DHL exit may benefit W.Pa.

Deutsche Post's announcement Monday that it is discontinuing domestic air and ground services for its DHL Express unit in the United States could have a positive impact in Western Pennsylvania, one transportation analyst believes.

"It may not happen next week, but probably over the next three months, $2 billion to $3 billion of DHL business will show up on UPS (United Parcel Service) and FedEx books," said Satish Jindel, president of SJ Consulting Group Inc., Sewickley.

"The increase could be more significant for FedEx locally," which has its corporate headquarters in Robinson, Jindel said.

Beginning Jan. 30, DHL's U.S. Express business will focus entirely on its international offerings and will discontinue its domestic-only air and ground services.

"This is the right move for our U.S. Express operations given the current economic climate and for the long run," John Mullen, Global CEO of DHL Express, said in a statement. "Focusing our U.S. Express efforts on what we do better than anyone else -- international shipping -- serves the best interests of our customers, employees and shareholders around the world."

According to statistics from SJ Consulting, DHL Express in 2003, the year it acquired Airborne Express, controlled 6.8 percent of the U.S. domestic parcel market, compared to FedEx's 27.4 percent, the U.S. Postal Service's 13.8 percent, and United Parcel Service's 52 percent.

During the third quarter of this year, DHL's market share fell to 4.8 percent, the Postal Service's share decreased to 11.7 percent, FedEx's market share climbed to 31.5 percent, and UPS' share remained flat at 52 percent.

Deutsche Post's plan includes closing all DHL U.S. Express U.S. ground hubs and reducing the number of stations from 412 to 103. This will cut 9,500 U.S. jobs at DHL Express on top of the 5,400 positions reduced since January. The company will retain 3,000 to 4,000 U.S. Express employees to meet the needs of international express customers.

DHL has stand-alone locations in Coraopolis and in Crescent, drop-off locations situated within other businesses located in Mt. Lebanon, McCandless, Allison Park, Bridgeville, Murrysville, Indiana, Kittanning, Latrobe, and two in Mount Pleasant.

The company also offers stand-alone drop-off boxes in numerous locations, including four in Downtown offices buildings and one in Alcoa's North Side headquarters location.

The DHL move that could greatly scale back a possible venture with UPS, the German company said. The DHL-UPS deal was expected to last up to 10 years and infuse Atlanta-based UPS with up to $1 billion in annual revenue, if completed as first proposed in May.

UPS, the world's largest shipping carrier, has said the contract with DHL, which it has been working to finalize, would mostly involve the transport of DHL packages between airports in North America -- not the pickup or delivery of DHL packages to customers.

If DHL made significant cuts to its ground operations in the U.S., it wouldn't necessarily affect UPS and DHL reaching a deal since their talks have solely involved air delivery of packages, not ground delivery. But Deutsche Post's announcement went well beyond the elimination of ground products within the U.S.

Deutsche Post, which cited heavy losses and fierce competition for its decision to curtail U.S. operations, noted it is not pulling out of the market entirely. It said its international shipping services to and from the U.S. would continue.

UPS spokesman Norman Black said his company would continue to work on an air-haul vendor contract with DHL. But, he added, "Today's announcement by DHL certainly could affect the size and scope of that contract. We'll go back into talks and see what develops."

Avondale Partners analyst Donald Broughton noted that while DHL's announcement does not directly kill the deal with UPS, he thinks termination will be an end result.

"I think a lot of observers, myself included, knew the largest value of that contract (between DHL and UPS) was going to be on the first day, and it was going to dwindle very quickly thereafter," Broughton said. "This just accelerates that process."

Broughton said that while both UPS and FedEx stand to gain as DHL pulls back its U.S. service offering, FedEx will likely have the upper hand in gaining a broader share of the market in both domestic ground and air express shipments.

DHL's air and ground operations produced $3.4 billion in revenue last year.

"This a nice piece of the market for UPS and FedEx to play jump ball with," he said. "Overall this environment is very challenging, and this has been a positive in a sea of negative."

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