The deal with DHL restructuring

Rumors had been circulating for months that Deutsche Post would pull its DHL delivery service out of North America. It didn’t, but it’s taking some drastic action to stem its substantial losses in the U.S.

The company announced May 28 that DHL Americas will end a partnership with its two airline subcontractors and close about a third of its U.S. stations.

The courier says it’s consolidating and closing smaller sorting facilities into larger stations; reducing pickup and delivery routes by 17%; and scaling back its ground linehaul network by 18%.

What’s more, DHL is working out a 10-year, $1 billion-per-year deal with United Parcel Service in which UPS will provide air freight for DHL Express U.S. domestic and international shipments within North America.

And in June the company announced that DHL Express is halting its @home delivery, effective Sept. 1. The @home service was designed for business-to-consumer shippers, and by some accounts was DHL’s fastest-growing product during the past five years.

So what can direct merchants who use DHL expect? According to Gerard Hempstead, president of Hempstead Consulting and a former vice president for DHL, the reduction in the size of DHL’s ground network means it won’t be able to serve certain zip codes. So it will have to subcontract the U.S. Postal Service to deliver to — and pick up from — the rural areas it no longer serves.

DHL was slated to close about 60 terminals by June 30, Hempstead says, “and those deliveries are going to be turned over to the USPS at some point yet to be determined.”

But DHL hasn’t yet revealed which terminals it will be closing, and which zip codes will be affected, he says.

DHL says it has not released the specific locations of the service centers it’s closing “because that’s something that’s being phased out over the course of the next 12 to 18 months,” says spokesperson Jonathan Baker. DHL plans to use the domestic USPS shipments to the local bulk mailing center using the Parcel Select rates, he says.

The delivery deal with UPS is also a little uncertain, Hempstead says, since UPS will now be able to dictate DHL’s service to a degree by controlling the drop off times and recovery times at its facilities.

When asked if DHL will have any boarding priority on UPS aircraft before other customers’ freight, Baker could say only that it’s something that DHL is working out with UPS. “But because we will be one of UPS’s biggest customers, UPS has every incentive to ensure that our packages are treated as a priority item,” he says.

The deal also means UPS controls the price they’re going to charge DHL. “And if I were king, I would certainly be charging DHL a price upon which I receive a profit,” Hempstead says. “Why would I want to make my competitor stronger?”

DHL has been owned by Deutsche Post since 2003; it bought Airborne Express in 2003 for about $1.05 billion. But the courier has been losing money in the U.S. steadily: DHL expects to lose more than $1 billion in the U.S. this year.

While the cost cutting measures and arrangement with UPS may help stem losses, DHL customers have reason to be concerned, Hempstead notes. At this point, “you have no clue as to what kind of service you’re going to get, when you’re going to get it, and who is going to deliver it.”

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