DHL, FedEx, and UPS: Shifting Fortunes in the Global Logistics Services Industry

In 2009, DHL ended its domestic air express service in the United States. In addition to requiring the abandonment of a massive sorting facility and dozens of brightly colored jumbo aircraft, the pullback put 9,500 U.S. employees out of work. DHL's troubles in the United States resulted from a declining market for express packages and inability to compete with rivals FedEx and UPS. Although DHL still offers U.S. customers international package services, its status as the world's largest logistics facilitator remains in doubt. When Adrian Dalsey, Larry Hillbolm, and Robert Lynn founded DHL as a door-to-door delivery service between San Francisco and Honolulu in 1969, no one imagined the business would evolve into an international express delivery group linking 120,000 destinations in more than 200 countries. Now owned by the German company Deutsche Post World Net, DHL offers express services, international air and ocean freight, contract logistics, and various value-added services. Despite failing to maintain its solid U.S. presence, the firm remains the market leader for courier express delivery in Europe and Asia.

Global Supply-Chain and Logistics Industry

The supply-chain and logistics industry includes companies that move raw materials, finished goods, packages, and documents across the globe. Four major trends have changed it dramatically since the 1970s-globalization, deregulation, digitization, and outsourcing. The massive increase in international trade has increased the complexity of corporate supply chains. MNEs and other internationalizing firms require speed and efficiency in moving goods through supply chains around the world. To address this need, specialized logistics service providers like DHL, UPS, and FedEx organize, coordinate, and control supply chains through a global presence and skillful use of leading-edge technologies. These facilitating firms control thousands of trucks and aircraft, sophisticated information tracking systems, and global networks of offices and warehouses. Collectively, logistics service providers represent an industry unto themselves, generating over $800 billion in revenues in 2009.

Global Competitors Globally,

DHL competes with other large logistics companies such as UPS, FedEx, and TNT. Founded in 1907, United Parcel Service (UPS) is one of the oldest competitors. Its primary business is delivering packages and documents worldwide. UPS also provides global supply chain services. FedEx oversees a vast empire, providing transportation, e-commerce, and business services in the United States and abroad. Although a relatively young firm, FedEx experienced rapid growth and is now one of the top three logistics providers worldwide. Founded in Australia, TNT began acquiring interests in other companies, which helped it grow into a large multinational firm. TNT acquired twenty-five companies in the nine years through 2008 alone.

Global Positioning

In the courier, express, and parcel market, DHL International is the leader in Europe, thanks to its efficient national express networks, served by company-owned vehicles. DHL is also the leader in China and Japan and holds 35 percent market share of the international express segment in the Asia Pacific region. In 2005, it acquired a controlling interest in the Indian express company, Blue Dart, strengthening its ability to serve customers in India and China. DHL is now the global leader in airfreight, offering those services in regions not covered by competitors via its extensive air and freight network. DHL is the leading provider of ocean freight and contract logistics. But express delivery is a low-margin business, and logistics services providers increase profits by adding higher-value services such as door-to-door logistics management across networks of corporate value chains. DHL targets its services to industries with enormous global logistical needs, like the automotive, pharmaceutical, electronics, consumer goods, and fashion industries. When such contracts are signed, they are long term, on average three years in length. Recent investments have allowed DHL to provide warehousing and warehouse transportation services to clients as diverse as BMW, PepsiCo, Unisys, Electrolux, and Deutsche Telekom.

DHL's Experience in the United States

The United States represents 35 percent of the global logistics market. Over one-third of all global Fortune 500 companies are headquartered in the United States, and countless key decisions about global logistics and transport orders are made there. The market is intensely competitive and concentrated, with the top five competitors controlling nearly half of it. The largest sector is ground courier service, worth about $30 billion annually and dominated by the U.S. Postal Service. DHL management badly wanted to conquer the United States but could not compete in a market thick with contenders. Despite performing well in Canada and Mexico, DHL won only a number-three position in the United States, following FedEx and UPS. Its strategy was to focus on small and medium-sized firms. To this end, the firm spent $1.1 billion to acquire Airborne Express, once the number-three U.S. express service. But because jet airliners consume so much fuel, rising petroleum prices shifted market demand toward ground transport. DHL's reliance on Airborne's air transport network hurt its ability to attract customers who increasingly preferred to send parcels overland. DHL next sought to restructure itself, cutting operations and many services by one-third. But this move alienated customers, many of whom switched to FedEx or UPS. DHL's problems were further aggravated by the economic downturn that began in 2008. Squeezed by mounting losses, management decided to pull the plug on DHL's U.S. operations but maintain its U.S. Global Mail Division. An important lesson from DHL's U.S. experience is how difficult it is for a firm to grow in a slow market. It cannot be done without stealing market share from someone else. DHL's withdrawal leaves some 3 percent of the U.S. ground express market and 8 percent of the air parcel market-over $3 billion in business-up for grabs.

Challenges in the Global Recession and Financial Crisis

A slowing global economy portends declining profits for many firms. Already operating on slim margins, facilitators are vulnerable. Retailers are cutting inventories and pressuring facilitators to cut the cost of delivering goods. The collapse of such retailers as Circuit City, Woolworths, and Wise Stores imply tumbling revenues for logistics firms as well. In 2009, both FedEx and UPS reported sales declines and dramatic falls in international shipping, mostly in air freight. Economic challenges like these compel delivery and logistics firms to rethink internal processes, cut costs, and seek alternative revenue sources. Some are cutting services to certain geographic areas, laying off workers, and refocusing on value-added portions of the business. Global logistics providers are struggling to find the right balance between running lean operations during hard times and gearing up for new business as the global economy improves.

1. Describe the various services provided by logistics service providers. What is the role of these services in focal firms' value-chain activities?

2. Supply-chain management has evolved over time, largely due to globalization and technological advances. What does the future hold? Can you anticipate changes to the supply chain that would further alter the express and logistics industry?

3. What factors do focal firms consider when choosing one logistics service provider over another? In what ways do the global logistical and transportation needs of focal firms vary from one industry to another? Give some examples.

4. Given the importance of the U.S. market in the global express industry, should DHL reconsider its decision to withdraw from this segment? Lacking a significant presence in the United States, what should DHL management do to grow the firm and improve earnings?

5. What strategies should facilitator companies such as DHL, UPS, and FedEx implement during an economic recession? What steps can they take to ensure their survival, while remaining prepared for the upsurge of new business once the economy improves? Have they overlooked the fast-growing emerging markets?