Exit of Zumwinkel may end DHL push into US
The abrupt exit of Klaus Zumwinkel, chairman of DHL parent Deutsche Post, has heightened speculation that DHL may sell its struggling US business.
Zumwinkel tendered his resignation on February 15, following raids of his office and residence by German tax authorities the day before. He is being investigated for alleged tax evasion of around USD 1.4 million.
With his November retirement day in sight, Zumwinkel left under a cloud after leading the company for 18 years. He turned a postal outfit into an USD 88 billion logistics giant.
Throughout his tenure Zumwinkel was seemingly untouchable, lording it over Deutsche Post. But in recent months he came under mounting criticism, most of it directed at DHL’s struggling US expansion. Having acquired Airborne Express for about USD 1 billion in 2003, the company was trying to establish itself as a third force in the US market behind UPS and FedEx, but the operation has produced a flood of red ink, despite several efforts and heavy investment to stem the flow. According to some estimates, DHL could lose D 900 million in the US this year alone.
The first salvo against the US strategy came last November, when investment firm Bear Stearns concluded that DHL stood no chance of producing profits in the US in the foreseeable future and advocated a retreat from the US market. Subsequently a second Wall Street firm argued that DHL should abandon the intra-US business.
Since then, speculation has been swirling around DHL that it might sell its US business.
Although the new Deutsche Post chief Frank Appel has pledged to focus on the loss-making US unit and chief financial officer John Allan, whose contract has been extended by two years until the end of 2010, pledged to improve performance of DHL in the US, rumours have been leaking out of Deutsche Post’s headquarters that a number of options were under consideration to end the losses in North America.
One scenario that has been bandied about sees DHL handing over the intra-US business to FedEx, which could in turn have DHL handle its intra-European traffic. FedEx and Deutsche Post have declined to comment on these speculations, but sources close to DHL place the origin of this rumour in the Deutsche Post management.
Selling the US arm of DHL Express to FedEx seems unlikely, though, as FedEx has no need for the infrastructure that its smaller rival has built up in that market. Moreover, an outright sale might face legal obstacles. A report by Bear Stearns argues that anti-trust reasons would prevent FedEx from buying what amounts to 11-12 percent of the US air express market.
“However, we suppose FedEx could purchase DHL’s smaller ground business and form some form of partnership with DHL to deliver some portion of their air express packages,” the report concluded.
While not commenting directly on rumours of a FedEx deal, Allan declared that “there can be no question of exiting the US business. Any options which include a withdrawal can be completely ruled out”.
Deutsche Post has repeatedly stressed that its presence in the US market generates a host of international traffic, such as flows from Asian customers to North America. Allan declared that the US express business is a key management priority for Deutsche Post.
“We are looking at a variety of options to improve performance. In doing so, we are committed to maintaining a significant presence in the US market, which remains of strategic importance to the group,” he said.
The first salvo since these comments came on February 12, when DHL Express USA announced a plan to eliminate some 600 jobs. “This action is one of several measures we are taking to improve our competitive position in the US market, which is strategic to our global growth plan,” said Hans Hickler, CEO of DHL Express USA.
But profitability is in short supply. On January 24, Deutsche Post announced it would take an USD 874 million write-down of the value of its express business in the Americ
Read More