Below is a story about DHL announcing when they are going to shake up there US ops. Makes me really nervous...
Analysts hand DHL bad new year's forecast
By Kimberly Pierceall,
Worldwide shipper DHL is doomed to fail in the United States unless it radically shifts its business model, two well-regarded investment firms say. Three years ago, the European-based corporation was lauded locally for bringing jobs and cache when it opened a western hub at the former March Air Force Base near Riverside. Now, Morgan Stanley and Bear Stearns separately contend that DHL could eventually contract out operations to competitors, abandon its domestic delivery routes or sell off its U.S. operations entirely. Facing U.S. operations that lost $900 million last year, the company's new chief financial officer has "indicated the group needs to have a structural solution to U.S. losses" by March 6, according to the Morgan Stanley report.
DHL defends its U.S. business strategy. "While we can't respond to speculative reports, we have made a commitment to the U.S. market because of its importance to our overall global (DHL) Express strategy," spokesman Richard Gibbs said in an e-mailed statement. DHL's landlord at March Air Reserve Base, March GlobalPort, remains adamant that the shipper is committed to the area and job growth and dismisses the Wall Street analysts. "This is the plum. This is not going to happen again," said March GlobalPort investor Bob Wolf, president of Germania Corp. in Riverside. "I wholeheartedly believe in DHL and in this facility." "We have identified many millions of square feet of industrial space that are locating here with their accompanying jobs as a direct result of the proximity of DHL."
Riverside County Supervisor Bob Buster, a member of the March Joint Powers Commission and an outspoken critic of the DHL plan, said someone should have asked whether the shipper could compete in a market already dominated by UPS and FedEx, which use LA/Ontario International Airport, before it arrived in Riverside. Instead DHL was touted as "the biggest plum in 30 years," Buster said. It would be a magnet for other businesses. "Everything was all hinged around DHL," he said. Inland economist John Husing said it would be difficult to trace job growth in a region to one business.
"Certainly whether it's because DHL was there or because there's a lack of land along the (Interstate) 15, we've seen a relatively large employee base now being created," he said. "To some extent, DHL is probably a piece of that calculation." The nearby Meridian business park, developed by LNR property corporation and also overseen by the March Joint Powers Authority, is expected to generate 12,000 to 15,000 jobs with its eventual 12.2 million square feet of industrial and office space. "I can't point to any particular user that located at Meridian because of DHL. I'm sure some of them are using DHL's services. And others are probably using FedEx or UPS," said Michael Morris, LNR vice president of commercial development.
DHL, owned by German-based Deutsche Post, has spent billions of dollars to build up its domestic presence. Nonetheless, U.S. operations lost $900 million last year and analysts don't foresee a profit this year. DHL has one nightly international flight out of March to and from Hong Kong and has talked about adding another. Flights to Asia also come from Los Angeles and San Francisco airports as well as its Wilmington, Ohio, hub and New York's John F. Kennedy Airport.
Seven domestic flights take off from March nightly.
"The part that's killing them is domestic," said London-based Bear Stearns analyst Andrew Beh by phone. A Morgan Stanley analyst wrote in a Jan. 7 report that DHL's current situation is akin to the Daimler-Chrysler auto brand before Daimler let loose of its U.S. operations. Morgan Stanley foresees three possible solutions:
Deutsche Post should try to sell all of DHL Express or at least the U.S. operations to UPS, FedEx or the U.S. Postal Service
DHL could fly parcels in but contract delivery to FedEx, UPS or the U.S. Postal Service
It could reduce its footprint to metropolitan areas and either contract pickup and delivery in the rest of the U.S. to the three carriers or offer only international delivery.
The first two options are less likely, according to Morgan Stanley. In a November Goldman Sachs report, the firm said it was unlikely that DHL's U.S. operation was on track to perform well. "The weakness of (DHL in the U.S.) and management's failure to stand by earlier guidance that it would break even in 2009 make a major dent in that case," the report says.
Hard to Stay Or to Go
Beh of Bear Sterns said any DHL decision to quit domestic operations would be difficult. "Think of all the contracts they have with all the airlines, the unions, the customers ... there's so much to sort out let alone if they're going to be exiting anything," Beh said. The company has invested more than $3 billion in the U.S., with nearly half going toward infrastructure and distribution since 2003, Gibbs, the DHL spokesman, said in an e-mail statement. "Despite tighter economic conditions, our U.S. business continues to demonstrate improvements in its overall service levels and competitiveness," according to Gibbs.
