it is not good for the rank and file DHL worker in the U.S.!

I hope the politicians keep the heat on Mullen and Appel and make DPWN pay back every penny that Clinton County, Ohio and the State of Ohio and the Feds gave to DHL to keep them in Wilmington, Ohio! So much for our "global economy"! Thanks for the story and for staying on top of it! This is an eye opener for all of working America!

turkey23
rank and file informant Union Member in Ohio!



2008-06-03

June 3, 2008

DHL has no interest in the domestic market, which they have stated in the past. The only interest they have in the U.S.A. is the international freight.

FishAllDay



2008-06-03

June 3, 2008

Although I am somewhat surprised at the outcome (using UPS for lift), I am not at all surprised that DHL made another clumsy move. This change will likely have a severe impact on service, no matter how they spin it.

As a former employee, I witnessed many a major blunder first hand. I departed in late 2006 amid a series of ill-advised and puzzling moves. The first and biggest blunder of DHL in the US was their decision to dismiss all but one of the former Airborne executives after a very brief transition. The ineptitude of the DHL senior management team was clearly demonstrated early on with a mindset that DHL was now a big player in the US market. They added on an unprecedented cost structure almost immediately; layers of personnel, new hubs, IT changes, significant service upgrades, etc, without the benefit of a dramatic increase in shipments. Airborne was methodical and cost conscious, so the culture was very unfamiliar and local managers often received conflicting messages regarding service and cost: a balancing act of two goals that can be mutually exclusive. Essentially, DHL brought on the cost structure of a FedEx sized company with Airborne-sized revenue and units. Almost overnight they began to offer premium service to thousands of new zip codes in the US regardless of potential revenue, just to say they can compete head-to-head with UPS and FedEx. They became inundated with Ground Delivery Service to residential addresses which were initially designed to be B2B only. Their pickup and delivery routes became a mix of special services, express service, ground, 2nd day, next afternoon and pickups...all on the same driver. AM sort operations became clogged with ground and USPS shipments that were not due until afternoon. Service suffered so more and more routes were added, driving up cost.

The second biggest blunder was removing the existing reporting system (Airborne) and trying to modify the DHL system to work with the hand-held scanners. Because the systems were built on two different platforms, and the latter was antiquated, the reporting became so inaccurate that most managers were unwilling and unable to use it. There was basically no visibility to the entire pickup and delivery system on a daily basis. As a result of this and excessive use of extra P and D drivers, the productivity plummeted. Costs continued to rise and losses continued to mount.

Lastly, the consolidation of the two air hubs was ill-timed and poorly executed. The concept was correct, but the plan for it (short timeline, no test runs, incomplete sort facility in Wilmington ) was faulty and the project failed from the outset. I personally was there that first night to watch it unfold (while unloading containers and sorting packages). Tugs were lined up 20 deep waiting to offload aircraft containers; sorters stood for 10 minutes at a time waiting for packages; some slides were empty while others overflowed onto the ground in piles up to 6 feet high with no shift of labor from one to the other. Most shift supervisors were new and inexperienced. The new sort facility was designed for a larger container type and workers were unfamiliar with how to process them. Packages were backed up for weeks while aircraft departed well under capacity due to the inability to process the containers in a timely fashion. Much of the backup was finally shifted to ground transfer to help catch up with the backlog, but not until the second week. By then, many major shippers had already rerouted their shipments to competitors. Many of them never returned.

I get no satisfaction in seeing this situation unfold. Unfortunately, these were all self-inflicted wounds caused by incompetent senior management, most of whom were appointed by Deutsche Post. These were people with little to no experience in the US market. They had never seen this type of volume. They never managed such a large operation. They were all replaced recently, but the damage is done. I feel for my friends who are still employed there.

Name withheld by Request



2008-06-03

June 3, 2008

As a driver for an IC that handles DHL shipments in Missouri, the customers we service are not the only frightened ones. Many stations will be shut down soon potentially stranding or leaving shippers scrambling in a service that they have enjoyed credibility with since the Airborne Express days.

Customers could be left in the lurch, but there are also hundreds of drivers that are family men/women not to mention the actual DHL station staff that also will be hurting...for their livelihood and if there are less than 30 days left for many...what then?

The potential Wilmington closure is a very serious nightmare for over 6,000 people. One station closure elsewhere, even the smaller satellite stations, can spell disaster for dozens of IC employees and their families. Quite a ripple effect radiating from Europe. My own route customers trust that be will be on time as usual so they can fulfill their appointments ranging from real estate closures to dental appointments to retail sales specials...not to mention timely delivery for those special holiday occasions.

What is the real story? Not only the customer has the right to know, but the newest hire at an Independent Contractor has also the right to know. DHL needs some serious customer assurance to avoid more losses to competition. I have lost several major contracts through all kinds of fear, unfortunately spread by UPS salesmen. All people connected with DHL; management to customer deserves to know and need assurance...after all we have to wear the colors of the German flag daily.

Michael B.
Missouri





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