‘FedEx’s backyard’ makes sense for DHL US hub

Billed as a competitive alternative to FedEx and UPS, DHL announced this week it will open a USD3 million sort center in Memphis this fall.

The company has leased about 23,000 square feet at 3035 Bellbrook Drive where it will employ 29 people and have capacity to sort 7,500 packages and letters an hour.

Selecting Memphis for the hub made sense for several reasons, said Dan McDonald, head of DHL network planning.

“Memphis is geographically in the center of the country,” McDonald said. “FedEx found it works for them and that we’re in FedEx’s backyard is just icing on the cake.”

Customer base is also something DHL considers when selecting a site.

“Memphis will allow us to expand our overnight delivery to parts of Arkansas, Tennessee, Mississippi and Kentucky,” said Steve White, head of DHL’s hub and gateway operations.

DHL has been nudging for market share this summer with a $150 million advertising campaign it announced in June.

One of its most prominent billboards in town is at the airport, across from FedEx’s hub.

The DHL Memphis sort center is the third of seven new hubs the company is planning through a USD1.2 billion investment it announced this summer in its ground network.

Last week, DHL announced it would open new hubs in Denver and Salt Lake City. The remainder will be named within two weeks.

By the end of this year, DHL will have 19 regional sort centers nationwide in its drive to beef up its domestic presence.

The company has contracts with ABX Air Inc. to manage the operation and provide ground and air transportation.

ABX Air, once a wholly owned subsidiary of Airborne Express, is now an independent company with contracts outside DHL.

Although DHL has shown double-digit growth on the ground in the last year, analysts estimate it controls only 6 to 8 percent of domestic market revenue, making it a minor third player behind FedEx and UPS, which together have about 80 percent.

UPS has capacity in Memphis to sort 57,000 pieces per hour. FedEx ships 1.5 million packages a day from Memphis and will add capacity for 22,500 more packages an hour when it opens a new ground hub next spring in Olive Branch.

While DHL bills itself the “fiesty” third player, it is the largest delivery company in Europe and a significant player in Asia and South America.

It began ramping up in the United States last summer when it purchased Airborne’s ground operations for USD1.5 billion. The air division, now ABX Air Inc., is wholly owned by Airborne shareholders.

DHL Airways, majority owned by Deutsche Post – the German postal monopoly – was sold to American investors who renamed it ASTAR. DHL relies on both airlines for overnight delivery.

In a protracted fight, FedEx and UPS contested ASTAR’s ownership, saying even though the investors are U.S. citizens, company direction would be coming from Deutsche Post.

The Bush administration in mid-May said ASTAR was not controlled by foreign interests, allowing it to fly in the United States.

“Whatever growth DHL may be gaining is probably coming from growth in the market,” said Satish Jindel, principal in S & J Consulting in Pittsburgh.

“If they were taking growth from FedEx and UPS, you’d be seeing a decline in their growth rates, and FedEx would not be issuing more optimistic forecasts,” he said.

DHL will use Memphis both to increase its reach nationally and to funnel lower-yielding business to its ground operation.

The sort facility will serve 13 smaller DHL stations in the region.