The 800lb (yellow) Gorilla is knocking at the door




Deutsche Post World Net, trying to break free of its reputation as a German postal monopoly first and an international logistics company second, is undergoing a massive restructuring and re-branding its express and logistics units under the DHL moniker.

The plan, dubbed the "STAR value creation program" is expected to cost a whopping $800 million but also to boost earnings by 40 percent by 2005 to more than $3 billion.

The re-branding initiative comes as no surprise as Deutsche Post World Net has made it no secret that it wants to be a global force and, while Danzas is a well-known entity in heavy freight circles, DHL has the greatest brand recognition.

"We want DHL to stand for a promise of uniform service quality for our customers worldwide. We intend to become the number one logistics provider in the world, with a single brand, a single administrative center and a single management team," said DPWN Chairman Klaus Zumwinkel.

Deutsche Post has its work cut out. The company's $6 billion buying spree over the last few years has largely created a group of companies without a lot of interplay. The STAR program is designed to change that. Today, DHL and Danzas run completely separate operations. They will remain separate companies.

While the STAR initiative began last February, the real work won't start until January and the name changes won't take effect until April. Beginning April 1, Danzas/AEI Intercontinental (the international freight forwarding operation) will become DHL Danzas Air and Ocean, eliminating AEI and effectively burying the Danzas name in favor of DHL.

Deutsche Post enlisted 150 executives across all its companies to pinpoint ways to work together, increase revenue and shave costs. The executives have formed 17 STAR-related working groups and identified 115 projects contributing to the "one brand, one face to the customer" initiative.

Like the "operate independently, compete collectively" philosophy at FedEx, born out of the Arise work, and UPS's Supply Chain Solutions division combining sales and marketing efforts of all non-package activities under one umbrella, Deutsche Post hopes to leverage the name recognition of DHL to win more business across all product lines.

The STAR program is very much a work in progress. There are a number of initiatives already under way to eliminate costs to the company and make doing business easier for the customer. All European trucking operations are going to be centralized under DHL in Brussels, with Danzas Eurocargo moving over to DHL.

Today six different cross-border trucking operations operate within Europe in addition to a number of country-specific networks. The plan is to create a single integrated European network. DPWN anticipates the change will add nearly $130 million to net profit in two years. DHL's and Danzas' logistics operations will be melded together under the name of DHL Solutions, also headquartered in Brussels. Danzas' Swiss headquarters in Basle is going to be downsized with a number of jobs moving to Brussels. The company is not ready to estimate how many layoffs there will be because of the restructuring. The non-European operations of Danzas are not expected to be affected by the restructuring, leaving Danzas and DHL separate entities with completely separate management in the United States for now.

"I am convinced that intensive cooperation within the group is the only solution for the future," said Renato Chiavi, head of DHL Danzas Air and Ocean. "But I am also aware that this is a very trying moment for our people. Some will be confronted with the need to move. For all of us, the nearly complete disappearance of the traditional Danzas brand name is very sad indeed - even though we know that the worldwide DHL brand provides a strong basis for continued growth in this hard-fought market. For many of our people, too, attractive new opportunities will arise within a fascinating group."

In addition to restructuring trucking and logistics operations, Deutsche Post plans to centralize all worldwide purchasing from air transportation to computer networks. Of the company's $15.6 billion in purchases, more than half is transportation. The plan is to create a purchasing organization to buy transportation according to binding standards across all modes for all businesses. The effort is expected to shave $200 million in costs by 2005. In Europe alone, the company sees immediate savings by shifting Danzas' overnight freight to available space on DHL's fleet of Airbus aircraft. DHL has enough available lift to carry most of the overnight freight that Danzas now is spreading among a number of passenger and freight carriers flying within Europe.

DHL and Danzas also plan to harmonize product portfolio and get rid of redundant services. With a joint product portfolio, DHL plans to offer about 10 overnight and deferred air products rather than the 40 that are being sold today. As at FedEx's Arise, a big focus of the program will be cross training sales associates to sell multiple product lines. How and when this will be achieved is unclear.

"Nothing is starting until January but we are going to present one face to the customer. I'm just not sure how it will be achieved," said Danzas spokesperson Candace Bouchard. "We are already doing those things. We sell all services right now. It's just being more formalized. Many customers are already using both services. This is not a shock." Information technology is another area of focus. The plan is to take all of its regional IT activities, including 18 large data centers, servers in 290 different locations and 2,500 databases, and combine them into three or four global sites. The company estimates the IT initiatives will cut $50 million in costs. Analysts are taking a wait-and-see attitude on whether Deutsche Post will achieve the ambitious goals it set out for the next two years. The company wants to complete 25 percent of the changes in 2003, 50 percent in 2004 and be finished with the integration by 2005.

"It sounds like an awful lot of money. They are obviously fixing other parts of Deutsche Post and still cleaning up the AEI and Danzas acquisitions," said Arthur Hatfield, analyst with Morgan Keegan in Memphis. "There aren't assets to re-brand to a big degree. DHL leases most of its aircraft. It's just a lot of signage trucks. No matter what they are doing, it still sounds high." The idea is a good one, though, if it works as well as FedEx's Arise, which cost about $110 million - $50 million for branding and $60 million in organizational changes. "Arise was an absolute success. It made it much easier for customers to deal with FedEx," said Hatfield. "The ability to co-market all of its products has been immensely successful. You'd be hard-pressed to find anyone who said that it didn't meet or exceed expectations."

The difference between Arise and STAR is that Deutsche Post is more focused on getting rid of redundancies and cleaning up operations. FedEx was focused on enhanced revenue growth, and invested capital and people in the effort, Hatfield said. "Business initiatives that focus first on growing the top line are much better for the long term. Expense fixes are just short-term solutions."