Editors Note: Parcel has been hearing rumors of possible modifications by Deutsche Post to their DHL
Monday there was an analysis published by Morgan Stanley out of
DHL purchased Airborne Express on August 15 of 2003. Yes, as hard as it is to believe, it's coming up on 5 years since Airborne left the marketplace.
Unfortunately, the domestic
To further exacerbate the situation, DHL had a less than successful integration of the DHL legacy hub in
The Annual Shipper studies published in PARCEL Magazine have shown graphically what a huge difference there is in the mind of shippers of the DHL domestic service versus that provided by
So what could Bear Sterns and Morgan Stanley be hinting at that will bring radical change to DHL Express USAs general ledger? Does DHL have plans to offer a compelling breakthrough service that will cause shippers to form an orderly line at their door begging DHL to accept their packages at a premium price? I suspect its the opposite. What then is the conclusion if one culls through the public statements of the
What the global DHL Express needs, wants and desires is a reliable delivery network into the
Global DHL Express needs to be in the
So what conclusion could this lead to? A suspicion could be that the radical change alluded to by the financial analysts is that Deutsche Post is going to downsize the domestic system in a significant way and in the not-too-distant future. One could suspect from the Morgan Stanley piece that in order to make their financial goals for 2008, Deutsche Post cant wait very long to fix the loss situation in the US. This could mean a dramatic reduction in the number of flights they operate. It could mean they close terminals. It could mean they lay off a large number of employees. None of this spells improved service for shippers, or DHL lowering the price they offer in exchange for the reduction in service. The unthinkable that I believe the analysts are alluding to is that they (DHL Express USA) file for voluntary reorganization (most people call this bankruptcy). That does not mean that they go away, they just reorganize in a much smaller version of DHL and perhaps go back looking like the DHL of 2003. (Urban legend has it DHL was only losing $200 million a year pre-Airborne)
What might this mean to shippers? Well if a shipper is currently using DHL, either the service could be diminished or worse case scenario, the contract voided. If you are forced to go negotiate with an alternative service provider, your negotiating leverage will be mitigated. I suspect in the worst case the alternative carriers could offer no discounts to former customers of their competitor until the shipper earns a discount based on the experienced volume. This comes to me as the meanest outcome I can think of.
Earned discounts are not unusual in the marketplace but its usually done with shippers who already have volume with a carrier or where, in a competitive bid situation, the bidder puts in their offer the earned discount formula but then promises a guaranteed discount level for some period of time (usually referred to as the ramp-up period).
There was a recent article about what happened to the catalog company, Lillian Vernon, as a result of APX leaving the marketplace. The increased cost to them in shipping resulted in their laying off 25% of their staff. After APX exited, FedEx Smartpost chose which accounts it could adequately absorb and service, and the rest of the shippers had to find a home with the other carriers at a much higher price than they had enjoyed with APX. There may be similar pain for DHL customers if, in fact, it scales back its interest in serving domestic transactions.
What might this mean if a shipper is not using DHL Express USA for their domestic parcels? Well one less player in the market then creates a clear duopoly for service (no offense to the USPS, but until we see what discounts regulators allow under the New Law in the competitive price and service world, they are not yet a player). Initially, I think that
What everyone should do is to make sure you are prepared for such an eventually. There is one constant in life: the only constant is change. You have to take the public information that is out there and be a good steward of your corporations assets and make sure you have a backup plan. The what if in this case says that if you dont have a multi-carrier parcel manifesting solution where you can choose another carrier for a transaction on the fly, you best be talking to manufacturers of multi-carrier shipping systems. If you are not having regular contact with the reps for the four parcel carriers, it is prudent to begin now. If you dont have a backup carrier, perhaps you might consider that. If you have never explored the use of regional carriers, perhaps it's time you invite in the reps and have them look at your profile and shipment history to see if they can service a portion of your business.
Since all the carriers just raised your prices, there is no reason that you dont go out to the marketplace, RIGHT NOW, for competitive bids. If you dont have the time or the resources to do that, call in negotiating or one of the other parcel consulting firms that work on a gainshare (if they dont get you savings over what you pay now, they dont make any money). There may be a window of opportunity where there are three players out there to bid, and you can drive a better deal.
Our final comment is that in life in general, and transportation in particular, we have seen incredible change in the last decade. Take what you know and plan. If you fail to plan, then you plan to fail.
We asked DHL for a statement on this report:
Since 2003, we have invested more than $3 billion in the
The increasingly high performance in our other regions also depends on strong presence in the U.S. Because of our U.S. presence, we have to be able to provide the platform that allows Latin America, Canada, Asia and Europe where we have strong market positions to be able to export and import with confidence into the U.S. market.
We have also clearly defined the drivers of success for DHL in the
Jonathan Baker, Director, Corporate Communications, DHL
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