DHL to Cut Nearly 10,000 Jobs in U.S.

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ATLANTA - Delivery company DHL, hit by heavy losses and fierce competition, is significantly reducing its air and ground operations in the U.S. and cutting 9,500 American jobs, leaving rivals like FedEx, UPS and the U.S. Postal Service to fight over the customers it will stop serving.

The decision announced Monday could lead to higher shipping prices and greatly scale back a possible venture between UPS and DHL, the fourth-largest shipper of packages in the U.S.

Deutsche Post AG, the German parent of DHL, said it will no longer offer U.S. domestic-only air and ground services as of Jan. 30, though it said international shipping to and from the U.S. would continue.

DHL has tried to be a major player in the U.S. since it bought Airborne Inc.'s ground delivery network for $1.05 billion in 2003, but it has lagged in the air and ground markets combined, analysts said.

Now, as other shippers pick up some of DHL's business in the U.S., it could cost customers more but boost the bottom lines of the shippers.

"The real upside might be two, three or four years down the road, when the economy is feeling better and FedEx and UPS are able to raise prices, because they won't have another competitor nipping at their heels," said Avondale Partners analyst Donald Broughton.

Monday's news follows Deutsche Post's announcement in May that it was working on a deal with UPS to allow the Atlanta-based company to carry some of DHL's air packages.

The DHL-UPS venture was expected to last up to 10 years and generate up to $1 billion in annual revenue for UPS, the world's largest shipping carrier.

UPS has said the contract with DHL, which it has been working to complete, would mostly involve the transport of DHL packages between airports in North America - not the pickup or delivery of DHL packages to customers.

UPS spokesman Norman Black said his company would continue to work on an air-haul vendor contract with DHL. But, he added, "Today's announcement by DHL certainly could affect the size and scope of that contract. We'll go back into talks and see what develops."

Black cited the part of the Deutsche Post announcement that said DHL plans to stop offering air service between U.S. cities.

"The only thing that's left is moving international packages once they get to the U.S. border," Black said. "That's a dramatically lower amount of volume than what they were originally talking to us about."

Currently, DHL's total air volume for shipments from points between U.S. and international destinations and between points within the U.S. is about 1.2 million shipments a day.

That figure will drop to about 100,000 shipments a day after the changes go through, Deutsche Post said. The air volume figures do not include packages that do not start or end in the U.S.

Avondale's Broughton said he thought the value of the proposed deal between DHL and UPS had been dwindling even before Monday's news.

"This just accelerates that process," he said.

Edward Jones analyst Dan Ortwerth said Deutsche Post's decision changes the scope of a potential DHL-UPS deal, but doesn't necessarily kill it.

"I don't see any motivation for UPS to outright walk away," Ortwerth said. "UPS is in the stronger position, and I'm sure at the bargaining table they will protect their own interests plenty well."

DHL's air and ground operations generated $3.4 billion in revenue last year.

"This is a nice piece of the market for UPS and FedEx to play jump ball with," Broughton said.

Customers have already shifted some of their business to UPS Inc. and Memphis, Tenn.-based FedEx Corp.

Dell Inc., for example, has shifted some of its packages to FedEx, according to spokesman Venancio Figueroa. But the company also delivers packages through rival UPS and other vendors as well. Figueroa said Monday's DHL announcement would have a minimal effect on the computer maker, since it has contingency plans.

"Global shippers have told us they are looking for unparalleled global reach, and FedEx is the global leader in express transportation," FedEx said in a statement.

UPS expects it will be able to pick up DHL customers in the future, as it has in the past, Black said.

DHL's current providers of air service within the U.S., ABX and ASTAR Air Cargo, have been opposed to the DHL-UPS deal, saying it would cost thousands of jobs if it went through. Now, given the extent of Deutsche Post's announcement, many jobs could be lost at the two companies even if the DHL-UPS deal isn't completed.

To satisfy federal rules prohibiting more than a 25 percent stake in U.S. airlines by foreign owners, Airborne and DHL had spun off Airborne's air operations as ABX Air.

ABX spokeswoman Beth Huber said Monday's decision by Deutsche Post will affect ABX' work force and operations. Just how much of an impact has yet to be determined, she said. ABX has about 7,000 employees.

A woman who answered the phone at ASTAR's offices declined to comment or take a message for a spokesperson, referring calls to DHL instead.

Deutsche Post, based in Bonn, Germany, said the new round of job cuts are on top of another 5,400 job cuts it already announced.

The DHL Express unit currently employs some 18,000 workers. Deutsche Post said its other operations in the U.S., including freight and global mail and other logistics, won't be affected by its decision to close all of its U.S. ground hubs and reduce the number of stations from 412 to 103 across the U.S.

The company said all international shipments into the U.S. will still be delivered, while 99 percent of the outbound shipments will be picked up.

Deutsche Post shares closed up 7 percent to 10 euros ($12.90) in Frankfurt trading. In U.S. trading, UPS shares rose $1.68, or 3.2 percent, to $53.60, while FedEx shares rose $1.71, or 2.7 percent, to $66.29.

Copyright 2008 by The Associated Press. All Rights Reserved.

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