'You won’t see any rate wars'

DHL US exit to give more leverage to FedEx and UPS

Former DHL exec says DHL departure gives more leverage to FedEx and UPS.

That’s the view of Jerry Hempstead, President of Hempstead Consulting and former Vice President at DHL Express. On a conference call last week hosted by Stifel, Nicolaus and Co., Hempstead told media and analysts that “you won’t see any rate wars” between FedEx and UPS as DHL exits the market. “The pricing environment will be very firm for both FedEx and UPS in my opinion, due to the exit of DHL.”

Hempstead, pointed out that 2009 published rate increases for ground packages from FedEx and UPS are higher than ever and with DHL out of the market and the pressure on the two major carriers to discount rates is much less.

In the short-term, Hempstead said carriers will benefit from fuel surcharges being rolled into base rates at a time when fuel costs are decreasing. “If you drilled down into the 2009 rate increases, UPS and FedEx again this year said they baked 2% of the fuel surcharge into the base tariff,” Hempstead said. “This is the fourth time they’ve done that. Each time they do that, it compounds the following the year, so you have already 8% plus compounding already baked into the base tariff, which is in anticipation of fuel prices going down, which they have.”

Longer-term, parcel rate increases in 2010 will be even higher, as more long-term contracts come up for bid and DHL’s pricing becomes a more distant memory.
“With DHL gone, the minimum charges from the other carriers will be enforced,” he said.
Hempstead said other impacts of DHL’s market exit include:

• UPS and FedEx will increase and enforce their accessorial charges
• DHL losing more of its international contracts as more shippers look to bundle domestic and international volumes
• DHL and UPS air freight deal may not materialize as UPS scours to gain more of DHL’s former customers
• UPS has the lead in hiring DHL sales reps
• The number of actual companies impacted by DHL’s exit is limited by the fact that 80% of DHL’s business came from 400 contracts.