Week of July 5, 2004
  Blockbuster Deal
   from Site Selection's exclusive New Plant database

With its expansion, DHL hopes to increase its share of total U.S. market revenues to 15 percent within five to seven years.

Express Expansion:
DHL Spending
$1.2B to Bulk
Up U.S. Presence
By JACK LYNE, Site Selection Executive Editor of Interactive Publishing

PLANTATION, Fla. –Brussels-based DHL (www.dhl.com), looking to speed up the delivery of more U.S. business, has announced a US$1.2-billion expansion of its North American operations.
        The company's plan includes creating seven new U.S. regional sorting centers before the end of the year, DHL Express Americas CEO John Fellows said at the company's North American headquarters in Plantation, Fla., part of the Orlando metro. Those additions will increase U.S. ground-delivery capacity by 60 percent for the subsidiary of Bonn, Germany-based
Deutsche Post AG (www.deutschepost.de).
        In addition, DHL plans to add another five package-sorting centers sometime after 2005, Fellows explained. Together, the 12 new centers will create between 360 and 600 new jobs. The U.S. expansion program will also upgrade DHL's 12 existing hubs and its information technology infrastructure, he noted.
        DHL's new designs on North America also include consolidating its 1,200-employee air hub operation at the Greater Cincinnati/Northern Kentucky International Airport into another existing hub at the Wilmington Air Park in Wilmington, Ohio (www.ci.wilmington.oh.us), some 46 miles (74 kilometers) northeast of Cincinnati. The Ohio consolidation will create 600 new full-time jobs and 300 part-time jobs.
        "With this expansion, we are delivering on our promise to fully integrate our network operations and solidify DHL as a competitive force in the U.S. marketplace," Fellows said.

2003 Airborne Acquisition Jump-
Started DHL to No. 3 U.S. Position
Last year, DHL suddenly became a substantive player in the $50.2-billion U.S. air- and ground-parcel-delivery market.
       The company bought Seattle-based Airborne Express for $1.05 billion in April of 2003. With that acquisition and subsequent merger, DHL's U.S. market share immediately leapfrogged to 5 percent, making it the No. 3 American player.
       "Since DHL's merger with Airborne last year, we've integrated almost all air and ground operations and dramatically improved transit times," Fellows explained.
       DHL's North American expansion is designed to grab a far larger share.
       "These additional investments in our domestic network will provide our customers with a more complete and robust delivery platform, leading to greater competition and improved services in the U.S. market," said Fellows.
DHL plans before the end of the year to
create seven new U.S. regional sorting centers like the one pictured above.

       The expansion, Fellows added, will provide U.S. customers with a strong alternative to Federal Express and United Parcel Service, the American market's Big Two. Atlanta-based UPS controls some 50 percent of the U.S. air and ground market, while Memphis-based FedEx holds some 25 percent.
       DHL's annual share of total U.S. market revenues ranges between 6 percent and 8 percent. With its expansion, the company plans to increase its revenue share to 15 percent within five to seven years, he explained. But DHL won't try to increase revenues by getting into a U.S. price war with UPS and FedEx, Fellows added.
       The DHL Express Americas' CEO offered no hints of where the company's new sorting centers might be located, saying only that they would be sited "throughout the United States." Each center will employ 30 to 50 workers, he explained.

Airborne Buy Created Redundant Hubs
The Ohio hub consolidation will be the expansion plan's largest job generator.
       DHL owns the Wilmington Air Park, which it acquired when it bought Airborne Express. The Ohio site currently houses 6,000 employees, who work at a central sorting hub and an aircraft maintenance facility.
HL decided to expand its operations at Greater Cincinnati/Northern Kentucky International in 1998, building a $210-million processing facility (pictured) in Erlanger, Ky.

