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Deutsche Post making a push in parcel market

Its DHL unit to add 15,000 drop boxes in U.S.

Deutsche Post AG's DHL unit expects to boost its share of the U.S. parcel market to 12 percent from 8 percent by 2006, mostly by offering a choice to United Parcel Service Inc. and FedEx Corp., chief executive John Fellows said Wednesday.

"There is a pent-up demand for a third shipping choice" in the $50 billion U.S. parcel market, Fellows, 59, said in an interview in New York. DHL will persuade international customers to start using its U.S. unit and plans to add 15,000 drop boxes to reach smaller companies, he said.

DHL is spending $1.2 billion in the next year to double its cargo sorting network and build customer recognition in a challenge to United Parcel and FedEx, which control more than 80 percent of the U.S. market, the world's biggest for package shipments.

As part of its expansion, DHL last month opened a 24,500-square-foot sort center at 1900 S. Industrial Road (1900 West) in Salt Lake City. The new center employs 38 people.

"In the first couple of years we should be able to gain market share very quickly," said Fellows, whose DHL Americas unit is based in Plantation, Florida. He wouldn't say how much business DHL, which entered the U.S. market in 2003 by purchasing Airborne Inc., has added this year.

The company's success in meeting its goal will depend on its ability to improve customer perceptions of service quality and added services such as guaranteed 10:30 a.m. delivery, Morgan Stanley analyst James Valentine said in an interview.

"DHL's major problem is that its North American service, and more importantly recently acquired Airborne's service, is perceived as lower quality than FedEx or United Parcel," Valentine said in a report. "With DHL spending money and addressing the reliability issue, it's conceivable that it will begin to gain market share."

Fellows said DHL provides service that's comparable to United Parcel and FedEx, although customer perceptions may lag behind the performance by as much as nine months. Valentine said he expects it may take two years for perceptions to change.

Customers will switch to DHL and stay with the company as long as the company can meet its delivery targets 98 percent of the time, packages arrive undamaged and pickups are timely, Fellows said. DHL claims it's reached that level.

Deutsche Post bought Airborne's ground delivery business for $1.05 billion in 2003 and spun off its air cargo network to shareholders as ABX Air Inc. of Wilmington, Ohio.

"Given Deutsche Post's commitment to DHL as a global brand, we sense its importance in the U.S. market will increase," Valentine's report said. "If DHL can maintain high-90s on-time performance, we sense that it could be viewed as a viable option to loyal FedEx or UPS customers by mid-2005 and into 2006."

Among customers DHL has won is Oracle Corp., the third-biggest software maker, and apparel retailer Talbots Inc., the U.S. unit of Aeon Co., Japan's biggest retailer. Fellows wouldn't say how many customers have been added during the U.S. expansion.

Fellows ruled out cutting prices to win market share, saying "we are not going to start a price war. We can't take our prices down and still attain our profit objectives."