UPS Could See $10B From DHL Deal

A new deal that could see Germany' s Deutsche Post shift its entire North American airfreight network to rival UPS is being valued as high as $10 billion by the U.S. cargo operator.

The deal was revealed yesterday as part of a cost-cutting program that could cut the European company' s annual costs by $1 billion by 2011. Under the initiative, Deutsche Post' s DHL U.S. Express unit intends to contract UPS for all intra-North American airlift for 10 years.

Deutsche Post says it will continue to operate its U.S. DHL ground network, which is also being consolidated under the cost-cutting initiative.

UPS says its contract should generate up to $1 billion a year in new revenue. DHL' s losses are expected to reach $1.3 billion in 2008, notes the European parent company.

Full details are not being disclosed, although DHL' s current U.S. partners indicate that the airlift transfer will begin in July and last between 12-18 months. Both Deutsche Post and UPS say they are still negotiating the contract.

UPS can handle much of the volume with its current North American fleet, although it notes new, unspecified, capacity will be added in 2009 when the contract is fully implemented.

Late 2009 marks the end of a major DHL airlift contract with U.S. provider ABX Air. In a statement, ABX Air parent company Air Transport Services Group says it was told of DHL' s plan just hours before the announcement and that DHL intends to remove 39 of ABX Air’s 55 DC-9s from its network starting in the third quarter.

ABX Air says it is unclear what Deutsche Post intends for the 31 767s its also operates under its third party contract, but it notes that its international flights for DHL from North America will be unaffected by the UPS deal.

Astar Air Cargo, another major provider of DHL’s U.S. airlift, was not available for comment.

We have promised to relentlessly focus on improving financial performance and delivering on our Roadmap to Value program. I am confident we have found a sustainable way forward for U.S. Express in the best interest of customers, employees and investors, said Deutsche Post CEO Frank Appel at a press conference in Bonn. Deutsche Post says less than 4% of its DHL' s shipments will be affected by the new deal.

 

Source: aviationweek