Deutsche Post World Net today announced plans to restructure its DHL U.S. Express business byworking with UPS for airlift capacity and reducing costs in its ground infrastructure.
Under the plan, DHL and UPS have agreed to develop a contract whereby UPS will provide airuplift for DHL Express U.S. domestic and international shipments within North America. DHL willcontinue to operate its courier and ground network as well as pickup and delivery services to itscustomers across the country. The proposed agreement, in character and scope representing anefficient model in the express industry, will extend for 10 years. The commencement of UPS serviceinto the DHL network is expected to begin later this year.
In addition, DHL will align its U.S. Express infrastructure to existing shipment volumes byredesigning its ground linehaul network to better match capacity with customer requirements. Theimpact on service levels will be minimal with less than 4 %of shipments affected. DHL remainsfocused on delivering international and domestic Express products, offering an attractivealternative for U.S. customers and keeping a strong commitment to the U.S. market.
The restructuring plan will lead to sustainable improvements in financial performance andprovide a sound starting point for a more efficient and customer-oriented business in the future.In 2008, the company expects an underlying EBIT loss of $1.3 billion in U.S. Express. Through theexpected cost savings of around $800 million in 2010 and around $1 billion in 2011, underlying EBITwill improve accordingly. First positive effects of the plan will start showing already in 2009.The company expects to spend up to $2 billion to finance the restructuring plan.
Due to the uncertain economic situation in the U.S., Deutsche Post World Net is reducing itsguidance for underlying EBIT in the EXPRESS Corporate Division in 2008 to around 400 million eurosfrom around 500 million euros. Subsequently, the Group’s full-year guidance before non-recurringeffects and restructuring costs will be reduced slightly by 100 million euros to around €4.1billion
“We have promised to relentlessly focus on improving financial performance and delivering onour Roadmap to Value program. I am confident we have found a sustainable way forward for U.S.Express in the best interest of customers, employees and investors,” said Deutsche Post World NetCEO Frank Appel at a press conference in Bonn. “Taking a pragmatic approach, we will go on to be asmarter player in the challenging U.S. Express market. We will continue to offer premium service tocustomers who rely on DHL as the leading network operator across the globe. And we will continue toleverage our express, logistics and mail offerings, which in combination make DHL unrivalled as theworld’s leading logistics company.”
The proposed contract provides both DHL and UPS substantial economic benefits in the U.S.Express market, which remains one of the most challenging marketplaces worldwide in light of thecurrent economic downturn. DHL will continue to compete in the U.S. market under its own brand,offering attractive value to customers. The restructuring action in no way diminishes DHL’scommitment to retaining a significant presence in the U.S. market, which is key to DHL’s globalnetwork.
“Our future focus will be where customers have told us they need to do business the most. Ourentire network restructure will enable us to bring a new level of reliability and increased serviceperformance to our international and U.S. domestic customers while cutting unnecessary costs suchas maintaining infrastructure that customers don’t ask for,” said John Mullen, Deutsche Post WorldNet Management Board Member and Chief Executive Officer of DHL Express.
DHL’s strategic priorities in the U.S. will be to continue providing record servicereliability, and accelerating growth in more profitable segments of the market through leveraginginnovative sales channel strategies like the recently announced Walgreens partnership. In addition,DHL will be more selective in accepting business from a small number of scarcely populated areasand take advantage of capacity and cost reductions to grow a leaner and more focused groundbusiness.
