DHL Express lays off 9,500, cedes U.S. delivery market to UPS, FedEx
Deutsche Post, parent of DHL Express, says it will close three-fourths of its outlets in the U.S. The new job cuts bring the company's total to nearly 15,000 this year.
DHL Express, Deutsche Post AG's overnight-delivery unit, said today it will abandon efforts to compete with United Parcel Service Inc. and FedEx Corp. in the United States, laying off an additional 9,500 workers and closing three-fourths of its outlets.
Deutsche Post's spending on U.S. express operations, including the unit's losses, reorganization costs and the price of acquiring the former Airborne Inc.'s ground unit in 2003, will total $9.6 billion by the end of next year, Chief Executive Officer Frank Appel told reporters at the company's Bonn headquarters today.
DHL's retreat may enable UPS and FedEx to expand their U.S. market share, estimated at a combined 80 percent of package deliveries, according to Sewickley, Pa.-based SJ Consulting Group. Deutsche Post, Europe's biggest postal service, said it's poised to report a net loss for 2008, the first full-year deficit since its stock began trading in 2000, because of the U.S. withdrawal.
"FedEx and UPS have literally spent decades developing a quite formidable position in the U.S. with extremely reliable networks," said Dan Ortwerth, an analyst at Edward Jones in St. Louis. "DHL underestimated this challenge from the start" and was "a languishing competitor in the U.S. that was flailing even in boom times," said Ortwerth, who recommends buying shares of both FedEx and UPS.
Deutsche Post rose 6.9%in Frankfurt trading. That pared the stock's decline this year to 57%.
DHL Express will eliminate 9,500 jobs in the U.S. in addition to 5,400 positions cut since the beginning of the year, Deutsche Post said. The combined figure amounts to about 3.1% of Deutsche Post's average global workforce of 477,394 employees in the first half of 2008.
The division will also drop domestic truck operations on top of a handover of internal U.S. air routes to UPS that was announced in May. DHL Express's remaining U.S. business will focus on international deliveries, with 4,000 employees and 103 outlets.
Deutsche Post bought Brussels- and Redwood City, Calif.- based DHL in 2002, adding a global express-delivery service to its network and later expanding the brand to include some cargo operations. The company hasn't made a profit from U.S. express operations since buying Seattle-based Airborne.
Reorganization costs over two years will total $3.9 billion, most of which will be booked in 2008, Deutsche Post said. DHL's "successful" U.S. cargo, freight-forwarding and bulk-mail businesses will be unaffected by the express-unit cutbacks, the company said.
Appel, saying an economic decline in the U.S. "generated considerable need for action," wouldn't specify the net loss he's predicting for this year. Deutsche Post stuck to a forecast announced Oct. 27 of 2008 earnings before interest and taxes, excluding one-time gains or costs, of about 2.4 billion euros.
DHL Express ranked fourth in U.S. express deliveries with 5% of the market, behind UPS, Memphis, Tenn.-based FedEx and the United States Postal Service, which is No. 3 with 13%, according to SJ Consulting.
