DHL To Shut Down U.S. Operations, Shed Another 9,500 Jobs
Posted on | November 10, 2008 Time: 6:25 pm |
Coming Soon to an Ebay listing near you...
DHL’s delivery services will no longer be operating within the domestic U.S., as the German-owned company announced today that they will be cutting another 9500 jobs in the U.S., shutting down all hubs and reducing total stations in the U.S. by 75%. DHL will continue to ship products from the U.S. to international locations, and is in separate, ongoing talks with UPS to utilize their fleet to transport products between U.S. airports and customers.
Never Had a Chance?
While DHL never really made it above “also-ran” status in the United States (the company only had ~5% market share), today’s news is yet another sign that companies are willing to make drastic cost-cutting moves in order to stay alive. For their part, DHL believes that the added “restructuring” (read: retreat) will lead to one-time expenses of $1.9 billion, while reducing annual operating expenses from $5.4 billion to under $1 billion.
One has to feel a bit sorry for DHL, even though they were criticized from the start for daring to challenge the entrenched businesses of UPS and FedEx in the U.S….$5.4 billion in operating expenses to capture just 5% of the U.S. delivery market is atrocious, and yet DHL suffered through the past years of rising fuel costs only to lose the will (and cash) to fight - now that oil prices have dropped 50%.
UPS stands to be a big winner in the deal, and to be sure DHL’s market share is up for grabs from the Big Two. But UPS, assuming they ink a deal by the end of the year with DHL, should gain tremendous operating leverage and capacity utilization (as discussed in the company’s Q2 call) at a time when they could sure use it. UPS will essentially receive new package volume with little or no shifting of company resources, and minimal costs to acquire. That’s a solid double at a time when there are so very few good growth pitches to hit.
Investment Potential….Just Not Right Now
I’ve long carried with me an affinity for the UPS business model and value proposition. With the economy and worldwide demand in a tailspin, this obviously isn’t the time to seek growth or improving fundamentals at UPS. But as oil costs have dropped lower, so have the outsized risks to long-term profitability. I will be doing some in-depth DD of the logistics company to determine a future entry point for possible inclusion to the Epiphany Investing Secular Trends Portfolio.
As Bloomberg notes this morning, UPS and FedEx control more than 80% of the U.S. market for package deliveries. Despite the modest bounce in both UPS and FDX shares today on the DHL news, I would avoid the industry in the short-term until we have some sense of where GDP will bottom out.
disclosure: author does not hold positions in the companies mentioned.
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