Rescue Plan
May 29, 2008
In an attempt to end years of losses at its struggling US express delivery business, DHL parent Deutsche Post said at a board meeting in Bonn on Wednesday, May 28, it would overhaul its US business, a move it said would save the German-based group $1 billion (640 million euros) annually.
The logistics giant said UPS and DHL would sign a contract transferring DHL Express "airlift" functions within North America to UPS. This would be the carrier for both US and international consignments.
The restructuring is expected to cost $2 billion. Under the deal, the company will pay UPS $1 billion a year for 10 years to carry its US domestic and international shipments within North America.
US business in trouble
Deutsche Post, based in Bonn, said it remained committed to serving US customers and that less than 4 percent of its shipments would be affected.
DHL's yellow air freighters, which fly large volumes of mail around the US, are expected to vanish from US skies, but DHL vans and offices on the ground would continue as before.
DHL's US operations have posted unspecified losses since it entered the market in 2004 against stiff competition from rivals UPS and FedEx.
The restructuring plan foresees cutting losses to $800 to $900 million by 2009 and less than $500 million by 2010.
Lay-offs ahead
Frank Appel, the Deutsche Post chief executive, was optimistic that the deal with UPS made economic sense and would help to secure DHL's shaky position in the US market.
"We will significantly increase the profitability of the US express business. We have no doubts that we will be successful," Appel said on Wednesday.
Deutsche Post said the agreement with UPS would also reduce ground infrastructure costs in North America. It added the restructuring plan would lead to 1,500 to 1,800 job cuts. DHL's total US workforce amounts to 45,000.
The job cuts will come as DHL consolidates logistics centers into larger units and reduces its pickup and delivery routes. It will also scale back its ground network and reduce service to remote areas.