key development in supply side
one of the biggest events in the express parcels sector of the past decade was DHL's ill-fated venture into the US domestic market. Such was the magnitude of the losses involved that it is worthy of a section in its own right.
The episode has shown up many of the difficulties of breaking into a mature market already dominated by two strong players-UPS and FedEx
Back in March 2003,as part of its global expansion strategy,DHL bought the ground operations of the US's third-largest parcel
carrier, Airborne Express, for$ 1.05 billion. The air operations were spun off due to regulatory reason.The acquisition was fought tooth and nail by USP and FedEx,who tried to block the deal in the courts while at the same time vigorously lobbying Washington.
DHL carried on in the face of this opposition. Management said that the company could not claim'global leadership' until it succeeded in the United States . However, losses were heavy right from the start , despite the integration of DHL and Airborne and attemts to cut costs. Operational issues impacted upon DHL's attempts to be seen as a low-cost alternative to UPS and Fedex , and the company started to lose market share ,from around 8 per cent at its height.
In 2008 the decision was finally made to pull out of the domestic segment of the market. In total, the amount spent by the company in establishing a domestic presence in the United States is estimated to have been around 7.5 billion , including DHL’s losses, reorganization costs and the expense of buying Airborne.
The episode was a disaster for DHL ,and it has only been able to survive due to its extraordinarily large resources ,and the profitability of its express operations elsewhere in the world. DHL still operates international services to the United States,but it is likely that the experience also prompted pull-outs from other non-performing domestic markets, such as those in France and the UK.