A Businessweek Analysis on DHL Restructuring

A good analysis on the restructuring, which suggests a number of positive effects at a market level.

1. An environmentally greener move, so theoretically a win for Mother Earth and us…..I guess.

2. A win for DHL customers because of the superb UPS operational reliability. They are essentially getting a front-ended DHL service with a UPS air transport core.

3. A win for UPS due to increased utilisation of assets, which Doug Caldwell, exec VP of Parcelpool.com believes could ultimately lower costs.

4. A clear win for Deutsche Post’s shareholders, who have endured billions of dollars lost on the experiment.

The rest of the Businessweek article and video here.

Opposition Mounts against DHL-UPS Deal

Piltos union takes out a full page add in the Columbus Distpatch.

<The Air Line Pilots Association paid for the advertisement in Thursday’s Columbus Dispatch claiming delivery service DHL’s decision to use UPS for its North American air cargo shipments will eliminate competition and violate antitrust laws, ONN’s Lot Tan reported.

The deal would pull business from ABX Air and A Star Air Cargo, forcing more than 8,000 workers at both companies out of a job.>

Click here for the rest of the article.

Deutsche Post Expected to Sell Postbank

<Mr. Appel is accompanying German Foreign Minister Frank-Walter Steinmeier on a diplomatic visit to China, and, by the time he returns home on Monday, the executive also may give the green light to sell the mail and banking giant’s Deutsche Postbank AG unit and unleash a long-awaited mergers-and-acquisitions boom in German banking.

Mr. Appel is eager to press ahead with plans to sell Postbank and satisfy investor demands that Deutsche Post narrow its focus to the mail, DHL express delivery and logistics>

For the rest of the WSJ article, click here.

Deutsche Bank AG may also be interested in bidding for the bank, which industry analysts believe will trigger a round of mergers and acquisitions in the German banking sector.

Teamsters Win Most Votes

Although they didn’t get the 50% + 1 needed to secure the victory.

A runoff election will be scheduled.

For the rest of the article, click here.

DHL Cutting 175 Jobs in Florida Headquarters

A Sun-Sentinel article on the job cuts at DHL’s Plantation headquarters.

<For employees affected in Plantation, DHL is providing 60 days’ notice. It generally offers two weeks’ pay as severance regardless of seniority, plus one week’s pay for each year of service. Unused vacation time is generally paid in a lump sum, a spokesman said.>

Compendium on DHL – Ohio Turmoil

Deutsche Post’s publication of the DHL restructuring plan has caused tremors in Ohio.

Since the announcement, the following events have taken place:

1. Community leaders have focused criticism and condemnation on Deutsche Post. This “Letter to John Mullen, CEO of DHL Express” printed in the Wilmington News Journal from Pastor Dean Feldmeyer of the Wilmington United Methodist Church is one such impassioned plea on behalf of the affected souls.

The tone of the latter oscillates between taunting reproach and reactionary resentfulness.

2. Politicians have joined the crusade to save the community.

The Governor Ted Strickland met with DHL officials in the statehouse to discuss the options in a meeting described by Lt. Governor Lee Fisher as “candid, professional, and very direct”.

The article also quotes Fisher as saying —

We said to them we value DHL. We value their presence in Ohio we have and we always will. But we put them on notice that we are going to explore all possible legal options including anti-trust options to see if the potential agreement with UPS would be anticompetitive…

I’m reminded of a professor at George Washington University who used to say “The answer to every legal question except one is ‘maybe’ (legal interpretation). The answer to can you be sued? — that is always yes.”

Ohio representatives in Congress, in an instinctive bid to act in the best interest of the electorate, will ask for an anti-trust investigation even though DHL’s meager market share will not make a material difference on the concentration of the market — especially considering UPS trails FedEx on the air express segment.

In a Wilmington News Journal column penned by Congressman Mike Turner we are offered a peak at the noble efforts the congressman has made, in selfless solidarity with his constituency, to confront the perpetrators. He writes, of himself —

“I told them that when a company is losing money, a person should be fired, not a whole town.”

3. Unions React

More than 400 DHL employees in Wilmington voted last night to pick which union will represent them during the execution of the restructuring plan. The workers will decide between the American Postal Workers Union (APWU) and the International Brotherhood of the Teamsters.

