Four years ago, DHL's parent stormed into the U.S. with an advertising campaign designed to take on FedEx Corp. and United Parcel Service Inc. One television ad showed a freight train loaded with DHL vans rattling UPS and FedEx trucks stopped at a rail crossing. "I didn't see that coming," the UPS driver muttered.Now it's DHL that has been blindsided.
On Monday its parent, Deutsche Post AG, announced a massive retreat. The company said it will pull the plug on domestic U.S. deliveries by the end of January and cut about 9,500 jobs. DHL will continue to deliver and pickup international shipments in the U.S.
Its foray into the U.S. was done in first by a series of management missteps and then finished off by the slumping U.S. economy.
Deutsche Post expects its U.S. express operation to lose $1.5 billion this year after losing $1 billion last year. In recent months, a number of high-profile customers have taken their business elsewhere.
With volume sagging in virtually every freight-delivery industry -- including railroads, trucking and ocean shipping -- DHL is to some extent just another victim of the economic downturn.
"Maybe in more buoyant times we could have soldiered on, and things would have been different," said John Mullen, chief executive of the DHL Express world-wide. But the sagging economy made the situation "a bridge too far," he said.
DHL ran into problems almost from the moment it entered the U.S. in 2003 by purchasing Airborne Inc. of Seattle for $1.05 billion. Critics said the company underestimated the intensity of the competition, didn't have a cohesive strategy and failed to retain top Airborne talent. Airborne also proved a less-than-perfect fit because of its threadbare ground network and reputation as a discount service.
DHL also failed to ensure it could handle the rush of business that came its way with its multimillion-dollar ad campaign in 2004. As a result, DHL quickly developed a reputation in the U.S. for poor service and disorganization.
In 2005, Bonn-based Deutsche Post shut down DHL's main hub in Kentucky and shifted all express traffic to Airborne's hub in Wilmington, Ohio. But the handover went poorly, triggering several weeks of delays, and about a tenth of DHL and Airborne's combined U.S. domestic customers defected to rivals.
DHL's Mr. Mullen said managerial decisions weren't the biggest cause of trouble for DHL. Instead, he said the U.S. market is too powerfully dominated by UPS and FedEx.
The U.S. retreat represents a spectacular setback for Deutsche Post, which made dozens of acquisitions over the past decade to transform itself from a sleepy German mail monopoly into a delivery, logistics and banking behemoth with operations in about 200 countries.
It booked €40.45 billion ($51.63 billion) in revenue in the first nine months of this year, 70% of that outside Germany's borders.
DHL's decision comes as FedEx and UPS, also are short on good news. Both have seen volumes and profits drop significantly in recent months as the economy has soured.
In recent months, FedEx and UPS have wooed DHL's customers. One potential customer will be Walgreen Co., the Deerfield, Ill., drug-store chain. In January, Walgreen reached a deal to place DHL kiosks in all Walgreen's stores. Walgreen spokeswoman Tiffani Bruce said that within the past several weeks, DHL officials notified Walgreen of the shipping giant's plans to "end the relationship."
DHL will shut its 18 U.S. ground hubs and reduce the number of delivery stations to 103 from 412. It plans to retain between 3,000 and 4,000 full-time DHL employees in the U.S., down from 13,000 full-time DHL workers
