Deutsche Post AG's expansion in the US$50.2 billion US ground and air parcel delivery market may be slowed by a regulatory review sought by United Parcel Service Inc and FedEx Corp, which dominate the US market.
A US judge was scheduled to begin a hearing yesterday to determine whether Astar Air Cargo Inc, a Miami-based airline that flies for Deutsche Post's DHL unit, violates a law barring foreign control of a carrier. The judge's decision, due by Dec. 1, may result in Deutsche Post having to change the way it does business in the US.
A win by UPS, the world's largest package-delivery company, and FedEx, the biggest overnight-delivery company, would slow or raise costs for Deutsche Post's advance in the US, the biggest delivery market, said Brian Clancy, principal at MergeGlobal Inc, a freight-consulting firm in Arlington, Virginia.
"The regulatory challenge is the minor piece," Clancy said. "The other 90 percent of the challenge is the day-to-day blocking and tackling and competing with the 900-pound gorillas of FedEx and UPS."
UPS controls 48 percent of the US air-ground package and document delivery market, Clancy said. FedEx has 25 percent of the market based on revenue and Deutsche Post's DHL has 5 percent, he said.
Other shares include the US Postal Service with 14 percent and small competitors with a combined 8 percent, Clancy said.
Deutsche Post, Europe's largest postal service, plans to grow "as quickly as possible" in the US, particularly in the expanding market of ground shipments, Wolfgang Pordzik, chief executive of its US unit, said in an interview.
The company had sales last year of US$3.70 billion in the Americas, or 9 percent of all sales.
The German government owns 50 percent of Deutsche Post, and state-owned Kreditanstalt fuer Wiederaufbau bank owns 18.3 percent. The company had net income last year of 659 million euros (US$691.4 million).
UPS profit for last year was US$2.42 billion, excluding one-time items, and FedEx income in the year ended May 31 was US$830 million.
The hearing "is not helpful" because UPS wants to use it to try to create uncertainty about DHL and take DHL customers and potential customers, Pordzik said.
"It just makes life harder," he said. "We have got to spend resources to manage all this."
During the hearing UPS plans to show in documents from Astar and its suppliers that Deutsche Post controls the shipper by helping to pay for planes, maintenance and insurance, said UPS spokesman David Bolger.
UPS wants the US Department of Transportation to force Astar to scrap the financing arrangements and get backing separate from Deutsche Post, Bolger said. He denied the company is using the proceeding to lure DHL customers.
Astar, which has an 11-year agreement to carry DHL's cargo and gets 90 percent of its revenue from the Deutsche Post unit, will show that Astar is controlled by US citizens, said Ray Lutz, an Astar spokesman.
Astar's purchase by John Dasburg, former chief executive of Burger King Corp., and two US investors for US$57 million last month should have ended any questions about foreign control, he said. Before the sale, a Deutsche Post DHL unit owned 25 percent of Astar voting stock and the company was known as DHL Airways.
The hearing's outcome will set a precedent for how other cargo shippers with foreign ties will be allowed to operate in the US, said David Marchick, a lawyer with Covington & Burling in Washington.
"The impact of the hearing on this issue is much larger than this relatively small transaction and this relatively small carrier," he said.
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