The long and short on the impact of DHL-Airborne
David Hannon, News and Transportation Editor -- Purchasing, 3/18/2004 2:00:00 AM
The merger of Airborne and DHL last year created a new competitor in the domestic shipping market. Now, six months post-merger, shippers and market watchers are beginning to get a feel for what the new company looks like and how it will impact the shipping market in the long-term.
Most business experts would agree six months is not a long time to integrate the networks of two major shipping companies. But six months after the merger was announced, DHL says it has consolidated its U.S. freight services into its dedicated logistics division and transferred all Airborne international airfreight and ocean customers to the logistics division. DHL has also consolidated all of its IT functions across the Americas into its Americas Information Services Center in Scottsdale, Ariz.
With the integration apparently well on its way, the new company is now looking to fill in the gaps. The domestic ground market has been the early target for improvement and DHL plans to open four new ground hubs in the Western U.S. by the summer.
"I thought it would take them a little bit longer to integrate their systems than it apparently has," says Doug Caldwell, a market analyst with AFMS in Portland, Ore. "There was some confusion directly following the merger around which drop boxes to use and what drivers would be showing up. Some customers reported a temporary reduction in service level during the early integration period, but as soon as customers started complaining, DHL put some extra drivers on to get the problems turned around. They're being very aggressive about rolling out new offerings and we're starting to see what the new company looks like."
Seeing yellow (and red)
DHL has put the integration wheels in full speed, discarding anything with an Airborne name—from vans to drop boxes, uniforms to Web sites. The company's strategy going forward will be to present shippers with one DHL face and do the sorting out behind the scenes, more similar to the UPS model than to that of FedEx, which operates different divisions for different services.
Brett Febus, managing partner of consultancy Insource Logistics in Hilliard, Ohio, also thinks DHL will benefit from presenting itself as a one-stop shop and not keeping its different divisions functioning separately. Febus says he has large clients that are considering DHL for ground service and shippers that have worked with DHL internationally are going to be more likely to consider DHL domestically than they were when it was Airborne alone.
"DHL understands the perception they have of not being able to handle the largest shippers," says Febus. "But they assured these clients that they can handle a ridiculous amount of volume if it came their way. The timing is good for this company to come into the mix, because , for the past few years, most people have considered UPS and FedEx equals on ground shipments. The shippers have gotten comfortable and now DHL comes in and shakes up the market so shippers say 'Oh, let's look at these guys now.'"
Ted Scherck, president of the Atlanta-based Colography Group says the synergy in the business models— pairing a strong international player (DHL) with a top domestic player (Airborne)—sold the merger, not the size of the companies or their existing infrastructures. He says Deutsche Post's experience in integrating acquisitions has proven useful in getting the new company branded and out in the market.
"This acquisition gave DHL an immediate major presence in North America, one of its weakest operations compared to Europe and Asia," says Scherck. "There are issues with duplicate terminals and getting the platforms to talk to each other and rationalization. But I think the fact that Deutsche Post and DHL have done this dozens of times is paying off for them."
Caldwell feels Airborne's reputation for being cost competitive in its market will continue under DHL, but with a stronger emphasis on service in competing with UPS and FedEx.
"When you take the high quality structure DHL was known for and marry it with the low-cost structure of Airborne, it is a good fit," Caldwell says. "DHL can now put their domestic air shipments into the former Airborne network, which was so tight it could squeeze water out of a rock."
One of the reasons Airborne was able to keep its air costs so low was that it owns an airport in Wilmington, Ohio, a former strategic air command base. DHL now plans to send all international shipments out of its state-of-the-art hub in Cincinnati and all domestic air for the combined company will go out of Wilmington.
Caldwell says DHL may soon make a play in the LTL trucking market as well and shippers can expect DHL to put more automation in its hubs and drive larger shipments into its Danzas international air freight unit. Basically, take any shipment up front and figure out the best way behind the scenes.
Scherck says FedEx and UPS are taking DHL very seriously. "They considered Airborne and DHL as viable competitors individually and consider them an even more viable competitor in combination." The legal action UPS and FedEx took to squash the merger— claiming DHL is owned by German firm Deutsche Post and therefore cannot buy an air carrier—is a clear indication of how seriously UPS and FedEx are taking the new kid on the block. Another indication is the lower-than-normal rate increases announced by FedEx and UPS in January.
But taking their competition seriously does not necessarily mean a price war will ensue. Scherck says none of the three major competitors wants a price war and will continue to battle mostly for market share and customers by providing good service.
The time is right
Febus says the rise of the new DHL makes it a good time for shippers to re-evaluate shipping contracts. "I tell clients to renegotiate when it's time to renegotiate, not when the contract is ready to expire. Some carriers charge for their 100% service, but some shippers don't need perfect and shouldn't pay for perfect. Maybe 75% is okay. Maybe you just need it to get there."
Caldwell agrees that the rise of a third major shipping presence is a good chance for shippers to review their existing contracts and find out who will give the best combination of services and prices today.
"The real winner in all of this is the shipper," says Caldwell. "You've got another viable option for domestic shipping and we've got the best shippers here in the U.S. and the lowest-cost shipping network. Compare the cost to ship across Canada or Europe vs. U.S. It is much cheaper in the U.S. already and you've got a brand new option now."
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