Thinking out loud on DHL and asking a few QQ's

[Bob Dylan]

Hey Shooter. I'm not trying to be offensive. I just thought that the research note today was relevant to the discussion, as it seems to me that this investment house expects DHL to pull out, and even if there is some sort of deal in the works with UPS, it is likely almost 50% smaller.

I honestly don't know what to make of this research note regarding whether the UPS/DHL deal is still on or not.

I think maybe the deal is still on, but it is much smaller, but possibly according to this note, DHL is expected to pull out of the USA in less than 2 weeks.

Is that how you read this?

 

[shooter]

Hey Shooter. I'm not trying to be offensive. I just thought that the research note today was relevant to the discussion, as it seems to me that this investment house expects DHL to pull out, and even if there is some sort of deal in the works with UPS, it is likely almost 50% smaller.

I honestly don't know what to make of this research note regarding whether the UPS/DHL deal is still on or not.

I think maybe the deal is still on, but it is much smaller, but possibly according to this note, DHL is expected to pull out of the USA in less than 2 weeks.

Is that how you read this?

Very possible, but I read it as speculation since DHL has lost so many customers. And we really don't know what the details of the UPS agreement were, and thats where the devil is. It takes money for UPS to take aircraft (their old ones parked or new ones to come on line) for this deal to be possible. And I am sure UPS said that is not their problem. So, UPS needs a certain amount of DHL product to make it worth the time and effort of UPS. Lets use 1 million pieces a day as an example. For 1 million pieces (plus) a day the deal costs DHL x amount per piece. We believe that amount to be about $1 billion/year for UPS. Now that there has been a mass exodus of customers say the DHL volume is now 500,000 pieces per day to move on the UPS system. That price should be 2x per piece in order for it be worth while for UPS. Does DHL want to pay 2x now that the customers have gone?

Like I said, it is all speculation since nothing has been revealed. But if I were UPS, that is how I would work the deal to make sure it is worth the money it will cost me. I hope I explained that well.

 

[Fly Astar Jets]

...I think maybe the deal is still on, but it is much smaller, but possibly according to this note, DHL is expected to pull out of the USA in less than 2 weeks.

Is that how you read this?

I know this question was not directed toward me, but I'd like to opine.

I don't read this as you do Bob. When this Report refers to a USA "pullout" they are talking about ceasing US ground ops and shedding of domestic only contracts as evident by this statement ( but badly written ) from the report:

"... we also see an equally
strong possibility now that DHL just shuts down its domestic operation and
pulls out of the U.S. back to its pre-Airborne 2002 import/export-only days."

"pulls out of U.S." and "back to it's pre-Airborne 2002" statements are contradicting. Pre-Airborne, DHL operated 40+ aircraft out of CVG in support of it's "import/export-only days". Hardly a non USA presence. A better way to make this statement would be: "...we also see an equally strong possibility now that DHL just shuts down it's domestic only operations and operate as it had done pre-Airborne 2002 import/export-only days.

Now the one billion dollar question for us and UPS is, does DHL operate as it had done pre-Airborne 2002 with it's own air network ( as it had done for 30+ years ) or does it go with farming it out to UPS and lose control of it's product as it does so.

Respectfully,
FAJ

 

[shooter]

DHL board meeting.

http://i.pbase.com/o6/06/642806/1/70625197.GsvSHKoG.DSC_00621.JPG

 

[fodc8]

This came out today. Sounds like the deal is changing.

ATLANTA -

UPS Inc.'s third-quarter profit fell nearly 10 percent despite a rise in sales, the world's largest shipping carrier said Thursday as it warned that it faces more challenges ahead, job cuts may be on the horizon and the "scope and the size" of a deal it is working out to carry some packages for rival DHL could change.
UPS also is working out a contract to carry some air packages for DHL, the struggling U.S.-based express shipping unit of German postal service Deutsche Post AG. UPS, when it announced the proposed collaboration on May 28, predicted that the deal, when completed, would add up to $1 billion in annual revenue for the company.
But UPS Chief Executive Scott Davis said Thursday that the impact of the economic downturn and customer reaction to DHL's downsizing in the U.S. could change things.
"The scope and the size of that deal could change," Davis said. He did not elaborate.
UPS hopes to complete its vendor agreement with DHL by the end of the year. The potential deal has drawn criticism from officials in Ohio, where thousands of jobs could be lost if DHL proceeds with its plan to shift business away from its current two air vendors to UPS. Officials at UPS have defended the deal, insisting that it is not a merger and will not lessen competition.

 

[Big Beer Belly]

UPS Releases 3Q Results

UPS today said its third-quarter net income fell to $970 million, or 96 cents a share, from $1.08 billion, or $1.02 a share, from the year-ago period. On an adjusted basis, which excludes the impact of the supply chain & freight segment restructuring charge, it earned $1.05 a share. Revenue rose to $13.11 billion from $12.21 billion.
Analysts, on average, expected it to earn 89 cents a share on revenue of $13 billion, according to FactSet Research.
"UPS managed the business well in this very tough economic climate," said Scott Davis, UPS's chairman and CEO (right). "We continue to see growth in our international and supply chain businesses while maintaining our focus on cost control and revenue management throughout our organization. UPS also is investing to ensure growth in the future so that the company will be even stronger when the global economy rebounds."
CFO Kurt Kuehn added, "Based on economic forecasts, we anticipate a challenging environment for a number of quarters going forward. We believe the U.S. consumer will be very conservative with spending this year."
The Company said it still expects 2008 earnings per share should be toward the lower end of the $3.50 to $3.70 a share range that it provided mid-year. Analysts were expecting a profit for the year of $3.57 a share.

