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DHL Worldwide Express, a privately held worldwide delivery service comprised of DHL Airways and DHL International, is the world's oldest and largest international air-express company. Since 1969 when it began as an air-courier service from California to Hawaii, the firm has grown phenomenally and dominates the global express marketplace, delivering to over 70,000 destinations in 227 countries. DHL delivers both small and heavyweight parcels to destinations from the Middle East and Pacific Rim countries to throughout Europe and the United States. DHL's ever-expanding international presence prompted such stateside competitors as Federal Express and United Parcel Service, as well as the United States Postal Service, to join the fray of global express delivery.
Three Men and a Purpose, 1969-79
DHL was founded by three young shipping executives--Adrian Dalsey, Larry Hillblom, and Robert Lynn--who were casting about for a way to increase turnaround speed for ships at ports. They reasoned that if the shipping documents could be flown from port to port, they could be examined and processed before the ships arrived, and speeding up the process would decrease port costs for shippers. With this in mind, the trio combined the first letters of their last names to form the acronym DHL, thus beginning an air-courier company that revolutionized the delivery industry.
DHL rapidly developed into an express delivery service between California and Hawaii, then quickly expanded to points east. The company's primary customer was the Bank of America, which needed a single company to carry its letters of credit and other documents. DHL branched into the international market in the early 1970s when it began flying routes to the Far East. In addition, while competitor Federal Express was developing its domestic overnight delivery network, DHL focused on further developing its international service.
In 1972, the three original investors recruited Po Chung, a Hong Kong entrepreneur, to help them build a global network. Chung started DHL's sister company, DHL International Ltd., headquartered in Brussels, Belgium. Since that date DHL Worldwide has functioned as two separate companies, DHL Airways, Inc. based in Redwood City, California, and DHL International. While each company acted as the exclusive agent for the other, by 1983 DHL International had grown to be five times larger than its domestic counterpart. DHL International's rapid expansion continued throughout the 1970s, adding destinations in Europe in 1974, the Middle East in 1976, Latin America in 1977, and Africa in 1978.
FedEx and UPS Up the Ante, 1980-88
The 1980s would bring the firm increased growth as well as greater competition. During this time DHL continued to expand, by turns cooperating with competitors and warring with them. The company also sought new outlets for service, working out an arrangement with Hilton International Co. in 1980, agreeing to provide daily pickup of documents at 49 Hilton Hotels, arranging for international delivery--its couriers moving the packages through customs--then delivering them locally. It was a win-win situation as Hilton was able to offer its patrons a high-class delivery service and DHL was guaranteed new outlets for its business. The next year, 1981, DHL flew 10 million shipments between 268 cities and had approximately $100 million in sales. The following year, Lawrence Roberts, who had founded Telenet Communications Corp. and headed GTE, joined DHL Corp. as president.
Although DHL had a strong international presence, business was occasionally made difficult because it was necessary for the company to negotiate with foreign governments. In 1982, for example, the French post office sought to reassert a monopoly dating back to the 15th century, and DHL--possessing 80 percent of the French market--was ordered to halt operations outside Paris. What could have been a potential crisis for the company was, however, favorably resolved.
DHL continued to expand its horizons, though, adding Eastern bloc nations in 1983. Prior to 1983, DHL had not pursued much business in the United States, leaving the field to Federal Express and United Parcel Service (UPS). Despite counting 97 percent of the nation's 500 largest companies among its customers, DHL still held only a minuscule share of the overall domestic market. To bolster its share of the American market, DHL installed two major hubs at airports in Cincinnati and Salt Lake City, and added nine mini-hubs in major cities across the country. The company also bought three Boeing 727s and seven Learjets, as well as new sorting equipment. In addition, in 1983 DHL Worldwide started using helicopters in New York and Houston to expedite documents during rush hour and the following year initiated helicopter service in Los Angeles as well.
Once the hubs had been installed, DHL Airways began offering point-to-point overnight service between 126 American cities. Still, for the year ending in 1983, DHL reached only two or three percent of the domestic market--yet had more than 5,000 employees with 400 offices in over 90 countries. As in its earliest days, banks accounted for a large portion of its business; other common shipments consisted of computer tapes, spare parts, and shipping papers. That year, DHL estimated it carried 80 percent of the bank material traveling by courier from Europe to the U.S. and revenues were approximated at $600 million. In 1984, as former courier-driver Joseph Waechter became president of DHL Airways, DHL provided service to more than 125 countries, and its 500 stations were handling 15 million international and domestic shipments annually.
