Purple Nugget

Bonn, 28 May 2008
Deutsche Post World Net to restructure U.S. Express business with new airlift partner and substantial cost savings initiative

-DHL Express U.S. to work with UPS for North American airlift
-Network restructuring to remove excess capacity in U.S. Express
-Continued strong U.S. presence with no changes to product range or service commitment; less than 4 percent of shipments affected
-Annualized cost savings in U.S. Express of about $1 billion (640 million euros); underlying EBIT to improve by around $800 million in 2010 and around $1 billion in 2011
-EXPRESS Corporate Division 2008 Underlying EBIT now seen at 400 million euros; Group -EBIT guidance adjusted slightly to 4.1 billion euros

Deutsche Post World Net, the world's leading transport and logistics company, today announced a plan to restructure its DHL U.S. Express business by working with UPS for airlift capacity and reducing costs in its ground infrastructure. Under the plan, DHL and UPS have agreed to develop a contract whereby UPS will provide air uplift for DHL Express U.S. domestic and international shipments within North America.

In addition, DHL will align its U.S. Express infrastructure to existing shipment volumes by redesigning its ground linehaul network to better match capacity with customer requirements. The impact on service levels will be minimal with less than 4 percent of shipments affected. DHL remains focused on delivering international and domestic Express products, offering an attractive alternative for U.S. customers and keeping a strong commitment to the U.S. market.

Improvements for the future

The restructuring plan will lead to sustainable improvements in financial performance and provide a sound starting point for a more efficient and customer-oriented business in the future. In 2008, the company expects an underlying EBIT loss of $1.3 billion in U.S. Express. Through the expected cost savings of around $800 million in 2010 and around $1 billion in 2011, underlying EBIT will improve accordingly. First positive effects of the plan will start showing already in 2009. The company expects to spend up to $2 billion to finance the restructuring plan.

Due to the uncertain economic situation in the U.S., Deutsche Post World Net is reducing its guidance for underlying EBIT in the EXPRESS Corporate Division in 2008 to around 400 million euros from around 500 million euros. Subsequently, the Group's full-year guidance before non-recurring effects and restructuring costs will be reduced slightly by 100 million euros to around 4.1 billion euros.

"We have promised to relentlessly focus on improving financial performance and delivering on our Roadmap to Value program. I am confident we have found a sustainable way forward for U.S. Express in the best interest of customers, employees and investors," said Deutsche Post World Net Chief Executive Officer Frank Appel at a press conference in Bonn. "Taking a pragmatic approach, we will go on to be a smarter player in the challenging U.S. Express market. We will continue to offer premium service to customers who rely on DHL as the leading network operator across the globe. And we will continue to leverage our express, logistics and mail offerings, which in combination make DHL unrivalled as the world's leading logistics company."

Three main elements

DHL is taking action both in its infrastructure network and in aviation with a restructuring plan that focuses on three main elements:

1. Reducing infrastructure network capacity by approximately 30 percent through the following detailed measures:
-Consolidating and closing smaller sorting facilities into modernized, larger stations, resulting in reductions of approximately 34 percent
-Rationalizing pickup and delivery routes by 17 percent, including new courier routing plans to enable better route planning and avoiding peaks in the operation, as well as making changes to staffing plans
-Ground linehaul network rationalized by 18 percent through improved capacity utilization and footprint reductions in some remote areas.

2. A proposed contract between DHL and UPS whereby UPS will provide air uplift for DHL Express U.S. domestic and international shipments within North America

3. Reduction in overhead and other administrative costs


Economic benefits for DHL and UPS

As one central part of its restructuring activities, DHL and UPS will pursue a contract to provide air uplift, creating a single airline partner for DHL Express in the U.S. DHL will continue to operate its courier and ground network as well as pickup and delivery services to its customers across the country. The proposed agreement, in character and scope representing an efficient model in the express industry, will extend for 10 years. The commencement of UPS service into the DHL network is expected to begin later this year.

