UPS, DHL Scrap Airlift Agreement Talks

UPS said Friday that talks with DHL about carrying some of its air packages have ended, scuttling a venture that originally was expected to generate up to $1 billion in annual revenue for the world's largest shipping carrier.

Spokesman Norman Black told The Associated Press that the two companies agreed to terminate their negotiations. He did not elaborate.

Chris Gardner

But the move was expected by many analysts after DHL decided that it would no longer offer U.S. domestic-only air and ground services.

Although it had said its international shipping to and from the U.S. would continue, the cutbacks in its U.S. operations meant that any deal with UPS would have been greatly scaled back.

"We have not been able to come to a conclusive agreement that is acceptable to both parties," DHL said in a statement.

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DHL spokesman Jonathan Baker said that for now his company will continue to use its existing providers, principally ABX Air and ASTAR Air Cargo, to provide the airlift services UPS had wanted to take over.

Baker declined to discuss any potential agreements with other providers.

The venture as originally envisioned was expected to last up to 10 years. Atlanta-based 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.

When the talks were announced last May, DHL said it expected to finalize a contract by the end of 2008. However, in November DHL, hit by heavy losses and fierce competition, said that as of Jan. 30 it would significantly reduce its air and ground operations in the U.S. It also said it would cut 9,500 American jobs.

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

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

Earlier Friday, DHL said it has decided to move U.S. hub operations for its international business from Wilmington, Ohio, to the Cincinnati/Northern Kentucky International Airport to save money.

DHL will reactivate its automated sorting facility at the northern Kentucky airport and finish moving there by mid- to late summer.

At last count, there were about 5,000 people still working at the Wilmington airport, down from about 8,000 a year ago.

DHL owns the cargo airport in Wilmington and hasn't announced what it plans to do with it.

UPS, which recorded 2008 revenue of $51.5 billion, is scheduled to report its first-quarter 2009 earnings next Thursday.