DC Velocity - February 2009

says. “Therefore, they could announce higher general rate increases and make them stick.” (DHL officials told the market in May they would restructure their U.S. operations, but denied that the company would pull out of the domestic U.S. parcel market altogether. Five months later, on Nov. 10, however, DHL announced that it would, in fact, discontinue its domestic operations.)

Mike Regan, CEO of TranzAct Technologies Inc., an Elmhurst, Ill.-based firm that also consults with parcel shippers, wrote soon after DHL announced in November that it would pull the plug in the United States that the parcel sector “has gone from being highly competitive to a duopoly. And you’re kidding yourself if you don’t think that FedEx and UPS understand how to take advantage of this condition.”

UPS spokesman Ken Sternad dismisses as “misguided” any connection between his company’s rate actions and DHL’s U.S. plans. “Our rates were determined well before DHL announced its intentions to exit the market,” he says. A FedEx spokesman did not reply to a request for comment.

Ted Scherck, president of The Colography Group Inc., an Atlanta-based consultancy that has worked with all four companies, says although FedEx and UPS knew of DHL’s plans to scale back its U.S. service, they were

unaware of DHL’s intent to exit the market entirely. Scherck says he had believed DHL would stay in the United States but would stick to business-to-business deliveries serving about 14,000 ZIP codes instead of the current 50,000.

An unfair advantage?

One challenge facing USPS as it attempts to capitalize on DHL’s retreat is that erstwhile DHL customers may have already left the station. Following DHL’s Nov. 10 announcement, New York investment firm Wolfe Research polled more than 60 large and medium-sized companies that were significant DHL customers in 2008. The respondents said they had diverted 42 percent of their domestic volumes away from DHL by Sept. 30, nearly six weeks before DHL made its plans public.

Another issue for the Postal Service is that business that has migrated to UPS or FedEx may not be up for grabs for years. Hempstead says it is becoming commonplace for large parcel shippers to demand contracts three to five years in duration in order to ensure rate and service stability.

Still, there is little doubt that USPS brings unique advantages to the shipping table. As a quasi-governmental entity, it is exempted from tolls, parking fees and fines, and customs duties, rivals say. It is required to report income tax

Armstrong says businesses would prefer to locate warehouses or DCs near Interstates 70 or 80, highways that directly connect Ohio with Northeast and Southeast markets. By contrast, he says, Wilmington sits adjacent to Interstate 71, a relatively limited thoroughfare that runs between Cleveland and Louisville, Ky.

Armstrong adds that Ohio already faces a glut of available warehousing space in its major cities, and a state struggling to attract and retain industrial business hardly needs thousands of square feet of new supply that Wilmington would bring to the market. “There is empty warehousing in Cleveland. There is empty warehousing in Columbus. There is empty warehousing in Cincinnati. And Ohio is not gaining enough industrial base” to keep up, he says.

Jerry Hempstead, who was the top U.S. sales executive at DHL and at Airborne before retiring in 2006 to form his own consulting firm, agrees, saying Wilmington is too “far off the beaten path” to be a viable distribution location and that it would likely have been overlooked as a transportation locale had fate not intervened.

Robert G. Brazier, who was Airborne’s president until he retired in 2002, sees it differently. He says the air park would be a tremendous asset to any buyer because of all the capital improvements made to modernize it. “I cannot imagine this place is going to sit empty,” he says.

Uncertain future

For its part, the city is undeterred. It has formed a task force aimed at re-marketing the park. On Dec. 19, dozens of businesses—though none in the supply chain realm—came to examine the facility. By Jan. 9, written expressions of interest were due to be filed with the city. Wilmington holds out hope that DHL, which will continue to handle international shipments moving to and from the United States, will use the park as a base for those operations, though speculation is that the company will move those functions 40 miles away to Cincinnati or to Louisville.

As Wilmington and its citizens brace for an uncertain future, reminiscing of better times comes easy. For example, there is an oft-told tale of the pig farmer and the airplanes. The pig farm was located about a mile south of the runway Airborne used for its sorting operations. Each night, agriculture collided with commerce, with the incessant whine of aircraft engines depriving the pigs of sleep and wreaking havoc on the farmer’s business. But rather than risk alienating Airborne by complaining to the carrier or to the city, he moved his farm to another location 10 miles away.

“The pig farm was there before we were, and it was the farmer’s livelihood. Yet he was the one who left,” says Brazier. “That was how much Airborne meant to this town.”