The proposed contract provides both DHL and UPS substantial economic benefits in the U.S. Express market, which remains one of the most challenging marketplaces worldwide in light of the current economic downturn. DHL will continue to compete in the U.S. market under its own brand, offering attractive value to customers. The restructuring action in no way diminishes DHL's commitment to retaining a significant presence in the U.S. market, which is key to DHL's global network.

"Our future focus will be where customers have told us they need to do business the most. 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 such as maintaining infrastructure that customers don't ask for," said John Mullen, Deutsche Post World Net Management Board Member and Chief Executive Officer of DHL Express.

Strategic priorities

DHL's strategic priorities in the U.S. will be to continue to provide record service reliability, and accelerating growth in more profitable segments of the market through leveraging innovative sales channel strategies like the recently announced Walgreens partnership. In addition, DHL will be more selective in accepting business from a small number of scarcely populated areas and take advantage of capacity and cost reductions to grow a leaner and more focused ground business.

To drive the implementation of the restructuring plan, DHL recently announced the appointment of long-time DHL senior executive, Ken Allen, as CEO of DHL Express U.S. Allen has extensive experience executing restructuring plans within DHL. In his previous role as CEO of DHL Express Eastern Europe, Middle East and Africa (EEMEA), Allen has doubled revenue growth and margin within two years. In addition, his experience as CEO of DHL Express Canada resulted in turning many years of negative performance into what is now positive financial development for the company.

Purple Nugget

http://www.dpwn.de/dpwn?tab=1&skin=h...mlFile=2009962

If you want it straight from the horse's mouth.

Doesn't look too good for our ABX & ASTAR bros & sis's.

hvydriver

That's a fact PN. The Germans have totally wrecked this company.

Purple Nugget

According to the presentation, there is no mention of ABX & ASTAR except, that UPS is the new DHL America airlift.

http://www.dpwn.de//mlm.nf/dpwnew/pr...tructuring.pdf

Purple Nugget

Again, from the presentation...

Freighter Captain

106 aircraft today are flying the volume we'll be picking up..., this is a significant coup for UPS. Similar to the deal FedEx struck with the USPS a few years back.

On the other hand, this has got to be a big loss for our brothers and sisters at ABX/ASTAR. They currently fly those 106 aircraft, and their mgmt. will have to go find business elsewhere.

Raging white

Does this mean pilot job losses at ABX and ASTAR, or are they folded into UPS?

Sniper

UPS has a "more modern and fuel efficient fleet than current vendors"?

I guess it's true, but I never thought of UPS's fleet that way before.

Didn't DHL just put some $ into ASTAR (and Polar)? Part of the 'smoke and mirrors' campaign, to make sure nobody has a clue what DHL is doing.

Trash Hauler 1

They will not be folded into UPS. Sucks for those guys at Astar and ABX unless their managers can find more business.

TH1

Delco92

The Bloomberg Story (more data for those interested)

http://www.bloomberg.com/apps/news?p...&refer=germany

Deutsche Post to Shrink U.S. Network, Shift Deliveries to UPS

By Jann Bettinga

May 28 (Bloomberg) -- Deutsche Post AG, Europe's biggest mail carrier, will shrink its U.S. network, fire workers and transfer some deliveries to United Parcel Service Inc. as it seeks to limit losses at its unprofitable DHL division.

The turnaround plan will cost Deutsche Post as much as $2 billion and generate cost savings of about $1 billion a year, the Bonn-based company said today in a statement. DHL will cut as many as 1,800 jobs in the U.S.

Deutsche Post bought DHL in 2002 and expanded U.S. operations with the purchase of Airborne Express in 2003. The express unit hasn't made a profit in the U.S. since then as it struggles to compete with UPS, based in Atlanta, and Memphis, Tennessee-based FedEx Corp. Deutsche Post said the U.S. business will continue losing money at least through 2011.

``DHL will be more selective in accepting business from a small number of scarcely populated areas and take advantage of capacity and cost reductions to grow a leaner and more focused ground business,'' the company said in the statement.

