DHL in $1-billion outsourcing deal with global rival UPS

29 May 2008

Two of the biggest names in the logistics and carrier industry have just signed a deal, which, even though not quite combining operations will enable one to use another's localized expertise to deliver better service. The two players in the deal are United Parcel Service (UPS) and DHL, owned by Deutsche Post.

UPS said that it was working towards an agreement to provide air transportation services for all of DHL express, deferred and international package volume within the US but not freight. UPS also would provide air lift for DHL packages between the US, Canada and Mexico.

Atlanta-based UPS says it will begin phasing in a limited amount of DHL business this year, with ramp-up expected in the second half of 2009. UPS and DHL will retain their own brands under the deal, while DHL will have a single airline partner in the US.

UPS said the contract will mostly involve the transport of DHL packages between airports in North America but not the pickup or delivery of DHL packages to customers. UPS said the deal is similar to its existing agreement with the US Postal Service.

UPS expects to have the contract wrapped up by the end of 2008. The deal will likely be for 10 years and could generate up to $1 billion in revenue, UPS said.

"We believe this arrangement with DHL would represent a wise use of our assets and network capacity while creating a substantial and profitable revenue stream for our company," said David Abney, UPS chief operating officer. "We plan to move forward quickly on the final contract."

However, he was quick to allay any doubts of a non-competitive arrangement, and asserted that there would be no dilution of brand value.

"We want to emphasise that this would be a relatively straightforward air lift agreement and that UPS and DHL will continue to compete in the marketplace under their own brands," Abney said. "UPS brings to customers its own unique value proposition. By providing these services to DHL, UPS will not be diminishing its competitive position or ability to differentiate itself with customers."