Deutsche Post World Net AG. said the loss-making U.S. operations of its DHL express unit will tie up in domestic and international airfreight shipments with United Parcel Service Inc. and will launch a cost-cutting program.
The 10-year contract with UPS is still to be finalized, but the outsourcing of air shipments to UPS will begin later this year, the company said.
The German mail and services company said it expects annual cost savings of about $1 billion and underlying earnings before interest and tax (EBIT) to improve by $800 million in 2010 and by $1 billion in 2011.
It said the turnaround program will cost $2 billion.
DHL's U.S. operations have posted unspecified losses since it entered the market in 2004.
Since it entered the market, the company faced tough competition from peers UPS and FedEx Corp., its market share being estimated at below 10 percent.
Deutsche Post said it will reduce excess capacities of its U.S. express linehaul network infrastructure by some 30 percent to adapt it to shipment volumes. It said less than 4 percent of shipments will be affected.
Deutsche Post chief executive Frank Appel said during a press conference some 4 percent of the company's employees in the United States will be affected, as well as an unspecified number of employees at contractors and cooperating airlines.
Deutsche Post said the U.S. Postal Service will deliver shipments to sparsely populated areas on behalf of DHL.
In 2008, the company expects an underlying EBIT loss of $1.3 billion in the United States.
It said it is targeting the U.S. express operations to reduce losses to $900 million in 2009, $500 million in 2010 and $300 million in 2011.
Deutsche Post now sees 2008 underlying EBIT at its express division at 400 million euros from 500 million previously, and group EBIT at 4.1 billion euros.
It previously expected full-year EBIT before one-offs at 4.2 billion euros.
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