DHL-UPS deal could get closer review

Congressmen request deal be reviewed by FTC, DOJ.

By Dave Hannon -- Purchasing, 8/5/2008 9:24:00 AM

The proposed deal between UPS and DHL under which UPS will carry air freight for DHL may come under closer scrutiny than originally thought if two U.S. senators have their way.

Reuters reports that Senators Herb Kohl and Orrin Hatch, both on the Senate Antitrust Subcommittee, sent a letter to both the Department of Justice and the Federal Trade Commission saying: “We believe that this proposed agreement raises important antitrust and competition issues that should be examined carefully by the Department of Justice or the Federal Trade Commission.”

According to Reuters, the letter also stated that: “Some critics of the proposed agreement contend that DHL will become a captive of UPS, rather than an independent competitor. Having only two airlines providing national airlift capacity for overnight package delivery could raise the risk of serious economic disruption should one of these two airlines be reduced due to unforeseen difficulties."

BusinessWeek reports that UPS spokesman Norman Black said Monday that the arrangement the Atlanta-based company is working out with DHL is similar to one it has been operating under for several years with the United States Postal Service. "It is very clear to us this is not an antitrust matter," Black said. "There is no partnership, no joint venture, no merger, no acquisition."

In a recent interview with Purchasing.com, analyst David Ross of Stifel Nicolaus in Baltimore said the service level impact of the deal could drive more shippers to UPS and FedEx but the market overall will remain competitive.

“I don’t think DHL’s service levels will get any better through this deal,” Ross says, but adding that he still sees the small parcel market as competitive, especially on the air side where he says FedEx and UPS currently have a lot of overcapacity. “On ground, a lot of shippers are downgrading to lower service levels to cut costs. But if you have a decent amount of air volume you should be able to get good rates from carriers.”

For a more detailed analysis of the DHL-UPS deal’s impact on the air freight and small parcel market, read the August issue of Purchasing due out Aug.14.