Executive Briefings

Deutsche Post Reviews Its U.S. Road Map

Earlier this decade, Deutsche Post AG vowed to blanket the U.S. with its yellow DHL trucks and make big inroads against express-delivery giants United Parcel Service and FedEx. Since then, the deep-pocketed German company has signed up few customers and spilled lots of red ink on U.S. soil. Now, after investing billions of dollars, the company is considering a variety of options to turn around its U.S. express-package-delivery business. One of them, say people familiar with the matter, is a retreat.

In an interview, Chief Financial Officer John Allan said Deutsche Post intends to retain "a significant presence in the U.S.," but he wouldn't rule out any other scenarios, such as giving up a controlling stake in its U.S. express business. "We've got a very open mind," he said. He said Deutsche Post is exploring several options, some of which are "more straightforward and easy" and others that could require more time. Still, there should be clarity in "a matter of months," he added.

Analysts speculate management could seek extreme steps such as rolling back or even selling its ground network and other parts of the U.S. business. But some industry insiders question whether large rivals such as FedEx, UPS and the U.S. Postal Service would be interested.

Deutsche Post, UPS and FedEx declined to comment on possible talks. A postal-service spokesman said he was unaware of any discussions. Last week, Deutsche Post disclosed it is writing down 600 million ($887 million) of its fixed U.S. assets. Its U.S. package-delivery business is saddled with annual losses of nearly $1 billion and a market share that remains below 10%.

The U.S. woes represent a rude awakening for Deutsche Post, which over the past decade has transformed itself into a globetrotting delivery-and-logistics behemoth. During the first nine months of 2007, it rang up about 60% of its 46.55 billion in revenue outside Germany. The international express-parcel business, flying under the DHL banner, is active in more than 200 countries and enjoys leading positions in Europe and Asia.

In 2003 the former state monopoly made a big bet on the U.S., paying a bit more than $1 billion to acquire Seattle-based Airborne Express, giving it a significant presence in the country overnight. Data on U.S. market share are difficult to parse out because the companies look at different measures; Deutsche Post cited industry estimates that it has about 7% to 9% of the U.S. air and ground package deliveries, trailing UPS and FedEx by a wide margin.

But it has struggled to integrate Airborne with its DHL network. The company lost about a tenth of its U.S. customer base in late 2005, when time-sensitive packages sat on runways as it transferred traffic from its main DHL air hub in Kentucky to Airborne's Ohio hub. Deutsche Post has spent heavily to expand the thin ground network it inherited, an attempt to build up in a few years what UPS and FedEx developed over decades. After initially predicting its U.S. express would turn profitable in late 2005, Deutsche Post recently said it no longer expects to reach its latest break-even target next year.

The losses in the U.S. have weighed on Deutsche Post's share price, which has budged little since its initial public offering in 2000. "It's a problem that doesn't seem to go away. Now I think they're finally addressing that," said Per-Ola Hellgren, an analyst in Mainz at Landesbank Baden-Württemberg.

Much of the push appears to be from Mr. Allan. Since succeeding Deutsche Post's longtime chief financial officer in October, he has moved to cut costs and mend ties with investors who criticized the company for focusing too much on empire-building at the expense of profits. Deutsche Post also recently said it plans to raise 1 billion from real-estate sales and inked an information-technology-outsourcing deal with Hewlett-Packard Co. to save another 1 billion.
http://online.wsj.com

Earlier this decade, Deutsche Post AG vowed to blanket the U.S. with its yellow DHL trucks and make big inroads against express-delivery giants United Parcel Service and FedEx. Since then, the deep-pocketed German company has signed up few customers and spilled lots of red ink on U.S. soil. Now, after investing billions of dollars, the company is considering a variety of options to turn around its U.S. express-package-delivery business. One of them, say people familiar with the matter, is a retreat.

In an interview, Chief Financial Officer John Allan said Deutsche Post intends to retain "a significant presence in the U.S.," but he wouldn't rule out any other scenarios, such as giving up a controlling stake in its U.S. express business. "We've got a very open mind," he said. He said Deutsche Post is exploring several options, some of which are "more straightforward and easy" and others that could require more time. Still, there should be clarity in "a matter of months," he added.

Analysts speculate management could seek extreme steps such as rolling back or even selling its ground network and other parts of the U.S. business. But some industry insiders question whether large rivals such as FedEx, UPS and the U.S. Postal Service would be interested.

Deutsche Post, UPS and FedEx declined to comment on possible talks. A postal-service spokesman said he was unaware of any discussions. Last week, Deutsche Post disclosed it is writing down 600 million ($887 million) of its fixed U.S. assets. Its U.S. package-delivery business is saddled with annual losses of nearly $1 billion and a market share that remains below 10%.

The U.S. woes represent a rude awakening for Deutsche Post, which over the past decade has transformed itself into a globetrotting delivery-and-logistics behemoth. During the first nine months of 2007, it rang up about 60% of its 46.55 billion in revenue outside Germany. The international express-parcel business, flying under the DHL banner, is active in more than 200 countries and enjoys leading positions in Europe and Asia.

In 2003 the former state monopoly made a big bet on the U.S., paying a bit more than $1 billion to acquire Seattle-based Airborne Express, giving it a significant presence in the country overnight. Data on U.S. market share are difficult to parse out because the companies look at different measures; Deutsche Post cited industry estimates that it has about 7% to 9% of the U.S. air and ground package deliveries, trailing UPS and FedEx by a wide margin.

But it has struggled to integrate Airborne with its DHL network. The company lost about a tenth of its U.S. customer base in late 2005, when time-sensitive packages sat on runways as it transferred traffic from its main DHL air hub in Kentucky to Airborne's Ohio hub. Deutsche Post has spent heavily to expand the thin ground network it inherited, an attempt to build up in a few years what UPS and FedEx developed over decades. After initially predicting its U.S. express would turn profitable in late 2005, Deutsche Post recently said it no longer expects to reach its latest break-even target next year.

The losses in the U.S. have weighed on Deutsche Post's share price, which has budged little since its initial public offering in 2000. "It's a problem that doesn't seem to go away. Now I think they're finally addressing that," said Per-Ola Hellgren, an analyst in Mainz at Landesbank Baden-Württemberg.

Much of the push appears to be from Mr. Allan. Since succeeding Deutsche Post's longtime chief financial officer in October, he has moved to cut costs and mend ties with investors who criticized the company for focusing too much on empire-building at the expense of profits. Deutsche Post also recently said it plans to raise 1 billion from real-estate sales and inked an information-technology-outsourcing deal with Hewlett-Packard Co. to save another 1 billion.
http://online.wsj.com