Deutsche Post's DHL expands U.S. delivery service to take on FedEx, UPS

SEATTLE, March 15 (Reuters) - Deutsche Post AG's DHL is launching a U.S. urban delivery service for online retailers that it has been testing in some cities, according to company officials and marketing materials seen by Reuters.

The rollout of its Parcel Metro service will put DHL in direct competition with dominant players United Parcel Service Inc and FedEx Corp. DHL's contractors will take parcels directly to homes instead of its usual practice of dropping off packages for delivery by the U.S. Postal Service.

Cowen & Co analyst Helane Becker said she believes Amazon is working with DHL to expand its presence in the United States.

"Amazon is growing 35+ percent per year, and they need to figure out a way to get stuff to the buyers. FedEx and UPS have told Amazon they won't scale with them, meaning that Amazon has to figure out a way to support their delivery network themselves," Becker said.

"It also helps that DHL's U.S. hub is in Cincinnati and that is where Amazon is building their air hub. We don't think that's a coincidence," she added.

A DHL spokeswoman said Amazon is a large customer but declined to specify the degree to which it was using the new Parcel Metro service. Amazon did not immediately respond to a request for comment.

DHL has been testing Parcel Metro in Chicago, Los Angeles, and New York for the last two years, the company said. It will roll out in Dallas, Atlanta, San Francisco, and Washington, D.C. by end-2018.

Parcel Metro relies on third-party contract couriers and app-based driver pools to pick up products like books, shoes, shampoo, and electronics from retailers or warehouses and deliver the items directly to households, DHL eCommerce Americas Chief Executive Officer Lee Spratt told Reuters by phone.

Sales materials found by Reuters describe a "fast, configurable" delivery service with windows ranging from two hours for Metro Now, to Metro Same Day, and Metro Next Day. https://tinyurl.com/y7ynnq7w

Spratt said DHL could add a Saturday delivery option.

"Shoppers want it faster," Spratt said. "Several years ago, five days was a good delivery time. Now they want to get it closer to one to three days."

DHL's move is a gamble. The company lost billions of dollars on a failed U.S. expansion a decade ago. https://tinyurl.com/y9wu42dt

Parcel Metro follows DHL's plans, announced in summer 2016, to spend $137 million on seven new or expanded e-commerce fulfillment centers in the United States, where DHL currently delivers roughly 500 million pieces annually. By comparison, UPS delivered 750 million packages during last year's holiday season alone. (Additional reporting by Nick Carey in Detroit; Editing by David Gregorio)