But just as DHL was looking to cut into the business of its domestic competitors, those same companies were aiming to siphon off portions of DHL's international business. In 1985 both Federal Express and UPS entered the international express market. As competition became more intense, DHL increasingly began to cooperate with businesses in similar areas. The company teamed up with Western Union to deliver documents generated on Western Union's EasyLink electronic mails, allowing people to send documents via courier without having to hand-deliver material to the courier's office. The next year, 1986, as DHL International formed its first joint venture with the People's Republic of China, known as DHL Sinotrans, Charles A. Lynch was named chairman and chief executive of DHL Airways, replacing Roberts. Lynch remained with the company just two years and was replaced by Patrick Foley, the former chairman of Hyatt Hotels. Meanwhile, FedEx and UPS were eroding DHL's market share, which fell from 54 percent in 1985 to 50 percent in 1987. However, an important competitive battleground existed in Japan, and while FedEx and UPS gained footholds in that country in the 1980s, by 1988 DHL still controlled 80 percent of the Japanese overseas market.
As the world economy boomed in the 1980s, DHL followed suit, even breaking new ground in the Communist-bloc countries. The company had first cracked the eastern bloc in 1983, when it began delivering packages to Hungary, East Germany, and several other countries. DHL Airways was not slouching either, reporting that between 1986 and 1987 alone, its volume rose 34 percent; in 1987 it was the 318th largest private company in the United States, with 5,000 employees and estimated sales of $375 million. Revenues for the entire DHL network, in 1988, were calculated to be between $1.2 and $1.5 billion, helped in part by another joint venture with a Hungarian company to create DHL Budapest Ltd. That year, DHL controlled 91 percent of the packages bound for Eastern Europe from the West and 98 percent of all outbound shipments.
Holding and Increasing Market Share, 1989-93
In 1989, DHL Worldwide was the 84th largest company in the United States with 18,000 employees, more than 50 million shipments, and service to 184 countries. However, though DHL's international success was becoming firmly established, the company was not making the headway it had planned in the United States. As of 1989, DHL had only five percent of the domestic market. To bolster its name recognition in the United States, the company turned to innovative advertising techniques, including the use of humor. Cartoonist Gary Larson, creator of the wildly popular comic "The Far Side," was employed to draw cartoons for use in DHL advertising, and in 1990 the company introduced a campaign featuring flying DHL vans whizzing past competitors' planes. DHL also took an unusual approach to air delivery. Although the company used its own fleet of planes within Europe and on some major routes, DHL often used scheduled airlines to carry its shipments. Federal Express, in contrast, maintained its own fleet and seldom used other airlines. Rather than purchase its own planes, DHL chose instead to invest its capital in technology and ground-handling equipment, spending some $250 million on those areas in 1990 and 1991 alone.
In 1990, in order to infuse the company with fresh capital and take advantage of the resources of larger airlines, DHL International sold parts of its business to three companies. Japan Air Lines and the German airline Lufthansa each purchased five percent, while Nissho Iwai, a Japanese trading company, purchased 2.5 percent. Each firm also had the option of buying greater shares. In addition, the three companies also own a combined stake of 2.5 percent in the U.S-based DHL Airways. The sale of these closely held interests brought $500 million in capital into the firm. The same year, despite a 60 percent share of the international overnight delivery market, the company began to expand into new areas of business. To keep up in an increasingly competitive industry, DHL Worldwide entered the freight services industry and began carrying heavier cargo. In the company's 20-year history of carrying small packages--generally under 70 pounds--this was DHL's first major departure from its core business. In 1991, DHL Worldwide had revenues of $2.3 billion, and was the 59th largest private company in the U.S., its 21,000 employees handling more than 80 million shipments.
In June 1992, all three of DHL's major shareholders exercised their option to increase their shares in DHL International; Japan Air Lines and Lufthansa each increased their stake to 25 percent, while Nissho Iwai's holdings grew to 7.5 percent. This was also the year DHL began service to Albania, Estonia, Latvia, and Greenland, and reestablished ties with Kuwait. In addition, in an unusual move DHL signed an agreement to share transatlantic and European aircraft operations with one of its competitors, Emery Worldwide. The economic recession and an overcrowded North Atlantic airway were cited as the reasons behind these cooperative measures, which would allow greater operating efficiency and expanded service. The arrangement represented the first of several alliances between integrated carriers, due to increasing pressure from other competitors, including Airborne Express and TNT. In 1993 as revenues hit $3 billion, DHL commenced a four-year $1.25 billion capital spending program to step up its technological capabilities, automation, and communications.
