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DHL seeks deal with rival UPS to ship its air packages

The struggling unit of Germany's Deutsche Post tries to cut costs.

May 29, 2008|From the Associated Press

ATLANTA — DHL, the struggling express shipping unit of German postal service Deutsche Post, wants United Parcel Service Inc. to carry some of its air packages in North America. The collaboration between the rivals would give UPS a hefty new revenue stream and help DHL cut costs.

It remains to be seen whether Deutsche Post's restructuring of its operations in the U.S. will only be a Band-Aid for its problems or provide a long-term solution.

In March, Deutsche Post said its fourth-quarter profit slid by more than 60% after it wrote down the value of its DHL unit. DHL is slashing network capacity in the U.S. by 30%, which includes closing and consolidating sorting facilities and streamlining pickup and delivery routes.

"The real problem was they tried to match UPS and FedEx, 'We go everywhere, we offer every ground product, point-to-point,' and built out their network to do that, but never had the density to make it profitable," Stifel Nicolaus & Co. analyst David Ross said of DHL.

A spokesman for Memphis, Tenn.-based FedEx Corp., Maury Lane, declined to say whether his company sought the air transport arrangement that DHL announced Wednesday that it was working out with Atlanta-based UPS.

"The reason they chose UPS over FedEx -- we don't know this -- but UPS probably gave them a better price," Ross said.

UPS predicted Wednesday that the deal, when completed, would add as much as $1 billion in annual revenue. The agreement is expected to last as long as 10 years and to cover express, deferred and international packages, but not freight. UPS also would transport DHL air packages among the U.S., Canada and Mexico.

UPS said the contract would mostly involve the transport of DHL packages between airports in North America -- not the pickup or delivery of DHL packages to customers. UPS said the deal would be similar to its agreement with the U.S. Postal Service.

The deal could be a significant blow to Wilmington, Ohio-based ABX Air and Miami-based Astar Air Cargo Inc., DHL's current vendors for air shipments. Air Transport Services Group Inc., ABX's parent, said the deal could lead to the assumption by UPS of substantially all of the services that ABX Air provides to DHL.

UPS shares rose $2.14, or 3.1%, to $70.54. Air Transport fell $1.24, or 41.8%, to $1.73.

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