DHL goes for home run in rivals’ back yard

If there remained any doubt about DHL’s commitment to becoming a force in the US, it disappeared last week when the German-owned package delivery company struck a deal to sponsor Major League Baseball.

Attaching its name to America’s “national pastime” is the most brazen sign to date of DHL’s ambitions to challenge United Parcel Service and FedEx on their home turf.

DHL, part of Deutsche Post, said it had been adopted as an official partner of baseball’s top league for the next three years, raising the profile of a company that had until recently been largely absent from the US.

The sponsorship is the latest in a series of initiatives by DHL to break the dominance of UPS and FedEx, which together command nearly 80 per cent of the US market.

DHL launched its expansion in the US two years ago through the $1bn acquisition of Airborne, a Seattle-based express delivery company, and announced plans last year for a further $1.2bn of investment in the country.

FedEx reported last month that competition was intensifying and UPS issued a profit warning in January amid falling domestic market share, providing the first indications that DHL was starting to put pressure on the local groups.

DHL’s US sales increased 52 per cent last year to €4.3bn ($5.5bn), giving the company about 13 per cent of total spending on parcels. JPMorgan Chase has forecast that that will reach 18 per cent by 2006.

However, DHL’s US expansion has come at a high cost. The company suffered operating losses of €495m in the US last year and is not expected to break even until 2006 at the earliest, placing a strain on its parent.

A strong US presence is crucial to DHL as it vies with UPS and FedEx for leadership of the global market. The company is bigger than its rivals in Europe and Asia but its weakness in the world’s largest economy has long been a disadvantage.

Over the past year, DHL has announced plans to build two large distribution centres and seven regional sorting facilities in the US. It has also struck deals to become the preferred brand in more than 1,200 independent shipping stores that compete with the FedEx Kinko’s chain and UPS’s own-brand stores.

The expansion has been supported by an aggressive advertising blitz, with one slogan declaring that yellow, DHL’s corporate colour, is “the new brown”, referring to UPS’s famous livery.

UPS and FedEx have done little to disguise their irritation at the disruption of their near-duopoly.

Last year the pair challenged DHL in court, claiming its close relationship with a Miami-based air cargo carrier violated foreign ownership laws, but the case was thrown out.

Officials at UPS and FedEx complain that the muscle of the German government, which owns more than half of Deutsche Post, gives DHL an unfair advantage.

Kurt Kuehn, UPS’s senior vice-president of sales and marketing, says German consumers are partly absorbing DHL’s US losses through the inflated price of stamps.

Analysts say DHL’s growth is good for US consumers, who will benefit from more competition, but potentially bad for investors in UPS and FedEx if the package delivery industry descends into a price war after years of stability.