Worldwide, the company has earned annual revenues of $80 billion. Gibbs said the company is dependent on the United States to serve its international customers in Canada, Latin America, Asia and Europe where the company has a strong presence. At Wednesday's monthly March Joint Powers Commission meeting, residents living in the flight path, who have vocally protested DHL's late-night jet noise, pointed to the financial reports as a reason for the March authority to cut ties with the shipper.
"DHL is hemorrhaging," said Catherine Barrett-Fischer, the group's leader. "We should help DHL get out of their contract." At the end of the meeting, the commission's chairman, Riverside Councilman Frank Schiavone, alluded to the noise problem by essentially saying it could cease someday without direct authority involvement if the financial reports hold true. "Things may take care of themselves," he said, adding, "$900 million is a tremendous loss for any company to sustain."
DHL Left Kentucky
Cincinnati/Northern Kentucky International Airport was once a DHL hub, operating with 1,800 employees and 10 times the number of planes as the Riverside operation. Then, DHL largely left in 2004. Now, the facility is used for storage and as a backup to DHL's Wilmington, Oh., hub. About 250 workers remain in the building DHL rents, airport spokesman Ted Bushelman said. The airport lost the landing fees it had been earning from DHL's daily flights and had to raise landing fees for all of the airport's airlines the next year. "It was a major hit," he said.
Commission Undeterred
Other members of the March Joint Powers Commission were less concerned by the analysts' opinions. "For DHL to pick up their bags and travel to their country is a business decision for them to make," Moreno Valley Mayor Charles White said. "It would appear to me that DHL has fully researched this before they came in here." Moreno Valley Councilman Richard Stewart, another commission member, said companies such as DHL expect to lose money for a certain amount of time when pitted against such formidable competitors as UPS and FedEx.
"I really think that there's such a wide range things of what could happen," he said. "If they did abandon ... what? Would they leave all of their yellow trucks in the parking lot?" Stewart said he is confident DHL has staying power at March Air Reserve Base but even the possibility that the company may leave could still bode well for the area because the facility could prove attractive to other shippers. "I feel pretty upbeat," he said. "It'd really be nice if we could find some operation that would intensify the daytime operations."
By the Numbers
$900 million
Amount DHL Express lost in the U.S. in 2007
About 350
People work at DHL's Riverside facility, which handles one international and seven domestic flights each night.
DHL will help create another
1,500 to 2,700 jobs in the area, according to estimates by DHL's landlord March GlobalPort
Sources: March JPA transcript, Morgan Stanley report and Bear Sterns report.
Analysts hand DHL bad new year's forecast
By Kimberly Pierceall,
Worldwide shipper DHL is doomed to fail in the United States unless it radically shifts its business model, two well-regarded investment firms say. Three years ago, the European-based corporation was lauded locally for bringing jobs and cache when it opened a western hub at the former March Air Force Base near Riverside. Now, Morgan Stanley and Bear Stearns separately contend that DHL could eventually contract out operations to competitors, abandon its domestic delivery routes or sell off its U.S. operations entirely. Facing U.S. operations that lost $900 million last year, the company's new chief financial officer has "indicated the group needs to have a structural solution to U.S. losses" by March 6, according to the Morgan Stanley report.
DHL defends its U.S. business strategy. "While we can't respond to speculative reports, we have made a commitment to the U.S. market because of its importance to our overall global (DHL) Express strategy," spokesman Richard Gibbs said in an e-mailed statement. DHL's landlord at March Air Reserve Base, March GlobalPort, remains adamant that the shipper is committed to the area and job growth and dismisses the Wall Street analysts. "This is the plum. This is not going to happen again," said March GlobalPort investor Bob Wolf, president of Germania Corp. in Riverside. "I wholeheartedly believe in DHL and in this facility." "We have identified many millions of square feet of industrial space that are locating here with their accompanying jobs as a direct result of the proximity of DHL."
Riverside County Supervisor Bob Buster, a member of the March Joint Powers Commission and an outspoken critic of the DHL plan, said someone should have asked whether the shipper could compete in a market already dominated by UPS and FedEx, which use LA/Ontario International Airport, before it arrived in Riverside. Instead DHL was touted as "the biggest plum in 30 years," Buster said. It would be a magnet for other businesses. "Everything was all hinged around DHL," he said. Inland economist John Husing said it would be difficult to trace job growth in a region to one business.
"Certainly whether it's because DHL was there or because there's a lack of land along the (Interstate) 15, we've seen a relatively large employee base now being created," he said. "To some extent, DHL is probably a piece of that calculation." The nearby Meridian business park, developed by LNR property corporation and also overseen by the March Joint Powers Authority, is expected to generate 12,000 to 15,000 jobs with its eventual 12.2 million square feet of industrial and office space. "I can't point to any particular user that located at Meridian because of DHL. I'm sure some of them are using DHL's services. And others are probably using FedEx or UPS," said Michael Morris, LNR vice president of commercial development.
