DHL Pulls Plug on Domestic Service

In an announcement surprising few logistics industry watchers, Deutsche Post, parent company of DHL, said this morning it is shutting down its DHL Express business in the U.S. as of Jan. 30, 2009.

DHL Express will discontinue all domestic air and ground services within the U.S. — but will continue to offer international service. The company said it is shutting down all ground hubs and reducing the number of stations from 412 to 103.

What’s more, DHL is cutting 9,500 jobs — many of them employees of contracted domestic airfreight providers ABX Air and ASTAR Air Cargo, both of which fly packages for DHL Express and operate out of Wilmington Air Park in Ohio. These cuts come on top of 5,400 job reductions DHL announced earlier this year.

Deutsche Post announced in May a major overhaul for its ailing DHL Express business in the U.S. — including a 17% reduction in its ground force as well as a proposed 10-year deal with UPS for airfreight.

Despite the plan to shutter U.S. operations, DHL officials say they are moving ahead with the deal with UPS, which is expected to save the company $1 billion a year in operational costs. Providing the deal with UPS goes through, which is expected to happen before the end of this year, DHL will terminate its contracts with ABX Air and ASTAR Air Cargo and will use UPS to handle international air shipments coming to and from North America.

The plan to shutter U.S. operations will add about $1.9 billion to DHL’s restructuring costs, bringing the total cost of the restructuring to about $3.8 billion, spread over two years. Company officials have said the move will reduce DHL Express’ annual operating cost in the U.S. to less than $1 billion – down significantly from its current operating cost of $5.4 billion.

The company says it expects to keep anywhere from 3,000 to 4,000 employees in the U.S. to handle international operations.

DHL’s announcement is good news to global carriers FedEx and UPS, which will now absorb the 3% to 4% market share that DHL had for domestic ground and air shipping within the U.S. Both UPS and FedEx have seen declining revenues in the past year due to the massive drop in shipping volume resulting from the ailing economy.