Deutsche Post restructuring to challenge UPS, FedEx




Klaus Zumwinkel, chief executive of the German postal monopoly, on Thursday said the program was the "logical conclusion" to its recent multi-billion dollar strategy to establish a European express business and build a global logistics network.

"This is the decisive step towards making Deutsche Post World Net the global number one logistics provider," the partially privatized company said in a statement.

Deutsche Post has spent more than $6 billion in the past several years to acquire major transport companies, including Danzas, one of Europe's biggest freight forwarders, and Air Express International, the largest U.S. air forwarder. But the failure to integrate its far-flung empire has hurt efforts to offer shippers sophisticated higher-margin services.

The move, to take effect in April 2003, is likely to provoke even fiercer global competition with archrivals UPS and FedEx, whom Deutsche Post is challenging in Asia, Europe and the U.S. Early next year, DHL will launch a deferred ground service in the U.S., a high-growth sector for FedEx, although the Memphis-based express provider still trails far behind UPS, the historic leader in domestic ground shipments.

The restructuring program, called STAR, will cost 800 million euros, and is aimed at cutting costs by streamlining activities such as accounting, purchasing, and back office operations while using the group's transport capabilities more effectively. Deutsche Post said the restructuring will not affect the bottom line as it will be offset by negative goodwill at Postbank, Deutsche Post's financial unit.

The company said the plan will drive net operating profit from a forecast $2.17 billion in 2002 to $3.06 billion by 2005.

Deutsche Post currently owns 75 percent of DHL and has reached agreement to acquire the remaining 25 percent for around $395.5 million by the end of the year.

Deutsche Post on Thursday said operating profit fell around 3 percent to $448.8 million in the third quarter, taking profits for the first nine months to $1.78 billion.

As part of the restructuring, Danzas AEI Intercontinental, the mega-forwarder and logistics division created by the merger of Danzas and AEI, will operate as DHL Danzas Air & Ocean.

Danzas Group Chief Executive Renato Chiavi will lead DHL Danzas Air & Ocean, to be headquartered in Basel, Switzerland. But that office will be downsized as other Danzas functions are transferred to Brussels, DHL's headquarters. Brussels will serve as the home for the other three DHL units -- DHL Express, DHL Freight and DHL Solutions. Danzas Eurocargo will be integrated into DHL Express and DHL Freight and Danzas Solutions into DHL Solutions.

"DHL Danzas Air & Ocean will offer greater capabilities than the old Danzas did before it was taken over by Deutsche Post," Chiavi said.

The reorganization is not expected to have a significant effect on Danzas operations in the U.S. "We now project ourselves as a single brand. There's no change in structure," said Hans Toggweiler, president and chief executive of Danzas AEI North America, based in Newark, N.J.

DHL has already begun shifting its U.S. sales, marketing and operations staff from San Francisco to Fort Lauderdale, Fla., its headquarters for Latin America.

In rapidly-growing Asian markets, all three integrators have expansion plans, but none bigger than DHL. On Oct. 2, it signed an agreement with Hong Kong International Airport to develop a vast express cargo terminal, and one week later announced a joint venture with Cathay Pacific Airways designed to enhance its intra-Asia services.

For their parts, UPS and FedEx are expected to gain the right to significantly expand their intra-Asia and Asia-Europe services under a new bilateral aviation agreement between the U.S. and Hong Kong reached earlier this month.