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Ten years ago, DHL limped out of the United States domestic market with its transportation hub in Wilmington, Ohio abandoned, and billions of dollars in losses. With last month’s announcement, the Germany-based carrier returns to a vastly different shipping environment from the one they vacated in January of 2009.
With FedEx and UPS both eager to claim their share of the DHL spoils, both carriers have greedily increased the rate and pace of their price increases in the intervening years, focusing their ire especially on large, bulky, and lower density shipments. While size has been a concern, the carriers’ battle of market share has backfired as both carriers have gotten more than they can handle with the recent ECommerce boom. Despite record setting revenue, UPS and FedEx have continually struggled to maintain both their profitability, with the heavier concentration towards B2C volume and residential deliveries, as well as their operational capacity, with each holiday season overwhelming the carriers’ infrastructure. The result is predictable waves of customer dissatisfaction, viral miscues, and a decreasing brand reputation that many customers do not find commensurate in the context of ever increasing prices.
It is in this environment that DHL returns to rescue the US parcel market from itself. While its expansion plans last time around were much more ambitious and expensive with the acquisition of Airborne Express, this time around the German carrier is choosing a more agile and efficient strategy compatible with the business tenets of the new share economy. Their product, DHL Parcel Metro, is currently being tested in only the three largest US cities; New York, Chicago, and Los Angeles, and DHL has only announced its expansion to four additional ones: Dallas, Atlanta, San Francisco, and DC.
As this “Metro” brand indicates, we are unlikely to see DHL trucks making far flung deliveries to rural towns like Elko, Nevada; since this new service is targeting precisely the same ECommerce residential shipments that UPS and FedEx have marked as undesirable, we can conclude that DHL is hoping to capture this lower margin business with lower pricing resulting from smaller and smarter investments in infrastructure. This is evident by the new service’s business model of using crowd-sourcing technologies in conjunction with local couriers and contractors to deliver on its same-day and next-day services. And while DHL is hoping to create new synergies through this unconventional delivery network, they may not be acting and shaping this market by themselves.
An analyst at Cowen & Co. has speculated that DHL is working in conjunction with Amazon, the very company that themselves had recently launched a metro-area delivery service. A hypothetical joint venture between these two companies would suggest that Amazon’s ambitions in the shipping world run deeper than what they have previously stated. Many have doubted the ability of the global technology behemoth to replicate overnight UPS and FedEx’s vast delivery infrastructure, but the experience of a competitor who has tried and learned its lessons from failure would certainly give Jeff Bezos an additional advantage. Complement Amazon’s superior research & development capacity with DHL’s own investments in artificial intelligence, key to its current strategy, and UPS and FedEx could easily find the future catching up with them faster than anticipated.
While this speculation is fun for industry experts, the tangible effects of increased competition should yield dividends for parcel shippers in the near future. The most immediate beneficiaries of this news are ECommerce companies, particularly ones with concentrations in the densest US markets, but even commercial and non-metro shippers can find themselves better positioned to pressure their carrier reps if the latter are losing volume to DHL. While DHL’s entrance could be complementary to UPS and FedEx’s own margin issues for now, and while the two major US carriers could stand to benefit from a less hectic holiday season this year, neither company can afford to underestimate a wizened competitor aiming again, through vastly different approaches, for their share of the US parcel market.