The stakes were crystallised by APWU field organiser Mark Dimondstein —

“What we’re focused on is the struggle to stop the DHL-UPS deal that’s the threat to the 8,000 jobs here.”

The Teamsters, by the way, also represent UPS workers which seems to me like a conflict of interests since the additional business UPS will get from the deal translates to greater job security for Teamster’s union members working for UPS.

Context

This will, no doubt, create real hardship in the community. The potential is high for a significant disruption to the local economy. It is unfortunate for those affected and words cannot euphemise the impact on lives that this will have.

It remains to be seen how the negotiations to dismantle the operations in Wilmington will go. It’s in the best interest of all, to start with as good will as possible, perhaps deliberately deciding to forgo victorious skirmishes in public, in favor of winning private concessions. Digging heels in and grandstanding at this early stage is the best way to screw the people of Wilmington out of the best outcome.

As an unbiased observer, I offer the following for consideration:

1. The Industry Is in Bad Shape

The industry is struggling with over capacity and has performed poorly during the last two years due to adverse market conditions.

Here’s how UPS’s stock has fared since June 2006:

Here’s a look at FedEx’s over the same period:

It was a long-shot for DHL to make money in a practical time frame in the extremely competitive US market. FedEx and UPSs’ virtual duopoly would have made it nearly impossible, even in great market conditions. In this type of market, industry players have strong incentives to cut their own arms off to fill slack capacity.

2. Hard Times Are Likely to Continue

The transport logistics (shipping, express) industry is correlated with economic activity. Unless you’ve been spending a holiday on some other planet, you should be aware that the US led financial crisis coupled with the runaway costs of petroleum have already put the breaks on the global economy. Global food inflation on staples is not helping either.

Hard times will continue, and not just in Ohio.

3. There’s No Anti-Trust Case

Grounds for anti-trust action are unlikely.

Here are the numbers:

DHL owns about 9% of the market and since the UPS-DHL deal will give UPS primarily the air portion of the work, it is improbable that any anti-trust regulation will be broken. In the air express segment, UPS at 36% trails FedEx, the clear market leader with 49%. FedEx and the USPS will also pick up fragments of the ground business.

Choices

So, what are the real choices for Deutsche Post / DHL and Wilmington on this specific issue?

Well, DHL could do its best to compensate the community for whatever incentives, breaks, bonds, etc. it received from the community or benefited from by selecting Wilmington. It could deliberately choose to slant their calculations on the side of good will, perhaps taking a slightly heavier share of the losses than the modelling calls for, if only for the sake of protecting the reputation of Deutsche Post for future projects in the US.

For Wilmington it’s a bit more difficult. It is not a global, corporation that can subsidize losses in one market with profits from another. However, local officials should recognise that when they signed up to this, they assumed the risks as well as the potential rewards of this project. While it’s appropriate to challenge the action, the best allocation of energy would be to make an effort at realising options that would minimise the impact on the community, without DHL in the equation.

But, the best thing to do would be to do what has now started — to address the community’s over-dependence on any one industry or employer.

Frank Appel’s Interview on DHL Restructuring

From Deutsche Post’s own website.

Presentation on restructuing can be viewed here.

Spring Global Mail Outsources Finance Function to Logica

Spring Global Mail, a TNT, Royal Mail, and Singapore Post venture, have announced they will use Logica  for outsourcing of its finance and accounting global operations.

The “blended sourcing” model proposed will move F&A functions from where they performed today to locations where they “can be carried out in the most suitable and cost-effective location, which could be onsite, offsite, nearshore and offshore”.

For the rest of the article, click here.

To Logistics or Not

Forbes has published a good article on UPS’s logistics and supply chain business. It draws a contrast between UPS approach and FedEx, who have chosen to stay out of supply chains and use “world class partners” to provide similar services to their clients.

For the full article click here.

A similar comparison can be applied to TNT and Deutsche Post since TNT decided to divest logistics a couple of years ago and moved to do so at the beginning of last year.

Germany’s Highest Court Rules that Deutsche Post Does Not Officially Own the Word “Post”

Which is a relief to other players trying to enter the German market.

Read all about it here.

Reminds me of the ol’ Victor vs. Victoria’s Secret legal battle. Except, you know, with fewer G-strings.