DHL is well on its way to challenging FedEx Corp. and UPS for dominance in the North American small-package market.
In a program announced last June, the express subsidiary of Germany's Deutsche Post AG is spending $1.2bn to increase capacity and boost service in North America. Dick Metzler, executive vice president of marketing with DHL Americas, says the company hopes to replicate its success in serving other parts of the world, where it is the number-one provider.
The last 12 months have seen DHL rapidly scaling up its North American presence, and building infrastructure to support the express and small-package network. The effort follows the consolidation and rebranding of several logistics providers acquired by DHL in recent years, including Airborne Express and freight forwarder Danzas.
For the small-package service, DHL trucks and driver uniforms have been colored yellow, to distinguish them from the familiar livery of FedEx and UPS. The company has also launched an aggressive television and print advertising campaign. Says Metzler: "We're getting our message out to the marketplace."
The DHL strategy calls for a big increase in drop-off points at key locations. Currently, says Metzler, UPS has around 75,000 places where customers can leave their packages, including a network of well over 3,000 UPS Stores (formerly Mailboxes Etc.). FedEx has approximately 55,000 places, including 1,200 Kinko's locations that it purchased in December 2003 for $2.4bn.
By contrast, DHL has some 20,000 customer drop-off points, including drop boxes, with that number expected to surpass 32,000 by the end of this year. The current network includes locations within Office Max stores. Metzler says DHL is "looking at options in terms of retail," but suggested it was unlikely that the company would parrot FedEx and UPS by purchasing an expensive network of storefronts.
"I wouldn't rule it out," he says, "but I don't know who the target would be." What drop-off locations DHL does maintain will mostly be clustered in major population centers, Metzler says.
DHL began life in 1969 as a service provider to business, and has retained that identity in North America ever since. Much of its success has come from Fortune 500 customers. Metzler says small to medium-sized businesses, including home offices, represent another strong source of revenue, accounting for "$18bn of a $60bn market that we play in." That sector, along with business-to-consumer moves, constitutes the major focus of DHL's North American marketing efforts today, he says.
As announced by DHL last summer, the $1.2bn investment program includes construction of seven new regional sort centers, bringing the total number to 19 and boosting ground delivery capacity by 60 percent. Ultimately, DHL plans to operate 24 sort centers in the U.S., twice the number it had when the plan was unveiled.
In addition, the company is consolidating air-hub operations of Airborne and DHL into its primary hub at the 2,200-acre Wilmington, Ohio Air Park. The move will entail the shift of some resources from Greater Cincinnati/Northern Kentucky International, although that location will continue to serve as a backup for the main operation. Work at Wilmington, which handles more than 240 arrivals and departures each day, includes installation of a new landing system, so that aircraft can land in conditions of reduced visibility.
More recently, DHL has announced the location of regional distribution hubs for the western and eastern U.S. The West Coast facility will be located in Riverside, Calif. Due to open in the fall of 2005, it will cost an estimated $65m and cover 262,000 square feet. Eight aircraft will operate out of the facility, providing nine flights per day.
The East Coast hub will be in Allentown, Pa., where DHL is investing $107m to create a distribution center for the Northeast and mid-Atlantic states. The facility will occupy 290,000 square feet and operate daily truck runs to 10 regional hubs across the U.S. The scheduled opening date is the end of 2006.
DHL currently operates more than 260 aircraft in the U.S. domestic trades, although hub consolidation will result in the removal from service of around 26 planes by the end of this year. The flights link up with international services out of both Cincinnati and Wilmington, as well as other locations. Metzler says the company is building new facilities for U.S. Customs clearance at key international airports throughout its North American network.
Business during the ramp-up period has been good, Metzler says. The fourth quarter of 2004 was strong, "and the first quarter [of 2005] was robust as well. We have no complaints on a year-end basis." For the first nine months of 2004, Deutsche Post's express division showed an increase in profit from operating activities of 13 percent, to approximately $195m.
"Customers are voting with their feet," Metzler says. "We're winning business."
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