Deutsche Post to discuss DHL restructuring

Unions that represent some DHL employees and pilots that currently provide air service for some of DHL's shipments said Friday they had not been informed of any upcoming changes. But DHL scheduled a conference call with reporters for Monday afternoon to discuss news that was to be announced earlier in the day and answer questions about DHL's U.S. Express business.

DHL spokesman Jonathan Baker declined to provide details Friday on what will be announced Monday. As to the talks with UPS, he said, "We are continuing to talk with UPS. The talks are constructive. We expect to finalize our negotiations by year-end."

Deutsche Post has acknowledged problems of repeated losses and dwindling sales at its U.S. unit, but has repeatedly said that a retreat from the market is not under consideration. In May, DHL cut U.S. network capacity by 30 percent.

But some analysts suggest that the company will do everything short of pulling out altogether, as it tries to shore up its financials.

Edward Wolfe, an analyst with investment firm Wolfe Research, has speculated that DHL will leave the U.S. ground delivery business entirely, and possibly the domestic air express business as well. If that happens, DHL would only be left with revenue derived from direct imports and exports--as it was when Deutsche Post first dove in to the U.S. market in 2003--as opposed to point-to-point shipments in the U.S.

If that scenario plays out, Wolfe said package volume at UPS Inc. and FedEx Corp. could rise by about 3 to 6 percent. The two rivals could also see earnings per share growth of 3 percent next year from the added business, he forecasts. But DHL's potential removal from the U.S. market could have an even more positive effect in the long-term on pricing, as the reduced competition allows FedEx and UPS to potentially raise prices. A FedEx spokesman declined to comment on Friday.

A person familiar with UPS' talks with DHL said Friday that if DHL makes significant cuts to its ground operations in the U.S., it wouldn't necessarily affect UPS and DHL reaching a deal since the talks solely involve air delivery of packages, not ground delivery. The person spoke on condition of anonymity because of the sensitive nature of the talks.

At the same time, citing the impact of the economic downturn and customer reaction to DHL's downsizing thus far, UPS chief executive, Scott Davis, said last month that the "scope and the size" of the DHL deal could change.

UPS and DHL proposed a collaboration in May in which UPS would carry some air packages for DHL. The deal, if completed, could last up to 10 years and infuse up to $1 billion in annual revenue for UPS.