 

[Big Beer Belly]

With the US being such a high volume international product territory with over 50% of the DHL international product, do you think they will have any customers since their packaged product no longer includes the US domestic deliver network?

This is not the same playing field DHL had 10 years ago. If their intention is to try and "do what they did before the Airborne purchase", do you really think they have a product that can outperform and undercut UPS and FedEx with their growing international presence?

Greetings Shooter,

I think DHL will retreat to the "pre Airborne purchase" business model of servicing only import/export volume (i.e., intl only.) I believe they've either stated as much... or definitely telegraphed that message loud and clear. Why that message is being received "muted" or "fuzzy" is unclear to me.

Anecdotal evidence only... but my conversations with a few managers lately indicate UPS is INCREASING volume (at least in certain regions) in the midst of a severe economic downturn. I can only surmise it is former DHL clients abandoning ship. DHL must have anticipated the loss of customers an announcement of this magnitude would entail (switching to UPS) and I believe they are entirely comfortable allowing their domestic business to atrophy to the competition. Their goal is to service import/export only and get out of the ultra-competetive (read: money losing) domestic US market.

I'm sure UPS quickly ascertained that either way they would gain market share and new business. I'm confident UPS (and DHL!) assumed from the beginning of negotiations that DHL's volume would be half (or less) when the negotiations (election) conclude. The "reporters" are just now catching up (what a shock!)


BBB

 

[FO 4 Life]

And only 2 with their own lift at that point. God I miss those 72s with the big eagle on the tail.

Longhorn or Ryan? Or just like the look?

 

[shooter]

Greetings Shooter,

I think DHL will retreat to the "pre Airborne purchase" business model of servicing only import/export volume (i.e., intl only.) I believe they've either stated as much... or definitely telegraphed that message loud and clear. Why that message is being received "muted" or "fuzzy" is unclear to me.

Anecdotal evidence only... but my conversations with a few managers lately indicate UPS is INCREASING volume (at least in certain regions) in the midst of a severe economic downturn. I can only surmise it is former DHL clients abandoning ship. DHL must have anticipated the loss of customers an announcement of this magnitude would entail (switching to UPS) and I believe they are entirely comfortable allowing their domestic business to atrophy to the competition. Their goal is to service import/export only and get out of the ultra-competetive (read: money losing) domestic US market.

I'm sure UPS quickly ascertained that either way they would gain market share and new business. I'm confident UPS (and DHL!) assumed from the beginning of negotiations that DHL's volume would be half (or less) when the negotiations (election) conclude. The "reporters" are just now catching up (what a shock!)


BBB

Well BBB, it must only be muted or fuzzy to you. The question I have is what their chances of surviving that kind of business move are. My guess is slim to none. Let me grab a quote from your earlier post...

"UPS managed the business well in this very tough economic climate," said Scott Davis, UPS's chairman and CEO (right). "We continue to see growth in our international and supply chain businesses while maintaining our focus on cost control and revenue management throughout our organization. UPS also is investing to ensure growth in the future so that the company will be even stronger when the global economy rebounds."

If DHL expects it be just the $300 million loss company it once was, I laugh. Like I stated in an earlier post, this not the market DHL once had 10 - 15 years ago. UPS and FedEx have been growing their international presence strong and to not be in this market but as they once were is so foolish I am at a loss for words (but you can look at the DHL board meeting post for an answer). Since DHL is he77 bent to screw their company no matter which way they give their business away....good luck to everyone this will impact.

EDIT:
Please explain how you think the elections would have any impact for this decision or announcement? The horse is out of the barn, buddy. An election date is just that, a date on the calendar.

 

[Big Beer Belly]

Shooter... you seem a bit testy or perhaps have had a few drinks? :beer:

Either way... here goes... DHL (in spite of your wishes to the contrary) will survive just fine with an import/export only US presence. The majority of their revenue is derived outside the US, though half of it originates/terminates in the US. Your "feelings" not withstanding, DPWN believes they'll prosper just fine under this arrangement.

As far as the election and why I brought that up? You're kidding, right? Please say you're not so naive? It's common knowledge the DHL/UPS agreement has been concluded for some time now. The anti-trust rah-rah crowd and its political hacks can't take a peek until the agreement is formalized. Let's see now... Ohio is infested with enough socialist whack-jobs to make it a "battleground state" (embarrassing but true), so the agreement won't be "announced" till after the election when no one outside Ohio will give a hoot what happens with this vendor change. Comprendo ahora?

Ay caramba!

Buenos Dias Amigo!

BBB