In The News

UPS, DHL still talking, but will deal be reached?

ATLANTA — UPS Inc.'s talks with DHL about carrying some of its air packages have gone into overtime, raising questions about whether a deal will ultimately be struck.

When the talks were announced last May, DHL said it expected to finalize a contract by the end of 2008. Three weeks into 2009, the parties continue to talk, but with a new wrinkle in the mix.

DHL no longer will offer U.S. domestic-only air and ground services as of Jan. 30, though it has said international shipping to and from the U.S. would continue. The move, announced in November, could greatly scale back the possible venture between UPS and DHL, the fourth-largest shipper of packages in the U.S.

DHL's total air volume for shipments from points between U.S. and international destinations and between points within the U.S. is about 1.2 million shipments a day. That figure will drop to about 100,000 shipments a day after the changes go through, DHL's parent has said. The air volume figures do not include packages that do not start or end in the U.S.

"It is certainly true that DHL had originally said they hoped and expected to finish a contract before the end of the year, but of course then they announced their withdrawal from the U.S. market and the talks had to start again on a different type of contract," UPS spokesman Norman Black said Tuesday.

Black said the talks are more open-ended than they were before. He added that neither side has a specific time that they want to be done.

Morgan Keegan analyst Art Hatfield said he believes the talks will ultimately fizzle out without a contract being finalized.

"I wouldn't say it's a foregone conclusion, but it's more and more likely they are just going to let it go and not do anything," Hatfield said. "I didn't really expect them to reach a deal anyway."

He added, "I don't know that there was much to formalize anyway after DHL decided to leave the market."

Black declined to predict the outcome of the talks.

The UPS-DHL venture as originally envisioned was expected to last up to 10 years and generate up to $1 billion in annual revenue for Atlanta-based UPS, the world's largest shipping carrier.

UPS, also known as United Parcel Service, had said the contract with DHL would mostly involve the transport of DHL packages between airports in North America — not the pickup or delivery of DHL packages to customers.

Then DHL's parent company, Germany's Deutsche Post AG, dropped its November bombshell: DHL, hit by heavy losses and fierce competition, would significantly reduce its air and ground operations in the U.S. and cut 9,500 American jobs, leaving rivals like FedEx, UPS and the U.S. Postal Service to fight over the customers it planned to stop serving.

DHL has tried to be a major player in the U.S. since it bought Airborne Inc.'s ground delivery network for $1.05 billion in 2003, but it has lagged in the air and ground markets combined, analysts have said.

UPS shares fell $2.27, or 4.7 percent, to close at $45.93 in Tuesday trading.