DHL to cut back in US; boost for FedEx and UPS

[Pieter C. 5]

DHL To Cut Back In US; Boost For FedEx, UPS

 

November 10, 2008

Deutsche Post will slash 9,500 jobs and halt US domestic services at its DHL Express unit after failing for five years to gain share in a market dominated by United Parcel Service and FedEx.

 

The announcement on Monday from Deutsche Post sent its shares up nearly 7 percent, but also lifted the stock of UPS and FedEx -- which are both seen benefiting from DHL's departure from the US market.

 

The US job cuts, anticipated by many analysts, comes on top of 5,400 layoffs already this year, leaving between 3,000 and 4,000 US employees.

 

"We think the unfolding US recession dramatically extended DHL USA's timeframe for potential break-even and increased the financial pain that would have to be absorbed until then," UBS analyst Rick Paterson wrote in a note for clients. "This was too much for Deutsche Post shareholders and, ultimately, the company itself."

 

As of January 30, DHL will continue providing international service in and out of the United States. This will take it back to where it stood before its acquisition of Airborne in 2003, a purchase that cost it billions of euros in losses.

 

"It is no secret that we've had an extremely difficult time over the last two years in the United States with losses over USD$1 billion every year," John Mullen, chief executive of DHL Express said on CNBC television, "and now of course we're entering unprecedented economic times both in the United States and globally."

 

"We had to make a prudent decision," Mullen added.

 

An additional USD$3.9 billion in restructuring costs -- USD$1.9 billion more than previously planned -- would likely lead to a full-year 2008 group net loss, Deutsche Post said.

 

"We believe DHL's withdrawal, which removes a player that has traditionally been a price discounter, from the domestic air and ground markets will both boost volumes and improve the pricing discussion for UPS and FedEx," Wachovia analyst Justin Yagerman wrote in a note for clients.

 

Atlanta-based UPS, the world's largest package delivery company, and its Memphis-based rival FedEx are seen as bellwethers of US economic activity.

 

Sluggish consumer spending and shrinking investments by businesses have hurt them and other shippers around the world. Last month UPS recorded a drop in third-quarter profit, as did European competitor TNT. Both cited weak demand.

 

Deutsche Post's announcement on Monday came as it reported that third-quarter adjusted earnings before interest and tax (EBIT) fell 8.5 percent to EUR429 million euros from EUR787 million a year earlier.

 

Last year Europe's biggest mail and express delivery company cut its profit outlook for 2008 and 2009, citing slowing global economic growth, which hit its US unit hard.

 

Deutsche Post confirmed it saw full-year EBIT at about EUR2.4 billion, excluding one-time effects and its Deutsche Postban. It did not give an outlook for 2009.

 

A spokeswoman for DHL's main air cargo carrier, ABX Air, said on Monday the company was assessing the impact of DHL's move, and would make an announcement later.

 

ABX Air, part of Air Transport Services Group, said in August it would have to cut 6,000 or more jobs, about 75 percent of its total staff, if DHL went ahead with plans to use the planes of rival UPS to move its parcels.

 

Deutsche Post said talks with UPS on cooperation continue and should be concluded by the end of the year.

 

FedEx spokesman Maury Lane said the company welcomed "the opportunity to provide domestic US Ground and Express services to all DHL customers as DHL exits these markets."

 

(Reuters)

 

[Raj 0]

Interesting news there..Wonder wht will happen to transmile now that they're planning to resume the MD-11's on the Subang-Hong Kong route next year.