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BONN AND
NEW YORK—United Parcel Service Inc., the world’s largest
package-delivery company, said it expects as much as $1
billion a year in new revenue as it takes over US air
shipments for Deutsche Post AG’s unprofitable DHL unit.
UPS rose
the most in two months in
New York
trading after announcing the tentative agreement
Wednesday with Deutsche Post, Europe’s biggest mail
carrier. A final contract should be completed in 2008
and run 10 years, Atlanta-based UPS said.
The new
business will help UPS cushion the blow from declining
package demand as US economic growth slows. Deutsche
Post said it will shut some US sorting facilities and
cut as many as 1,800 jobs, saving $1 billion annually as
DHL struggles to compete with UPS and FedEx Corp.
The deal
“shows that UPS and FedEx are handily beating DHL in the
US,” Standard & Poor’s (S&P) analyst Jim Corridore in
New York
said in a note. “The agreement could lead to a larger
alliance, should DHL decide to exit its US business.”
Annual
revenue at UPS totaled $49.7 billion in 2007, so the
boost from the DHL accord would be about 2 percent.
While UPS also will take on flying for Bonn-based
Deutsche Post for packages being shipped between the US,
Canada and Mexico, it won’t handle pickup or delivery to
DHL customers.
Working
with DHL will create “a substantial and profitable
revenue stream,” UPS chief operating officer David Abney
said in a statement.
UPS has
a 52-percent share of the US package-delivery market,
followed by FedEx’s 30-percent share, according to SJ
Consulting Group Inc. in Sewickley, Pennsylvania. The US
Postal Service controls about 13 percent of domestic
packages, and DHL has 6 percent.
UPS said
it plans to add 12 new planes by the end of 2009 and
complete a $1-billion expansion of its hub in
Louisville,
Kentucky,
as part of its strategy to expand North American
capacity.
The DHL
agreement “should benefit both UPS and FedEx,” Morgan
Keegan & Co. analyst Art Hatfield in
Memphis,
Tennessee,
said in a note to investors. Hatfield rates UPS as
“market perform,” while S&P’s Corridore rates it as
“buy.”
“FedEx
welcomes this business opportunity,” said Maury Lane, a
spokesman for the Memphis-based company. “Customers
undoubtedly will move into the FedEx network when DHL
closes or consolidates 33 percent of its US facilities.”
Deutsche
Post said its
US
capacity would shrink by about 30 percent as it closes
smaller sorting facilities and ends some routes.
Paring
US operations will affect 3.3 percent of deliveries and
less than 1 percent of pickups, John Mullen, chief
executive officer of DHL Express, told reporters
Wednesday in
Bonn.
Spending
on the DHL turnaround will reach as much as $2 billion,
and the “first positive effects” will occur in 2009,
Deutsche Post said. The company bought DHL in 2002 and
expanded US operations with the purchase of Airborne
Express in 2003. The express unit hasn’t made a US
profit since then.
With the
UPS talks in advanced stages, DHL announced the
agreement before signing a contract in order to reassure
shippers about the carrier’s future, Mullen said.
“The
prospect of waiting another two or three months, we
think, would have been more damaging in the long run,”
he said in an interview.
Deutsche
Post cut its forecast for overall Ebit, or earnings
before interest and taxes, by €100 million ($156
million) for 2008, citing reduced earnings in the
express division. Group Ebit will be about €4.1 billion.
The US
express division will have a 2008 Ebit loss, excluding
one-time gains or costs, of $1.3 billion, compared with
a $1 billion loss in 2007, Deutsche Post said. Losses at
the division are forecast to total $900 million next
year, $500 million in 2010 and $300 million in 2011, the
company said.
UPS cut
its 2008 profit forecast in April and reported that
first-quarter shipments fell because of a “dramatic”
economic slowdown. FedEx, the second-largest US
package-shipping company, said May 9 that fourth-quarter
profit will miss its forecast after surging fuel prices
raised costs at least $100 million more than estimated.
The US
economy may grow at a 0.1 percent annual rate from April
to June, the least since the 2001 recession, according
to a monthly survey of economists by Bloomberg News
published May 9. Gross domestic product rose at a 0.6
percent pace in the first quarter and 2007’s final three
months. (With reporting from Dallas, Bloomberg) |