Towards a New Century, 1994 Onward
By 1994, DHL Worldwide's 25-year anniversary, the company controlled 52 percent of the Asian express shipment marketplace, with FedEx and UPS garnering a 24 percent slice each. The next year, DHL poured over $700 million into expansion of its Pacific Rim operations. DHL was not only shoring up facilities in Hong Kong and Australia, but venturing into 16 new cities in China, India, and Vietnam. A new $60 million hub at Manila's Ninoy Aquino International Airport was scheduled to open in late 1995, with additional facilities slated for Bangkok, Tokyo, Auckland, and Sydney. In the midst of its ambitious expansion, DHL was rocked by the news of founder and majority shareholder Larry Lee Hillblom's death. Known as an avid though reckless pilot (he had survived a previous crash and had his pilot's license suspended), Hillblom, who had withdrawn from DHL's daily operations in 1980, was killed in a seaplane accident near Saipan where he lived.
The management at DHL was soon embroiled in an ugly controversy after Hillblom's 1982 will was released, as a spate of paternity claims and lawsuits were filed. Lurid details of Hillblom's penchant for young island girls reached the press, including an in-depth exposé in the generally staid Wall Street Journal. Since Hillblom had retained a mighty 60 percent of DHL Airways and 23 percent of DHL International (valued conservatively at the time at around $300 million), the company's officers scrambled to exercise an option to repurchase his shares. Yet financing and a host of complications held up the buyback and soon the entire estate was a miasma of lawsuits, bad judgement calls, and island politics.
Yet 1995 was still a good year for DHL Worldwide, as the company debuted its web site (www.dhl.com) and experienced an overall 23 percent growth in revenue to $3.8 billion, with an incredible 40 percent surge in volume in its Middle East operations. In response to the encouraging numbers, DHL broke ground on a new $4 million state-of-the-art express facility at the Dubai International Airport in the United Arab Emirates in 1996. The new 42,000-square-foot hub was to complement DHL's existing facilities in Bahrain. Over on the Asian continent, DHL broke with its longstanding tradition of leasing planes to buy its own cargo fleet. Though DHL International's previous strategy of leasing out cargo space had proved both successful and prudent, Chairman and CEO Foley told the San Francisco Business Times the company needed to control its own destiny, and having its own fleet would help alleviate the space limitations and scheduling snafus of commercial flights.
In 1996, DHL was looking to the future again by announcing plans for a $100 million hub in the Midwest to carry the company through the next two decades. While its Cincinnati "superhub" handled around 45 incoming flights every night, and sorted over 135,000 pieces at a rate of 60,000 per hour--DHL believed its growth would soon outpace the facility. The same was true for the San Francisco area, where Silicon Valley shipments represented 40 percent of DHL Airways' business in the Bay Area. Internationally, DHL was still growing at the speed of sound with expansion in the former Soviet Union to 37 branches, a new facility at Ferihegy Airport in Budapest, and the acquisition of Shigur Express in Israel. Though DHL had worked with Shigur for years, the $3.5 million purchase gave DHL a firmer presence in the country's emerging market. By 1998, DHL served 227 countries with 2,381 stations in cities from Paris and Prague to Bombay and Bangkok with over 53,200 employees. Stateside, however, DHL Airways still represented less than two percent of the market, though the California-based company got a boost from the Teamsters' strike against UPS.
As the 1990s came to a close, DHL International announced its intention to sell a 22.5 percent stake in the company to Deutsche Post AG, for an infusion of funds and to strengthen its presence in Germany. With the air cargo industry projected to grow at an annual rate of 6.7 percent for the next dozen or so years, DHL International continued to stave off competitors and dominated global express shipments with over 40 percent of the market. Its U.S.-based sibling, DHL Airways, maintained a healthy bottom line and was positioned to carve away at the market share of FedEx and UPS.
Principal Subsidiaries: DHL International Ltd.; DHL Airways, Inc.
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