DC Velocity - February 2010

newsworthy

one year on, shippers have yet to feel pain of DHL’s exit

ON JAN. 30, 2009, DHL EXPRESS FORMALLY WITHDREW FROM THE domestic U.S. parcel market, ending a disastrous six-year effort to wrest share from FedEx Corp., UPS Inc., and the U.S. Postal Service (USPS) in the world’s largest economy.

A year later, the competitive landscape has remained largely unchanged. Shippers have been spared the significant rate escalations that easily could have followed the departure of a major player—and low-price leader—from the market. UPS and FedEx have competed fiercely and, by all accounts, still do so even with DHL out of the picture. The USPS became a more viable shipping alternative, aggressively courting large and small businesses with a cluster of new products.

For example, on Jan. 4, USPS rolled out two pricing programs for large-vol-ume users of its Priority Mail two- to three-day delivery service: a pricing tier for shipments weighing one-half pound or less, and cubic volume-based pricing for packages no larger than half a cubic foot and weighing less than 20 pounds.

Perhaps most important, however, the U.S. economy and freight demand tanked in 2009, tempering any urges on the carriers’ part to force through meaningful rate hikes.

But while some things remain the same, one has changed: Namely, the perception that the U.S. and world economies are seeing daylight after nearly 18 months of darkness. That perception, legitimate or not, could change the U.S. parcel game.

For the first time since DHL’s exit, industry executives are talking up an economic rebound in the United States. To be sure, the optimism is one of caution, perhaps captured best by UPS CFO Kurt Kuehn, who said on Jan. 8 that the company sees a “gradual economic recovery with improvement more evident as 2010 progresses.” UPS that day said it was raising its fourth-quarter 2009 earnings estimates on the back of stronger U.S. and international demand. It declined comment for this story, citing a mandatory “quiet period” prior to the Feb. 2 official release of its fourth-quarter earnings.

Should a recovery take hold—and the timing is still open to debate—a buyer’s market for parcel services could turn into a seller’s market.

FedEx has raised its 2010 air rates by 5. 9 percent, minus a 2.0-percent reduction in its fuel surcharges. FedEx raised its ground package rates by 4. 9 percent. UPS increased its air rates by 6. 9 percent, minus the 2.0-percent downward adjustment in fuel surcharges. Its ground rates, like FedEx’s, increased by 4. 9 percent.

Michael Regan, president of TranzAct Technologies, an Elmhurst, Ill.-based consultancy that among other things, negotiates parcel rates on behalf of shippers, said in 2009, FedEx and UPS took the largest general rate increases in their histories, only to watch big shippers bargain them down to increases in the range of only 1 to 2 percent. In a recovery scenario, however, the carriers will be able to negotiate rates close to the levels of their 2010 rate increases and make them stick, he says.

“If the economy picks up, then the carriers will have significant leverage,” Regan says. p. 18

supply chain begins
mobilizing to help Haiti

U. S. AIR FORCE PHOTO BY MAS TER SGT. RUSSELL E. COOLEY IV

The supply chain community has begun marshalling resources to support relief efforts in the wake of the devastating Jan. 12 earthquake in Haiti that virtually destroyed the capital of Port-au-Prince and may have killed as many as 100,000.

The American Logistics Aid Network (ALAN), which helps channel resources from members of various supply chain organizations to approved relief agencies in times of crisis, said it has contacted the National Voluntary Organizations Active in Disaster—a group that represents the major nongovernmental organizations (NGOs)— to offer its members’ support.

ALAN, which maintains a Web portal that enables resource providers and relief groups to connect, said its technology partner, the Aidmatrix Foundation, has relationships on the ground in Haiti as well as a Web portal presence in the country. Aidmatrix “will keep us posted on what they know,” John T. (Jock) Menzies III, ALAN’s president, said in an e-mail.

Menzies told DC VELOCITY that it would take “a couple of days” from the initial impact before the supply chain community could determine specific needs and how they might be addressed. NGOs serving as so-called first responders “usually have initial supplies or relationships with suppliers. We tend to engage as surge and unanticipated needs arise—and they always do,” he said. ;