Business

Major shake-up, cuts seem likely for DHL

As the German parent of struggling shipper DHL prepares to release third-quarter results, analysts and industry observers predict Deutsche Post AG will announce major changes at DHL – though it's unclear whether those changes would affect a deal DHL has been working out with rival UPS.

Unions that represent some DHL employees and pilots that provide air service for some of DHL's shipments said Friday they had not been informed of any upcoming changes. But DHL scheduled a conference call with reporters for Monday afternoon to discuss news that was to be announced earlier in the day and answer questions about DHL's U.S. Express business.

DHL spokesman Jonathan Baker declined to provide details Friday on what will be announced Monday. As to the talks with UPS, he said, “We are continuing to talk with UPS. The talks are constructive. We expect to finalize our negotiations by year end.”

Deutsche Post has acknowledged problems of repeated losses and dwindling sales at its U.S. unit but has repeatedly said that a retreat from the market is not under consideration. In May, DHL cut U.S. network capacity by 30 percent.

But some analysts suggest that the company will do everything short of pulling out altogether as it tries to shore up its financials.

Edward Wolfe, an analyst with investment firm Wolfe Research, has speculated that DHL will leave the U.S. ground delivery business entirely, possibly the domestic air express business as well. If that happens, DHL would only be left with revenue derived from direct imports and exports – as it was when Deutsche Post first dove in to the U.S. market in 2003 – as opposed to point-to-point shipments in the U.S.

If that scenario plays out, Wolfe said package volume at UPS Inc. and FedEx Corp. could rise by about 3 percent to 6 percent. The two rivals could also see earnings per share growth of 3 percent next year from the added business, he forecasts. But DHL's potential removal from the U.S. market could have an even more positive effect in the long-term on pricing, as the reduced competition allows FedEx and UPS to potentially raise prices. A FedEx spokesman declined to comment on Friday.

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