Transportation News: As Politicians Turn Up the Heat on Planned DHL Hub Closing, Deutsche Post CEO Says There Were Simply No Other Options
Supply Chain Digest
August 18, 2008
Copyright 2008
As Politicians Turn Up the Heat on Planned DHL Hub Closing,
Deutsche Post CEO Says There Were Simply No Other Options
Losing $5 Million a Day Can’t Go On Forever; State of Ohio Offers Vague Partnership
Possibility to Save Wilmington Hub
SCDigest Editorial Staff
T
he drama continues in DHL’s announced change
in its North American strategy, which includes outsourcing
its airlift operations to UPS and closure of
its large sortation hub in Wilmington, OH. That operation
employs more than 6000 workers directly
and several thousand more that work in other companies
that use or support the hub. The outsourcing
to UPS would move the air operations of DHL from
Ohio to UPS’ massive Louisville, KY hub.
Supported by politicians on both sides of the aisle
and presidential candidate John McCain, the US Congress
plans hearings in September on the proposed
deal and how it might impact parcel shipping markets
here. The stated concern revolves around the
potential to reduce competition in the express shipping
industry and other anti-trust concerns. However,
DHL says it plans to sell and market its services
in competition with UPS under the deal, dismissing
charges it will reduce market competition.
Regardless, it seems clear the closure of the Wilmington
hub and related job losses are the real drivers
of political concern.
“This deal, if allowed to be completed, would have
consequences beyond its devastating impact on our
local, state and national economy,” said Mike
Turner, an Ohio congressman in Dayton whose dist
r i c t i n c l u d e s W i l m i n g t o n .
The planned hearings in fact come before DHL and
UPS have even worked out a deal on the outsourcing
relationship. At one point, DHL had said it hoped to
have an agreement with UPS by the end of July, but
now entering the third week of August the deal has
still not been completed. Some observers have questioned
the strategy of announcing the outsourcing
plans before the UPS deal was done, which may
give UPS an advantage in the negotiations.
“Can’t Afford to Take $1.3 Billion
Losses Forever”
Meanwhile,
Frank Appel, CEO of DHL parent
Deutsche Post, finally commented about the DHL
controversy, after having been largely silent until
now. He defended the move to outsource to UPS
(and other announced changes) as necessary to
enable DHL to remain in the US market and save
tens of thousands of other jobs there.
He also wonders what the US Congressional actions
can really achieve – given the alternative for
DHL is to shut down its North American operations
completely. Appel said the company was losing $5
million per day in North America.
“I can’t afford to take losses of $1.3 billion
[annually] forever,” he stated.
The only real, albeit remote, possibility
would be for some very large
group of private equity investors to
buy back the operations and try to
reconstitute the old Airborne Express
in some fashion, but the financial and
market realities of that idea are very
forbidding.
Supply Chain Digest
August 18, 2008
Copyright 2008
As Politicians Turn Up the Heat on Planned DHL Hub Closing, Deutsche Post CEO Says
There Were Simply No Other Options (Con’t)
According to a Wall Street Journal story, Appel
said he has resisted calls for him to visit the Wilmington
area, as he had nothing new he could
tell the workers and community there.
“Nevertheless, I think it’s important to tell the
people that I understand that it’s a hardship for
them,” Appel said.
To further add to the drama, Ohio Lieutenant
Governor Lee Fisher said last week that the
state was interested in potentially jumping in to
save the Wilmington hub and jobs.
Fisher said the state of Ohio might be willing to
craft “a risk-sharing, collaborative financial partnership”
with DHL to eliminate the need for it to
outsource to UPS. Details of this idea, however,
were very limited.
Finally, Ohio Senator Sherrod Brown wrote a
letter this week to the Bush administration asking
it to consider what has happened with DHL
as it negotiates with the Europe Union on the so
-called Open Skies agreement that would ease
restrictions on a variety of international air
transportation operations. Stage II of the Open
Skies agreement is currently under discussion.
In the letter, Brown noted what DHL said when
it received approval to acquire US-based Airborne
Express in 2003: “DHL said the transaction
would: 1) increase profitability and market
share for both companies; and 2) enhance free
market competition by creating a new entrant into
an express delivery market dominated by two major
carriers: UPS and FedEx,” Brown wrote.
“Unfortunately, that has not been the experience of
DHL in the U.S. market.”
Said SCDigest editor Dan Gilmore: “Unfortunately,
no matter what management mistakes got the company
into this position, nothing anyone does can
change the fact that DHL is losing huge amounts of
money in the US market. No law or ruling can force
them to continue to do that indefinitely.”
He added, “The only real, albeit remote, possibility
would be for some very large group of private equity
investors to buy back the operations and try to
reconstitute the old Airborne Express in some fashion,
but the financial and market realities of that
idea are very forbidding.”