Analysts hand DHL bad new year's forecast (U.S.)
Worldwide shipper DHL is doomed to fail in the United States unless it radically shifts its business model, two well-regarded investment firms say.
Now, Morgan Stanley and Bear Stearns separately contend that DHL could eventually contract out operations to competitors, abandon its domestic delivery routes or sell off its U.S. operations entirely.
Facing U.S. operations that lost USD 900 million last year, the company’s new chief financial officer has “indicated the group needs to have a structural solution to U.S. losses” by March 6, according to the Morgan Stanley report.
“While we can’t respond to speculative reports, we have made a commitment to the U.S. market because of its importance to our overall global (DHL) Express strategy,” spokesman Richard Gibbs said in an e-mailed statement.
DHL, owned by German-based Deutsche Post, has spent billions of dollars to build up its domestic presence.
Nonetheless, U.S. operations lost USD 900 million last year and analysts don’t foresee a profit this year.
Morgan Stanley foresees three possible solutions:
Deutsche Post should try to sell all of DHL Express or at least the U.S. operations to UPS, FedEx or the U.S. Postal Service
DHL could fly parcels in but contract delivery to FedEx, UPS or the U.S. Postal Service
It could reduce its footprint to metropolitan areas and either contract pickup and delivery in the rest of the U.S. to the three carriers or offer only international delivery.
The first two options are less likely, according to Morgan Stanley.
In a November Goldman Sachs report, the firm said it was unlikely that DHL’s U.S. operation was on track to perform well.
Beh of Bear Sterns said any DHL decision to quit domestic operations would be difficult.
Worldwide shipper DHL is doomed to fail in the United States unless it radically shifts its business model, two well-regarded investment firms say.
Three years ago, the European-based corporation was lauded locally for bringing jobs and cachet when it opened a western hub at the former March Air Force Base near Riverside.
Now, Morgan Stanley and Bear Stearns separately contend that DHL could eventually contract out operations to competitors, abandon its domestic delivery routes or sell off its U.S. operations entirely.
Facing U.S. operations that lost USD 900 million last year, the company’s new chief financial officer has “indicated the group needs to have a structural solution to U.S. losses” by March 6, according to the Morgan Stanley report.
DHL defends its U.S. business strategy.
“While we can’t respond to speculative reports, we have made a commitment to the U.S. market because of its importance to our overall global (DHL) Express strategy,” spokesman Richard Gibbs said in an e-mailed statement.
DHL, owned by German-based Deutsche Post, has spent billions of dollars to build up its domestic presence.
Nonetheless, U.S. operations lost USD 900 million last year and analysts don’t foresee a profit this year.
DHL has one nightly international flight out of March to and from Hong Kong and has talked about adding another. Flights to Asia also come from Los Angeles and San Francisco airports as well as its Wilmington, Ohio, hub and New York’s John F. Kennedy International Airport.
Seven domestic flights take off from March nightly.
About 125,000 packages a day move through the West Coast Distribution Facility at DHL’s Riverside hub. They are transported on the facility’s one international and seven domestic flights a night.
A Morgan Stanley analyst wrote in a Jan. 7 report that DHL’s current situation is akin to the DaimlerChrysler auto brand before Daimler let loose of its U.S. operations.
Morgan Stanley foresees three possible solutions:
Deutsche Post should try to sell all of DHL Express or at least the U.S. operations to UPS, FedEx or the U.S. Postal Service
DHL could fly parcels in but contract delivery to FedEx, UPS or the U.S. Postal Service
It could reduce its footprint to metropolitan areas and either contract pickup and delivery in the rest of the U.S. to the three carriers or offer only international delivery.
The first two options are less likely, according to Morgan Stanley.
In a November Goldman Sachs report, the firm said it was unlikely that DHL’s U.S. operation was on track to perform well.
Beh of Bear Sterns said any DHL decision to quit domestic operations would be difficult.
The company has invested more than USD3 billion in the U.S., with nearly half going toward infrastructure and distribution since 2003, Gibbs, the DHL spokesman, said in an e-mail statement.
Worldwide, the company has earned annual revenues of USD 80 billion.
Gibbs said the company is dependent on the United States to serve its international customers in Canada, Latin America, Asia and Europe where the company has a strong presence.
Moreno Valley Councilman Richard Stewart, another commission member, said companies such as DHL expect to lose money for a certain amount of time when pitted against such formidable competitors as UPS and FedEx.
