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:
- 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.
- 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
- 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.
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.