| Commending the US House of Representatives for holding hearings on the DHL/UPS deal, Obama said that UPS Airlines taking over its rival's air carriage in the US "threatens active competition in the market and could hurt consumers . . . While it is not a merger, I have asked the Department of Justice to examine the proposed deal because I believe that it. . .may violate antitrust laws. The Justice Department should oppose any deal that would significantly reduce competition and consumer choice in the marketplace for package delivery services." Sen. John McCain (R-Ariz.), Obama's Republican opponent, last month blasted the deal as a "train wreck" and urged DOJ to examine it closely. How has a proposal that UPS maintains is a straightforward "capacity-sharing" pact become such a political hot button? The answer lies in Wilmington, the small Ohio city that serves as DHL's US air hub. ABX has warned that the deal could force it to cut up to 6,000 jobs based there, and another 2,000 workers employed in Ohio by Astar and DHL also are in jeopardy. Ohio is a key "swing state" in the Nov. 4 presidential election. DHL's largest ground sorting facility in the US is adjacent to the Wilmington airport and the German delivery giant plans to keep it running. But all of the air operations would shift to UPS Airlines' Louisville hub. "After everything the people of Ohio did to attract DHL's business, DHL owes it to them to try to negotiate, in good faith, an alternative structure or a new contract to save these 8,000 jobs," Obama said. DHL entered the US market in 2004 following a contentious legal debate over whether ABX and Astar actually would be US-owned carriers or would be under the de facto control of DHL parent Deutsche Post World Net in violation of US airline ownership and control laws. Now opponents of the DHL-UPS deal insist that DHL provides necessary competition in the US even though it is estimated to control well under 10% of the country's air express market. UPS says it will serve merely as a "vendor" to carry DHL packages from airport to airport within the US, will continue to compete with DHL globally and does not consider the pact to be a merger of any kind. DOJ has no jurisdiction, DHL and UPS insist. "DHL will remain fiercely competitive with UPS and FedEx," Mullen told Congress. But American Antitrust Institute attorney Samuel Simon argued during Congressional testimony that "the deal appears on its face to set DHL up to be squeezed on prices and services by a principal competitor. . .If DHL does not intend to depart the US market, then perhaps its objective is to facilitate horizontal collusion, whereby it would benefit from higher prices within a less competitive market in which only two players need to make pricing decisions." He added that if DHL "fails to protect its competitive independence [in the US], the result will be to reduce what is already a highly concentrated market to an effective duopoly, a matter that would be of public concern." Countered UPS President-Corporate Transportation Burt Wallace: "We will each price and market our own brands and services. We will not share profits, costs or information about pricing of services." ABX and Astar, meanwhile, face an uncertain future. While ABX has been developing non-DHL business , Astar is tied almost exclusively to DHL, which owns a 25% stake in the airline. Astar COO Gary Hammes alleged to Congress that UPS is telling shippers that DHL's service will be "substandard'' under the air lift arrangement and that they should drop DHL and switch to UPS. "It is our belief that these sales calls are working,'' Hammes said, claiming that DHL's US air volume is down approximately 40% since the UPS/DHL deal was announced in May. When the agreement was first revealed, DHL and UPS said the pact would be finalized by the end of the summer. They now have pushed that deadline back to the end of 2008, perhaps hoping the political controversy will cool once the election is over.- -Aaron Karp Source ATW and BBC |