       Airborne had purchased Clinton County Air Force Base in 1980, following the U.S. Department of Defense's decision to close the facility in 1971. That buy created the largest privately owned airport in the U.S. Subsequently, Airborne converted the base, making it the centerpiece in its hub-and-spoke U.S. distribution system.
       DHL's merger scenario created an obvious operational inefficiency. The company had two major hubs only about 50 miles (80 kilometers) apart.
       DHL had been considering which hub to close for more than in year. Both Kentucky Gov. Ernie Fletcher (R) and Ohio Gov. Bob Taft (R) got personally involved in trying to convince the company to consolidate within their states.
       DHL had expanded its operations at Greater Cincinnati/Northern Kentucky International in 1998. The express-mail company built a new $210-million processing facility in Erlanger, Ky.
       Kentucky won that expansion over airports in Columbus, Ohio, and Peoria, Ill., DHL officials said at the time. State and local development agencies provided the company with $41 million in incentives in 2002 to build a cargo apron in Kentucky.

Owned Airport, $422 Million in
Incentives Steered Hub to Ohio
This time around, Ohio offered DHL an incentive package that was valued at more than $422 million.
       State subsidies include $300 million in tax-exempt bonds. Those state-backed bonds allow DHL to secure lower-than-normal interest rates. DHL's assistance includes another $122 million in tax incentives and roadwork. One of those roads is a bypass around Wilmington that Clinton County was already planning. The Ohio Department of Transportation will now take over bypass design and construction. In exchange for the state's aid, DHL committed to create 600 full-time and 300 part-time jobs while investing at least $295 million in the Wilmington hub.
       Kentucky officials haven't divulged what incentives the state offered DHL. But the company's Ohio airport ownership may have been the Buckeye State's most persuasive enticement. Compared to the Erlanger facility, the Wilmington operation will handle seven times more package volume, three times more weight and three times the number of aircraft, said Steve White, DHL senior vice president for hubs and gateway operations.
One of Ohio's major draws was the Wilmington Air Park (pictured), the largest privately owned airport in the U.S. The company acquired the airport when it bought Airborne Express last year for $1.05 billion

       Locating at the Wilmington airport will also free DHL from sharing runways with other organizations' planes, as well as paying airport fees. Last year, the company paid Greater Cincinnati/Northern Kentucky International $2.2 million in landing fees. In addition, DHL will have less stringent noise regulations at the private airport.
       But the company isn't closing its Kentucky operation. Some 300 full-time workers will remain at the site, which will serve as a "back-up hub," DHL officials said. About 800 part-time positions will be eliminated through attrition over the next 18 months, they added. The sorting center's part-time staff currently has an annual turnover rate of about 40 percent.
       DHL said it will also pay off the $230 million in bonds that Greater Cincinnati/Northern Kentucky International issued on the company's behalf in 2002.
       The consolidation won't come cheaply, costing DHL about $350 million altogether, said company officials. But keeping both nearby hubs in operation, they added, was costing the company about $160 million a year.
        Worldwide, DHL employs some 170,000 workers in 228 countries.

Deutsche Post Shuffling Operations
To Prepare for End of German Monopoly
DHL's U.S. push comes as parent Deutsche Post AG is in the midst of a reorganization. The reshuffling comes as Europe's largest postal service is preparing for the loss of its German mail monopoly at the end of 2007.
       The company's reorganization, which began this year, has involved spending $6 billion thus far on non-German acquisitions. Deutsche Post in June also sold slightly less than half of its Postbank retail-bank business, raising $1.8 billion from the sale.
       Shedding jobs is another part of the reorganization. Deutsche Post announced on June 24th that it will cut about 1,600 current positions as part of combining three of its German logistical units into DHL's courier division. Those jobs are being eliminated because of consolidation-created role duplications, Deutsche Post officials said. The cutbacks will be the German company's first in 10 years.
       Deutsche Post's reorganization is scheduled for completion next year.

Editor's note: Watch for more news like this in the September Site Selection's logistics coverage, which will include more details on DHL's big North American expansion.



bd0621bbd0621b ©2004 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.