FedEx, UPS Join Forces to Stave Off Foreign Push Into U.S. Delivery Market

FedEx Corp. and United Parcel Service Inc., usually each other's most hated rival, have found something they're willing to bury the hatchet over: the German post office.
Convinced that Deutsche Post AG is gearing up for a North American invasion, the two U.S. delivery giants are joining forces in hopes of proving that a delivery blitz would be bad for America.

In the past two weeks, UPS and FedEx have filed protests with the U.S. Department of Transportation, claiming that Deutsche Post is trying to circumvent federal laws and that it will attempt to subsidize an expansion in the U.S. with profits from its mail monopoly in Germany.

America has become the newest — and potentially the nastiest — battleground in the continuing transformation of the world's major postal agencies. Across Europe, once-sleepy postal operations are becoming aggressive private-sector competitors, spending heavily to move into the backyard of UPS and FedEx. American parcel-delivery trucks have rumbled across the cobbled streets of Europe for more than two decades. Now, European carriers say they want to find out if transparent borders work in both directions.

"We need to have a truly global reach," says Mark Gunton, president and chief executive officer of international express-delivery operations in the Americas for Dutch delivery giant TNT Post Groep NV. TNT, which is almost half owned by the Dutch government, this spring will start using five PT Cruiser roadsters painted bright orange to make package deliveries in New York City.

"It would be a bad market for us to ignore," says Brian Anderson, a spokesman for Royal Mail US Inc., which is prowling for acquisitions that would help it sustain annual revenue-growth rates of about 30% in the U.S. Royal Mail US, which the British Post Office launched six years ago, mainly handles shipments for businesses.

Deutsche Post — recently privatized but with the German government retaining a majority stake — got a foothold on U.S. soil about two years ago with two small acquisitions and was already doing a brisk business here before it took a majority stake in Brussels-based DHL International Ltd. last fall. Last year, Deutsche Post agreed to pay $1.1 billion to acquire Air Express International Corp., the biggest U.S. air-freight forwarder, giving it instant heft in the highly profitable business of helping companies arrange complex shipments.

The Dutch and French are also scrambling to grab a share of the world's most lucrative freight market. TNT drivers already make express deliveries — using regular trucks — in Chicago, Los Angeles and four other big metropolitan areas. Meanwhile, the express-delivery arm of France's La Poste delivers shipments across the U.S. using FedEx, based in Memphis, Tenn.

Whether Europe's delivery organizations ever amount to more than a speck of the $30 billion annual parcel-delivery industry in the U.S. could depend on the outcome of the escalating legal fight between Deutsche Post and UPS and FedEx.

Atlanta-based UPS is leading the fight to prove that a huge DHL expansion would be bad for America, claiming Deutsche Post could funnel proceeds from its monopoly on German mail into the U.S. and launch a price war against American delivery companies. Because the U.S. Postal Service isn't allowed to deliver packages in other countries, one of the issues being raised is whether it is fair for its German counterpart — still mostly owned by the German government — to make a big push here.

"There is not a level playing field," says Tad Segal, a UPS spokesman.

"It's absolutely ridiculous as a foreigner to see what is going on … you could call this a monopoly," responds Martin Dopychai, a Deutsche Post spokesman. "We are not the Huns with our tanks that will shoot everybody down."

With so much at stake, it's no wonder that FedEx and UPS are combining their home-field advantage in Washington to stop any moves by Deutsche Post that could shave down their combined 80% U.S. market share. The two companies are hoping to convince the Transportation Department that Deutsche Post is trying to sneak into the U.S. by hiding behind the bewildering ownership structure of DHL International. FedEx, taking a swipe at DHL for doing business in places that run afoul of the U.S. government, even points out in a DOT filing that DHL accepts shipments in Libya.

This week, the transportation section of the AFL-CIO jumped in on the side of UPS and FedEx, claiming in its own DOT filing that the German government's majority stake in Deutsche Post gives it an "unfair and inappropriate competitive advantage." A major trucking-industry trade group contends in a separate filing that 500,000 interstate motor carriers could be hurt if the German government gets "unrestrained access" to the U.S. market.

FedEx and UPS are also trying to ground DHL Airways Inc., the mostly U.S.-owned operation that DHL uses to fly packages in and out of the U.S. The two say the airline violates federal laws limiting foreign ownership of U.S. airlines because it is essentially controlled by Deutsche Post. The two U.S. carriers also argue that the recent restructuring of DHL, which separates its U.S. airline and trucking network into two companies, is intended to allow Deutsche Post to make unlimited investments in U.S. ground-based operations.

Though DOT filings on the matter are due Monday, the dispute could drag on for months. DOT officials are giving no indication of how they might rule. "We're bound by the law and the statutes on these things," says a department spokesman.

For all the fireworks, it's still not entirely clear what Deutsche Post's newest strategy is in the U.S. The German company made more than 20 acquisitions world-wide in the past three years as part of its push to become a major global competitor. But it still needs a major North American operation. While DHL is the largest delivery company outside the U.S. and is better known than FedEx and UPS in many places, it is a small player in the domestic U.S. delivery market.

"Many of the very large, global customers of DHL are located here in the U.S., and we clearly need to be able to serve those customers," says Jed T. Orme, senior vice president at DHL Worldwide Express Inc., the newly formed U.S. ground-delivery operation.

It remains to be seen whether FedEx and UPS are successful in walking the awkward line of trying to close U.S. borders to what they see as unfair competition while simultaneously pushing to expand further in Europe. Privately, some industry experts worry that the dispute could open a new front in the continuing trade spat between the U.S. and Europe.

Write to Rick Brooks at [email protected]