It's been nearly a decade since DHL ceased domestic U.S. express service. Its future success here will depend on executing in a very different delivery environment.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
Inside the halls of delivery giant DHL, the Jan. 30, 2009, termination of its money-hemorrhaging domestic U.S. express service is characterized as a "repositioning" and not a withdrawal. Semantics aside, it was a humbling blow to a company that had known little but resounding successes during its first 40 years.
Yet with those billions of dollars in losses came understanding. DHL Express returned to its original model, where the U.S. was one node in the company's 220-country air and ground delivery network, by far the world's largest. From the 2009 date on, all U.S. pickups and deliveries would have an international origin or destination.
Results over the subsequent years appear to bear out the wisdom of the move: Since 2013, its U.S. inbound volumes have risen 13 percent, compounded annually. Outbound volumes increased at an 8- to 10-percent compound annual rate from 2010 to 2017. Annual revenue compounded annually by 9 percent over that time.
DHL Express today averages 200,000 daily shipments moving to and from the U.S., roughly double its 2009 totals. In 2017, a rare year of synchronized global growth, outbound U.S. revenues rose by 14 percent over the prior year. U.S. daily inbound shipments grew 16 percent in 2017. Through May, inbound traffic is up 14 percent relative to the same period a year ago.
What may surprise those who perceived that DHL Express had abandoned the U.S. is that its footprint has expanded since it ended the domestic service. Today, the U.S. business employs about 10,000 people, roughly doubling its work force from 2009. It operates 4,300 vehicles, up from 2,500 in 2009. It has between 105 and 110 U.S. service centers today, compared with 95 in 2009.
Besides the improving U.S. and global economies and a more appropriate alignment with the rest of the DHL network, the U.S. unit's express operation has benefited from what would first be a nascent and then a dramatic increase in global e-commerce traffic. Today, e-commerce accounts for 40 percent of its outbound revenue. Six out of every 10 total domestic shipments it handles has a residential component. That is a far cry from DHL Express's near-exclusive reliance on domestic business-to-business (B2B) traffic nearly a decade ago.
If the DHL business units (besides Express, it has a large contract logistics business called DHL Supply Chain; DHL eCommerce, a dedicated e-commerce operation that works closely with the U.S. Postal Service (USPS); and a freight forwarding and logistics service called DHL Global Forwarding) are to sustain their U.S. success, e-commerce will likely be the talisman. According to SJ Consulting, a transport consultancy, about 38 percent of all U.S. parcels today move in distances of less than 300 miles, up from 29 percent in 2008. The weight of the average domestic shipment has declined by 17 percent over that time, according to SJ data. This reflects a migration to lighter and localized shipments triggered by more e-commerce activity, said Mark D'Amico, an analyst for the firm.
It also demonstrates a dramatic change in mix. For example, parcels today account for about 90 percent of DHL eCommerce Americas' current shipments, according to Lee Spratt, CEO of its Americas operations. A decade ago, Spratt said in a phone interview last month, virtually all of the unit's shipments consisted of large envelopes, newsletters, and magazines known in postal lingo as "flats." To reflect the change, the unit was rebranded in 2014 from DHL Global Mail, which had been in the U.S. market since 2004.
To put the market shifts in perspective, e-tailer giant Amazon.com Inc. today handles four times the U.S. volumes per year that DHL Express did in 2007, according to SJ data. In another sign of the times, DHL Express manages Amazon's daytime sortation operations at Cincinnati/Northern Kentucky International Airport, which Amazon is sharing as its temporary air hub until its own hub there is operational sometime in 2020.
"STRATEGY 2020"
Dominating global e-commerce logistics is one of the two core components of DHL's broad mission known as "Strategy 2020" (the other component is expanding within developing economies). Given its mandate, and because e-commerce is broadening beyond the small-package segment to include heavier, more industrial-type goods, all of DHL's components will have to operate in sync in order to maximize its value.
"We will need to be a full-service provider" to hit all of business's e-commerce needs, said Spratt, whose unit moves 400 million parcels a year in the Americas (most of them in the U.S. through a partnership with the USPS), in a phone interview.
While offering end-to-end services sounds good in concept, it could present a challenge in the execution. That's because each business unit has its own culture, a different service niche, and, perhaps most important, its own operating platform. The siloed model has been by design. DHL Express, for instance, offers time-definite service in the U.S. with an international origin and destination point, whereas DHL eCommerce interacts with USPS for domestic services that aren't time-specific and are offered at a lower price point. Integrating the sales, marketing, and IT (information technology) services for different types of customers could create more problems than it solves.
Spratt said DHL is working with third-party software developers to build more connectivity across its disparate business units. "It's a huge focus for us," he said.
To be sure, there are areas of cooperation. DHL has a dedicated unit that cross-sells its portfolio to big shippers. In addition, the Americas e-commerce unit uses space in four of DHL Supply Chain's fulfillment centers—Columbus, Ohio; Mexico City; Los Angeles; and Newark, N.J., which was scheduled to open around mid-July. The e-commerce unit also leverages its sister unit's technology, according to Spratt.
If there is one product that underscores how DHL is reacting to the changing times, it is "Parcel Metro," which was launched last March in Chicago. Run by the e-commerce unit, Parcel Metro provides e-commerce deliveries without utilizing DHL vans or drivers. Instead, it relies on local and regional professional delivery firms as well as a cast of crowdsourced citizen drivers and their vehicles, both of which are vetted by DHL before hitting the road.
DHL's goal is to use its brand and technology to build credibility with retailers and their third-party e-commerce partners such as Shopify. DHL also wants to attract a critical mass of qualified drivers who can cover as much geography as possible. In addition to Chicago, the product has been rolled out in New York, Dallas, and Los Angeles. It was expected to be launched in Atlanta at this writing, and will be available in San Francisco and Washington, D.C., later in the year.
Perhaps most important, DHL has gotten the jump on rivals FedEx Corp. and UPS Inc., neither of which has a similar product. If it succeeds, Parcel Metro is likely to boost the DHL unit's 2 percent share of the U.S.-origin e-commerce delivery market.
One unit that is unlikely to leverage Parcel Metro, however, is DHL Express. Its U.S. operations are unionized, and it's hard to imagine the Teamsters union going along with such a concept. What's more, Greg Hewitt, the CEO of the unit's U.S. operations, said in a separate interview that the DHL name is too powerful not to be as visible as possible. "We see great value in the DHL-branded vehicle," he said.
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."