Parcel - July 2008 - (Page 22)

wrap up with joe loughran Poor DHL By now you have read about DHL’s decision to retrench in the United States. Trying to catch its breath, DHL is going to try to hang in there, but it’s tough going. DHL is giving it its best shot, that’s for sure. But what will become of its quest to sit at the big table with its two formidable rivals, United Parcel Service and Federal Express? It looks like DHL’s plans have been short-circuited, for the foreseeable future. In late May, Deutsche Post World Net (DPWN) announced that DHL Americas will continue to serve the US market but would end the partnership with its two airline subcontractors and close about one-third of its US stations in an effort to cut losses. Likewise, DHL also plans to reduce 17% of its pickup and delivery routes and reduce the ground linehaul sectors by 18%. In what was the biggest shock, DHL is partnering with UPS to haul its US parcels. All this means that between 1,500-1,800 US jobs will disappear within DHL, along with heavy job losses to its US partners, especially its many independent contractors and ABX and ASTAR Air Cargo airlines. As of this writing, DHL was ﬁnalizing a major air freight agreement with UPS to haul all of DHL’s domestic volume. DHL will partner with the U.S. Postal Service to deliver what it estimates will be about four percent of its parcels to areas affected by the station closings. It’s no secret that DHL Express in the US has been losing big money ever since the acquisition of domestic express company Airborne Express. It’s not because it hasn’t tried! DPWN has sunk over $1 billion in network expansion and upgrading. DPWN made a $600 million writedown on the U.S. Express business in its 2007 accounts while repeatedly stating that it will restructure the US business with no plans to pull out of the US market. I read one quote of a so-called industry expert that the restructuring “will make DHL a stronger player in the long-term.” No way, in my mind. In an industry where service is an absolute and only “low-cost providers” survive, I fail to see how this is a viable long-term strategy. If DHL struggled making in-roads before, how can they possibly ﬂourish by adding costly speed bumps along its rocky delivery highway? DHL reached out to the Teamsters Union, providing wage increases in return for more ﬂexible working arrangements. Just what it needs — higher labor rates. DHL is begging for a life raft, and the Teamsters tossed an anvil onboard. I’m not surprised. In January 2005, this column addressed the entry of DHL into the US domestic market. I laid out what I thought were the critical keys to long-term success. First and foremost, I started out with the basics: build the business around the demands of the customer, be responsive to the marketplace, develop a pricing strategy that simpliﬁes matters and ﬁnd opportunities to differentiate yourself from the status quo. From there I presented the two “industry absolutes.” One, shippers demand superior on-time service. Nothing less will do. I suggested that DHL would have to overcome the poor reputation for service that Airborne deservedly earned during its existence. DHL’s network of delivery agents failed to pull that off. Second, but equally as important, is the need to become the low-cost provider. It is impossible to survive in this competitive business if your cost to deliver a package is greater than the competition’s. Proﬁtability is a function of operating costs. Proﬁts are a by-product of efﬁciency. Profits are critical to long-term growth. DHL has fallen woefully short in this area. Time will tell what becomes of DHL America. As this latest chapter unfolds, the future is murky, at best. The key will be how its customers react to the various outsourcing. I wouldn’t bet the ranch on customer loyalty. Stay tuned, we are bound to be entertained. Joe Loughran is President of SmartTran, Inc. and an expert in small package pricing and carrier rate analysis. SmartTran is a transportation consulting company offering services in carrier rate negotiation, guarantee refund service and logistics planning for twelve years. SmartTran’s management team has over 70 years of executive level experience in package transportation management. Joe can be reached by phone at 724-934-0626 or by email loughran@smarttran.com. It is impossible to survive in this competitive business if your cost to deliver a package is greater than the competition’s. 22 July 2008 www.PARCELindustry.com http://www.PARCELindustry.com

Table of Contents Feed for the Digital Edition of Parcel - July 2008

Parcel - July 2008 Contents Editor's Note What Would Augello Say? Arriving in One Piece Women in Logistics & Delivery Services Turning U-Turns into No Returns On the Mark New Products and Services Advertiser Index Wrap Up AFMS Best Way Technologies Blue Water Consolidators Cass Information Systems Distribution Management Group, Inc. Eastern Connection Endicia enVista Zsolt Design Engineering Genco Green Mountain Consulting Hasler Intravex NPI Parascript Precision Software Scancode Systems Inc. Vitronic

Parcel - July 2008

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