In an effort to improve its financial performance and eliminate excess capacity, DHL Express has recently made a number of significant changes to its U.S. operations that have left many shippers wondering whether the shipping and logistics company plans to pull out of the U.S. market, and consequently whether they should switch carriers. For shippers to determine whether such a move is necessary requires a clear understanding of the restructure plan and how it will affect not only their bottom line, but also the service they provide.
Restructure Details
In the last issue of OnTrack, we reported that
That announcement, which was issued to the public via press release on May 28, indicates that by mid-summer the company will begin to close and consolidate smaller sorting facilities into modernized, larger stations. In addition, in certain sparsely populated, low volume areas of the country, the USPS will provide final mile delivery. Finally, effective September 1, 2008, the DHL@home service will be discontinued in an effort to reduce operating costs that are not aligned with the companys overall objectives. The DHL@home service had a negative impact on profit margins and was cannibalizing DHLs Express segment.
One of the most important components of this announcement, however, is a proposed agreement with UPS that will grant the parcel giant rights to handle DHLs air uplift services for both domestic and international shipments within North America. According to the press release, this agreement will provide many substantial economic benefits to both parties and will have a minimal impact on DHLs customers.
Although the magnitude of this announcement does come as a surprise to many, Deutsche Post still insists that this is not the beginning stages of a complete withdrawal, but rather a strategic direction to remain in the United States. Our entire network restructure will enable us to bring a new level of reliability and increased service performance to our international and U.S. domestic customers while cutting unnecessary costs, said John Mullen, CEO of DHL Express, in a recent press release. Mullen also noted that the company will continue to concentrate on and serve major markets, and that through these changes, DHL hopes to generate an annual savings of $1 billion by 2011. Although DHL is making the claim that it does not intend to leave the U.S. market, shippers still remain skeptical of the fate of the Deutsche Post subsidiary.
Time to Jump Ship?
At BirdDog Solutions, we have been keeping a close watch on these recent developments and are in close contact with DHL executives. Based on our analysis and understanding of the situation, we do not recommend that shippers switch carriers at this time. Yes, DHL is going through some difficult times, but these changes should give the company a fighting chance to become the competitive force it always intended to be.
With that said, all shippersno matter what carrier they are contracted withshould have a backup strategy, especially during these unsettling economic times. Of course, it is vital that you fully analyze each and every option in detail. For example, the discontinuation of the DHL@home service does leave a void that FedEx and UPS are more than willing to fill with their equivalent services, albeit most likely at a higher cost. This means not only that you need to examine the financial impact that switching carriers will have on your bottom line, but also that you have a great opportunity to understand the areas in which you can improve to reduce these costs and generate additional savings.
Examining the impact of various options on your overall shipping expenses requires in-depth knowledge of the industry and powerful analytical tools. Were here to help.
Todd Benge is the Managing Partner at BirdDog Solutions, Inc. Jeff Jolin is the Marketing Communications Manager at BirdDog Solutions. To learn how BirdDog can help, contact us at ontrack@birddog.com.
