DHL makes US push, takes on rivals FedEx, UPS

DHL’s yellow and red delivery trucks are on the road as its USD1.2 billion investment in the United States gets rolling, but investors waiting for the company to make a dent in the businesses of its two major U.S. rivals may need to be patient.

DHL, the U.S. express and logistics business of Germany’s Deutsche Post AG, plans to have a U.S. ground network equal or better to its rivals FedEx and United Parcel Service by the end of 2005.

“We’ve decided to accelerate efforts and hit the ground harder, faster, sooner,” Richard Metzler, DHL America’s executive of vice president of marketing, said in an interview.

But meeting these lofty goals is not cheap. Just last week, Deutsche Post pushed back its break-even targets for DHL’s U.S. business by a year to 2006.

Since DHL, which has a stronger position abroad, began its U.S. marketing campaign this summer, short-term volume expectations “have been more than exceeded,” Metzler said.

“In any integration, you are going to have a period while you get things together. We are beyond integration and are beginning to move into the growth stage,” said Metzler, declining to specify the numbers of consumers acquired.

DHL’s focus on improving service and reliability after its 2003 acquisition of No. 3 U.S. courier Airborne Inc. makes U.S. market share gains possible, albeit from low levels, and that could eventually impact valuation and growth for FedEx and UPS, according to Morgan Stanley analyst James Valentine.

Market research done by DHL showed customers wanted an alternative to FedEx and UPS in the United States, Metzler said. But a recent Morgan Stanley survey of shippers gave much higher service marks to FedEx and UPS, according to Valentine.

“For some customers, DHL is currently a viable option and I believe that population is going to grow as they build out their network, but I don’t think DHL has the capability to compete for all U.S. customers for at least many years,” said Valentine, adding that some larger customers may need more comprehensive service.

DHL currently serves every U.S. ZIP code, but it costs the company more to service some of those areas now than it will after the expansion.

UPS and FedEx recognise DHL as a deep-pocketed rival but note they have been competing for years with Airborne, which routinely charged lower fees. The rivals said it will take time and more than “slick marketing” to compete against their breadth and heft.

“This is a daunting undertaking — to create a network, technology and service levels we’ve honed over 30 years,” said Bill Margaritis of FedEx, which is about halfway through a USD1.8 billion expansion of U.S. and Canadian ground capacity it started in the fall of 2002.

UPS is not sitting still either. The company says it typically spends three to four times DHL’s planned investment in the United States to reinforce its business during a comparable period of time.

“We’re a moving target,” said Kurt Kuehn, UPS senior vice president for worldwide sales and marketing.