Deutsche Post shares dropped as much as 94 cents, or 4.4 percent, to 20.65 euros in German trading and were down 4 percent at 3:10 p.m. The stock has declined 12 percent this year.

UPS, the world's largest package delivery company, said it will forge a 10-year agreement with Deutsche Post that will give the U.S. company as much as $1 billion in additional revenue a year.

UPS rose $1.78, or 2.6 percent, to $70.18 at 9:35 a.m. in New York Stock Exchange composite trading. Earlier, the shares touched $70.27 for a 2.7 percent gain, the biggest intraday advance since March 24.

Deutsche Post Forecast

Deutsche Post cut its forecast for overall Ebit, or earnings before interest and taxes, by 100 million euros ($156 million) for 2008, citing reduced earnings in the express division. Group Ebit will be about 4.1 billion euros.

``The restructuring plan will lead to sustainable improvements in financial performance,'' the company said. The ``first positive effects'' will occur in 2009, it added.

Deutsche Post plans to cut infrastructure in the U.S., reducing capacity by about 30 percent by closing smaller sorting facilities and ending some routes. UPS will begin providing shipments for DHL later this year.

The U.S. express division will have an ``underlying Ebit loss'' of $1.3 billion this year, Deutsche Post said. The revamp will save an estimated $800 million in 2010 and $1 billion in 2011, the company added.

DHL Woes

Previous turnaround efforts at DHL have been hampered by delivery delays in 2005 at a new package-sorting hub in Wilmington, Ohio, as well as slowing economic growth this year. Deutsche Post scrapped a 2009 breakeven target for the U.S. division last year and wrote down the value of the unit by 594 million euros in the fourth quarter.

UPS cut its 2008 profit forecast in April and reported that first-quarter shipments fell because of a ``dramatic'' economic slowdown. FedEx, the second-largest U.S. package-shipping company, said May 9 that fourth-quarter profit will miss its forecast after surging fuel prices raised costs at least $100 million more than estimated.

The U.S. economy may grow at a 0.1 percent annual rate from April to June, the least since the 2001 recession, according to a monthly survey of economists by Bloomberg News published May 9. Gross domestic product rose at a 0.6 percent pace in the first quarter and 2007's final three months.

Deutsche Post Chief Executive Officer Frank Appel has repeatedly ruled out a pull-out from the U.S. express-delivery market, saying that a global delivery company needs to have a presence in the world's biggest economy. Losses at the U.S. subsidiary contributed to an 18 percent decline in Deutsche Post's first-quarter profit.

No Profit Prediction

Appel declined today to say whether the U.S. division will ever be profitable. The company ``can tolerate certain losses'' in parts of its global network, he said, without elaborating.

The German company earlier this month appointed Ken Allen, the head of DHL Express's eastern Europe, Middle East and Africa operations, to run DHL Express in the U.S. Allen, a British national and member of DHL Express's global management board, helped restore earnings at DHL's Canadian unit as its president.

DHL has a 6 percent share of the U.S. package-delivery market, trailing a 52 percent share at UPS and FedEx's 30 percent, according to SJ Consulting Group Inc. of Sewickley, Pennsylvania. The U.S. Postal Service controls about 13 percent of the domestic-packages market.

Market Share

FedEx dominates in express and overnight deliveries, with 37 percent of that segment in the U.S., while UPS commands 73 percent of the ground delivery market, data compiled by SJ Consulting shows. FedEx offers shipping services at the 1,900 FedEx Kinko's copy-service stores it owns, while UPS has 4,500 locations of The UPS Store and Mail Boxes Etc.

Deutsche Post said May 14 that first-quarter profit fell to 407 million euros from 499 million euros a year earlier following writedowns at the Deutsche Postbank AG retail banking unit and as slowing U.S. economic growth hurt earnings at DHL Express. Deutsche Post is considering a sale of its majority stake in Postbank.

To contact the reporter on this story: Jann Bettinga in Bonn via [email protected].
Last Updated: May 28, 2008 09:40 EDT