Small parcel market splits up in the first quarter
UPS, FedEx both claim more than their share of DHL’s business
By Dave Hannon -- Purchasing, 4/23/2009 12:09:00 PM
With the exit of DHL from the U.S. domestic small parcel market, a significant chunk of mar
| See also: DHL, UPS formally cut off talks |
ket share was up for grabs in the first quarter, at a time when carriers were hungry for business and shippers were cutting costs. But just how much of that market share went to which carriers is still a bit cloudy.
Both UPS and FedEx have claimed to be satisfied with the amount of DHL business they gained in the first quarter. According to some reports, both have claimed to win more than half of DHL’s business, while some market watchers say the US Postal Service may have been the real winner by scooping up more market share than expected. But as one market analyst points out to Purchasing.com, “half plus more than half plus the USPS share is well over 100% so someone’s fibbing here.
For example, this week UPS’ CFO Kurt Kuehn, Big Brown won “a little more than half of DHL’s U.S. business.” But even with the extra volumes, UPS saw a nearly 4% decline in average daily package volumes in the first quarter and expects a 4-6% decline in the April-June domestic volumes.
For its part, FedEx said on its most recent earnings call last month that it “captured more than our fair share” of former DHL traffic at higher yield than DHL has been receiving.
“We exceeded our fair share in every segment,” said Mike Glenn, a FedEx spokesperson on the call. “We were especially proud of the effort of our sales and marketing team to deliver this volume at higher yields then DHL was carrying the traffic for.”
Logistics consultant Jerry Hempstead of Hempstead Consulting in Orlando, Fla. tells Purchasing.com that he thinks UPS was more successful in winning the DHL business, and at profitable rates. Hempstead says UPS won some of the more “service sensitive” shippers including IBM and Technicolor but was also were very selective in winning DHL’s two largest resellers Unishippers and WorldWideExpress.
“UPS had a well thought-out and orchestrated plan to go after DHL’s accounts,” says Hempstead. He adds that UPS beat FedEx to the punch early with a discount offer for DHL customers looking to convert on UPS.com almost immediately after DHL announced its pullout.
“UPS also had a well thought out plan to attract the laid off DHL sales representatives and had a full court press in the market to find and recruit the sales professionals who also bring the knowledge of who their customers were,” Hempstead says.
But the big surprise in market share gains, says Hempstead, are those won by the US Postal Service. “USPS has been incredibly successful in using its new pricing flexibility for parcels and has chalked up some very impressive contract wins from former DHL accounts.”
Analyst David Ross at Stifel, Nicolaus & Co. points out that some of the former DHL business may in fact be shared between FedEx and USPS through the FedEx SmartPost product. In fact, FedEx also carriers packages for other USPS services, there could be a lot of “double counting” where both USPS and FedEx can rightfully claim to have “won” the DHL business.
“The Ground Parcel side is the only spot where USPS would have gained business that it didn’t have to share with FedEx for the most part,” Ross tells Purchasing.com.
Ross also points out that there has been a significant amount of modal shift with the former DHL business because both UPS and FedEx have more efficient ground networks than DHL did. So a shipment that had to travel by air in the DHL network to make a two-day deadline could go ground with UPS or FedEx depending on the length.
But Ross stops short of declaring either carrier a winner in the battle for DHL’s business.
“Essentially, FedEx and UPS are both good companies and both very good competitors,” Ross says. “They both had good strategies in place to win the DHL business but it might be difficult to really find out who attracted more of the DHL business.”
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