Growth is costly for DHL

While the air-express industry waits to see how DHL's huge expansion effort affects the U.S. market for expedited cargo, the impact on DHL is becoming more evident. DHL parent Deutsche Post World Net announced larger-than-expected losses in the Americas, where the company is mounting a $1.2 billion challenge to FedEx and UPS. Deutsche Post followed the disappointing financial results by announcing a management shakeup. The company announced that Uwe Doerken stepped down as chairman and chief executive of DHL at its global headquarters in Brussels and as a member of the Deutsche Post board of management. The company then said John Mullen, the architect of DHL's expansion in Asia, would replace John Fellows, chief executive of DHL Express Americas and point man in the ambitious effort to ramp up DHL's operations in the U.S. Deutsche Post Chairman Klaus Zumwinkel said Fellows had largely completed his main task of integrating Airborne Express and DHL in the U.S. and would now work at Deutsche Post World Net "on other strategic projects." Fellows said DHL was "right on track" on its effort at "integration, brand awareness and market momentum." Mullen, who has worked with Fellows for years, said the experience DHL has had in its rapid growth in the Asia-Pacific region "will be invaluable as DHL charts a course of growth in the U.S. and other important markets around the world." DHL officials in the U.S. said they are keeping up the ambitious pace to build up infrastructure in the Americas to compete more directly with UPS and FedEx. "We have had certain increases in investments, but we are choosing not to release the specifics on the marketing spend at this time around," said Jonathan Baker, a spokesman for DHL in the U.S. "More to the point of the third-quarter results, the network we are putting in place will be much more efficient … which will help tremendously with the bottom line." Zumwinkel said the U.S. operations would not break even until the fourth quarter of 2005, a year later than projected. Deutsche Post said it expects the loss in the Americas region for the entire year to increase from about $389 million this year to $648 million in 2005. A further loss of another $389 million is anticipated in 2006. The company was planning to disclose an important part of that network, a West Coast air and ground hub. The facility, likely to be in California, should be running by October 2005, said Fred Beljaars, executive vice president of operations for DHL Americas. The company will operate about nine aircraft at the regional hub. The company already is committed to investing $300 million to expand and improve its air and ground hub in Wilmington, Ohio, which was acquired as part of the company's purchase of Airborne Express. Although the official groundbreaking for the hub took place just weeks ago, the upgrade effort is well under way, Beljaars said. Slated to be completed late next year, the Wilmington center will allow DHL to manage about seven times the volume it now handles at its current base at Greater Cincinnati-Northern Kentucky International Airport, he said. Upgrades will include a million-square-foot automated sorting facility and additional ramp space for aircraft. Wilmington will be the hub for the 265 flights DHL uses in the U.S., mostly through ABX Air and ASTAR Air Cargo. The company also flies three MD-11 freighters a week between Europe and the U.S. under a joint venture with Lufthansa and a five-day-a-week 747 freighter service to Tokyo under a similar arrangement with Northwest Airlines. By consolidating its air network in Wilmington, DHL will be able to connect its international line-haul service from Europe or Asia to more domestic points, which would speed international and domestic delivery, Beljaars said.