SCDigest
Editorial Staff
SCDigest Says: |
Obviously, greater pricing power for UPS and FedEx means higher costs for shippers. Economists have often noted that it is the presence of a third competitor that tends to create more competitive markets versus those with just two providers, or a duopoly.
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The long, strange journey of DHL in the US parcel market has come to an end with the announcement this week that the company would close its US parcel operation effective January 30, 2009. The company will, however, continue its US import/export, forwarding, and logistics services business here.
The announcement ends an odd saga in the company’s attempt to penetrate the US parcel shipping market. After building a small direct US presence, DHL (a division of Deutsche Post) double downed in 2003 with its acquisition of Airborne Express. That company was much smaller than either UPS or FedEx, but had developed a sizable customer base and was touted for its attention to customer service.
The combined company decided to close its internationally-focused Cincinnati parcel hub and move its sorting operation to Airborne’s Wilmington, OH facility. But from early on, DHL was criticized for poor strategic decisions and the loss of Airborne’s attention to customer service. It often used price to win customer business, but it never gained more than a small share of the US market, and the combination of those two factors led to substantial losses over each of the last several years.
Earlier this year, DHL tried to fix that situation with a strategy to radically transform its US operations. That involved a plan to outsource its airlift operations to UPS, a move that would effectively shutter its Wilmington hub and bring the loss of thousands of Ohio jobs. DHL also announced further increases in its existing outsourcing relationship with the United States Post Office for some local deliveries.
DHL executives said those moves were needed to cut losses, but that it intended to remain in the US parcel market. Nevertheless, in May the company said it was still expecting to lose $900 million in its US operations in 2009 even after the new strategy was in place. Some members of Congress wanted more investigations as to whether the UPS relationship would violate anti-trust rules, mostly in an effort to try to save the Wilmington hub operations and jobs there; the hub closure actually became a minor presidential campaign issue.
DHL made that a moot point with this week’s announcement. In addition to the closure of the Wilmington hub, the company will also shrink its US network from 412 to just 103 stations, with those left open to support import/export shipments. The company said the pull-out was the result of “Continued weakening in the US economy, which leads to an on-going decline in express air volumes in the US.”
There were reports DHL was seeing heavy defections in its customer base as a result of the May announcement, particularly because it had yet to finalize its outsourcing agreement with UPS. Many in May questioned the logic of announcing the network changes without having a "done deal" first with UPS, as the announcement weakened DHL’s negotiating position.
(Transportation Management Article - Continued Below)
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