DHL, owned by German-based Deutsche Post, has spent billions of dollars to build up its domestic presence. Nonetheless, U.S. operations lost $900 million last year and analysts don't foresee a profit this year. DHL has one nightly international flight out of March to and from Hong Kong and has talked about adding another. Flights to Asia also come from Los Angeles and San Francisco airports as well as its Wilmington, Ohio, hub and New York's John F. Kennedy Airport.
Seven domestic flights take off from March nightly.
"The part that's killing them is domestic," said London-based Bear Stearns analyst Andrew Beh by phone. A Morgan Stanley analyst wrote in a Jan. 7 report that DHL's current situation is akin to the Daimler-Chrysler auto brand before Daimler let loose of its U.S. operations. Morgan Stanley foresees three possible solutions:
Deutsche Post should try to sell all of DHL Express or at least the U.S. operations to UPS, FedEx or the U.S. Postal Service
DHL could fly parcels in but contract delivery to FedEx, UPS or the U.S. Postal Service
It could reduce its footprint to metropolitan areas and either contract pickup and delivery in the rest of the U.S. to the three carriers or offer only international delivery.
The first two options are less likely, according to Morgan Stanley. In a November Goldman Sachs report, the firm said it was unlikely that DHL's U.S. operation was on track to perform well. "The weakness of (DHL in the U.S.) and management's failure to stand by earlier guidance that it would break even in 2009 make a major dent in that case," the report says.
Hard to Stay Or to Go
Beh of Bear Sterns said any DHL decision to quit domestic operations would be difficult. "Think of all the contracts they have with all the airlines, the unions, the customers ... there's so much to sort out let alone if they're going to be exiting anything," Beh said. The company has invested more than $3 billion in the U.S., with nearly half going toward infrastructure and distribution since 2003, Gibbs, the DHL spokesman, said in an e-mail statement. "Despite tighter economic conditions, our U.S. business continues to demonstrate improvements in its overall service levels and competitiveness," according to Gibbs.
Worldwide, the company has earned annual revenues of $80 billion. Gibbs said the company is dependent on the United States to serve its international customers in Canada, Latin America, Asia and Europe where the company has a strong presence. At Wednesday's monthly March Joint Powers Commission meeting, residents living in the flight path, who have vocally protested DHL's late-night jet noise, pointed to the financial reports as a reason for the March authority to cut ties with the shipper.
"DHL is hemorrhaging," said Catherine Barrett-Fischer, the group's leader. "We should help DHL get out of their contract." At the end of the meeting, the commission's chairman, Riverside Councilman Frank Schiavone, alluded to the noise problem by essentially saying it could cease someday without direct authority involvement if the financial reports hold true. "Things may take care of themselves," he said, adding, "$900 million is a tremendous loss for any company to sustain."
DHL Left Kentucky
Cincinnati/Northern Kentucky International Airport was once a DHL hub, operating with 1,800 employees and 10 times the number of planes as the Riverside operation. Then, DHL largely left in 2004. Now, the facility is used for storage and as a backup to DHL's Wilmington, Oh., hub. About 250 workers remain in the building DHL rents, airport spokesman Ted Bushelman said. The airport lost the landing fees it had been earning from DHL's daily flights and had to raise landing fees for all of the airport's airlines the next year. "It was a major hit," he said.
Commission Undeterred
Other members of the March Joint Powers Commission were less concerned by the analysts' opinions. "For DHL to pick up their bags and travel to their country is a business decision for them to make," Moreno Valley Mayor Charles White said. "It would appear to me that DHL has fully researched this before they came in here." Moreno Valley Councilman Richard Stewart, another commission member, said companies such as DHL expect to lose money for a certain amount of time when pitted against such formidable competitors as UPS and FedEx.
"I really think that there's such a wide range things of what could happen," he said. "If they did abandon ... what? Would they leave all of their yellow trucks in the parking lot?" Stewart said he is confident DHL has staying power at March Air Reserve Base but even the possibility that the company may leave could still bode well for the area because the facility could prove attractive to other shippers. "I feel pretty upbeat," he said. "It'd really be nice if we could find some operation that would intensify the daytime operations."
By the Numbers
$900 million
Amount DHL Express lost in the U.S. in 2007
About 350
People work at DHL's Riverside facility, which handles one international and seven domestic flights each night.
DHL will help create another
1,500 to 2,700 jobs in the area, according to estimates by DHL's landlord March GlobalPort
Sources: March JPA transcript, Morgan Stanley report and Bear Sterns report.