DHL expresses itself out of US market
We've called it often before. In a three-company oligopoly (a triopoly?), the #3 company is always at risk. That's especially true when #1 and #2 keep the pressure on, and where there is no earth-shattering innovation that offers #3 a way to restructure the market.
When in 2003, German shipping giant DHL (a division of Deutsche Post) bought US-based Airborne Express in an attempt to compete in the US with FedEx and UPS, the US-based package delivery leaders (they had 80% of the market) tried by both legal and market means to keep a powerful third party out of the business.
We then quoted a New York Times article (6/1/2003) that pointed out, "The battle is unusual partly because FedEx, which is located in Memphis, and UPS, which is located in Atlanta, are such strange bedfellows. The Coke and Pepsi of the cargo world, they are archrivals. But they are working toward a common goal: to shut down, or a least slow down, DHL Worldwide Express in the United States."
Well, the friendly rivals lost the first battle but they now have won the war. DHL just announced they would close most of their North American operations and lay off almost 15,000 employees. This was not such a big surprise. DHL had started outsourcing some of its operations to UPS in May, including domestic air carrying and many trucking operations.
The operation had been losing money form the beginning. A Bloomberg news article ("Deutsche Post's DHL Cedes U.S. Market to UPS, FedEx", 11/10/08), quotes one analyst as saying: "The reality of the lack of scale, the productivity that they have, the market reach and the brand awareness make it impossible for us to make it economically viable." The operation was losing money even during the boom, so the bust was a good opportunity to get out. And while FedEx and UPS managed to keep service strong, DHL had problems in terms of missing ontime deliveries in spite of a new 2005 Ohio-based air exchange center.
Total Deutsche Post losses will exceed $9 billion. Being #3, and by a large margin, there was no way DHL could catch up, especially with increasingly strong FedEx and UPS international operations. Even FedEx and UPS have valuations of around half of what they were a year ago, but they are well positioned for the long run. With no new competitor likely (the US Postal Service is the only other competitor), UPS and FedEx will become an even more powerful duopoly.
Thanks to Mike Donnelly's CEO Economic Update for catching the story.
5:32:34 PM 
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