Deutsche Post AG will cut 9,500 jobs and halt US domestic services at its DHL Express unit after failing for five years to gain share in a market dominated by United Parcel Service and FedEx.
The announcement last night from Deutsche Post sent its shares up nearly 7 per cent, but also lifted the stock of UPS and FedEx - which are both seen benefiting from DHL's departure from the US market.
The US job cuts, anticipated by many analysts, comes on top of 5,400 layoffs already this year, leaving between 3,000 and 4,000 US employees.
"We think the unfolding US recession dramatically extended DHL USA's timeframe for potential break-even and increased the financial pain that would have to be absorbed until then," UBS analyst Rick Paterson wrote in a note for clients.
"This was too much for Deutsche Post shareholders and, ultimately, the company itself."
As of January 30th, DHL will continue providing international service in and out of the United States. This will take it back to where it stood before its acquisition of Airborne Inc in 2003, a purchase that cost it billions of euros in losses.
In a conference call with journalists, John Mullen, chief executive of DHL Express, said the company had struggled against the overwhelming brand recognition of UPS and FedEx in the United States.
"We had hoped to soldier on for a bit," he said, adding that the company's position had become untenable as the US economy slid toward recession. He said the job losses would impact workers "across multiple states."
Earlier Mullen had said on CNBC television that DHL had suffered annual losses over $1 billion for the past two years, making the decision to pull out "prudent."
An additional $3.9 billion in restructuring costs - $1.9 billion more than previously planned - would likely lead to a full-year 2008 group net loss, Deutsche Post said.
"We believe DHL's withdrawal, which removes a player that has traditionally been a price discounter, from the domestic air and ground markets will both boost volumes and improve the pricing discussion for UPS and FedEx," Wachovia analyst Justin Yagerman wrote in a note for clients.
Atlanta-based UPS, the world's largest package delivery company, and its Memphis-based rival FedEx are seen as bellwethers of US economic activity.
Reuters