November 10, 2008, 12:00 AM

DHL to exit U.S. domestic ground and air shipping business

To slash financial losses in its U.S. DHL Express shipping business, Deutsche Post AG will end its U.S. domestic-only air and ground service as of Jan. 30, bringing to nearly 15,000 the number of jobs cut in the U.S. this year, the company said today.

To slash financial losses in its U.S. DHL Express shipping business, Germany-based Deutsche Post AG will discontinue its U.S. domestic-only air and ground service as of Jan. 30, bringing to nearly 15,000 the number of jobs cut in the U.S. this year, the company said today.

Deutsche Post will close all U.S. ground hubs and reduce the number of operating stations to 103 from 412 as it restructures its U.S. operations to focus only on international shipments into and out of the U.S., the company said. The action taken today will result in the elimination of 9,500 U.S. jobs, in addition to the approximately 5,400 U.S. jobs already cut this year.

DHL’s departure from U.S. domestic shipments will result in less competition among delivery companies, but the change shouldn’t have a big effect on online retailers, says Paula Rosenblum, managing director of research and consulting firm Retail Systems Research LLC. DHL’s sweet spot has always been in the international arena, but its attempt to serve the U.S. domestic shipping market in competition against FedEx Corp. and UPS never quite worked out as it had expected, she adds. “The industry is still well-served for domestic shipments,” she says.

DHL has competed with lower rates, however, and its exit from the U.S. domestic market may hurt fulfillment operations that have built their business around lower costs, says Bob Boylan, president of logistics services provider Xpert Fulfillment Inc.

The restructuring of DHL Express will reduce U.S. annual operating costs at the unit to less than $1 billion from $5.4 billion, resulting in a projected loss this year of $1.5 billion followed by a loss next year expected to not exceed $900 million, the company said. Earlier this year, the company said it had expected its U.S. DHL Express unit to post a loss this year of $1.3 billion. DHL also previously announced plans to outsource its U.S. domestic air shipments to rival UPS and rural ground deliveries to the U.S. Postal Service.

By exiting the U.S. domestic business, the company says it will be able to concentrate on its U.S. DHL Express unit’s international operations, whose finances are more predictable, the company said.

"This is the right move for our U.S. Express operations given the current economic climate and for the long run,” says John Mullen, who is responsible for DHL Express on the management board of Deutsche Post World Net, the DHL group that includes DHL Express. “Focusing our U.S. Express efforts on what we do better than anyone else–international shipping-serves the best interests of our customers, employees and shareholders around the world."

Deutsche Post will retain 3,000 to 4,000 employees in its U.S. DHL Express unit out of a total of about 25,000 U.S. employees that work in the company’s overall operations in the U.S. The cutbacks at DHL Express will not affect the ongoing U.S. operations of DHL’s Supply Chain/CIS, Global Forwarding/Freight, and Global Mail units, the company said. Deutsche Post added that it will continue to invest in its remaining U.S. operations and expects them to grow.

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