FlyAstarJets

Looks like not everyone thinks this deal is the best thing since sliced bread.



US Sen antitrust chair urges DOJ to block DHL/UPS

Thu Sep 25, 2008 4:39pm EDT



WASHINGTON, Sept 25 (Reuters) - The U.S. Justice Department should block a proposal for UPS Inc (UPS.N: Quote, Profile, Research, Stock Buzz) to take over air shipments for DHL Express in North America, the chairman of the Senate antitrust subcommittee said on Thursday.
Herb Kohl said government antitrust officials should prohibit the 10-year deal from taking effect, calling it anti-competitive.
In a letter to DOJ antitrust officials, Kohl said the deal would essentially eliminate DHL as an independent competitor in the express package business, possibly raising prices and hurting service to consumers.
DHL, a unit of Germany's Deutsche Post AG (DPWGn.DE: Quote, Profile, Research, Stock Buzz), and UPS executives have told lawmakers their deal is not a merger and would not hurt competition. (Reporting by John Crawley, editing by Richard Chang)

http://www.reuters.com/article/marke...01015520080925

Slice

I guess we'll see how strongly the politicians feel AFTER the election...until then most of this is probably smoke and mirrors.

Delco92

Kohl on the other hand has voted against many free trade agreements including the North American Free Trade Agreement (NAFTA) and more recently the Central America Free Trade Agreement (CAFTA),

Herb Kohl - Wikipedia, the free encyclopedia

hvydriver

I agree we'll have to wait till after elections, maybe... however, all committees have recommended to the appropriate authorities to investigate, and Kohl has called publically outright for the deal to be halted. I'd say that's about all politicians are going to do. Have you watched the hearings? It's lots of fun... well ok, a lot is boring, but there are some cool zingers in there that almost make it worth it to watch them.

CactusCrew

How do you manage to wake up for the zingers ?

hvydriver

Lots and lots of Starbucks.

MoosePileit

UPDATE 1-US Sen antitrust chair urges DOJ to block DHL/UPS | Reuters

It's just the law of unintended consequences again- like age 65- DHL will leave the USA minus 30,000 plus jobs. UPS and Fedex will gain their natural pieces of the pie. I'm sure the actual total deal was much bigger than just UPS picking up their sort and flying and DHL leaving Wilmington, OH. It's not a fixed size pie and the world isn't all that flat yet....

Thanks for the update, Reuters changed the link already:

UPDATE 1-US Sen antitrust chair urges DOJ to block DHL/UPS | Reuters

FR8K9

Big whoop.

Obama already said the same thing last month.

hvydriver

So did McCain as well. Here's the letter from Kohl to the DOJ:

September 25, 2008


The Honorable Thomas Barnett
Assistant Attorney General
Antitrust Division
United States Department of Justice
950 Pennsylvania Avenue, N.W.
Washington, D.C. 20530

The Honorable William E. Kovacic
Chairman
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580

Dear Assistant Attorney General Barnett and Chairman Kovacic:

On May 28, 2008, DHL Express US (“DHL”) and United Parcel Service, Inc. (“UPS”) announced their intention to enter into a contract where UPS will become, for ten years, the exclusive provider of air transportation for DHL’s North American package delivery service. The Ohio congressional delegation, and other members of Congress, have raised serious concerns about the proposed deal and implications for job loss and competition. The Antitrust Subcommittee, as well as the office of Senator Brown, have been investigating the likely competitive consequences of the DHL-UPS arrangement, and we write to inform you of the conclusions of our investigation. In brief, it is our conclusion that, should this agreement be finalized, it would be anti-competitive and in violation of antitrust law and therefore should be blocked by the appropriate antitrust enforcement agency.

UPS and DHL are, respectively, the second and third largest overnight package delivery services in the United States. The top three competitors, FedEx, UPS and DHL collectively control over 90% of the market. According to the Air Cargo Management Group (“ACMG”), of the over $ 32 billion domestic air cargo and express market in 2007, FedEx had a 43% market share by revenue, UPS a 32% share, and DHL an 8.5% share.[1] The daily package volume in the U.S. domestic express market is at 6.644 million shipments per day.[2]

DHL currently contracts with two independent airlines, ASTAR and ABX, to provide the air transportation for DHL packages (otherwise known as “airlift”) throughout the United States. The hub for both airlines, and the location of the sorting of DHL packages, is Wilmington, Ohio. The Wilmington Air Park is the largest employer in southwest Ohio, employing a total of approximately 9,000 people in the ASTAR and ABX airlines and DHL sorting operations.

As noted above, DHL now proposes to contract with one of its two main competitors, UPS, to provide nearly all the airlift and sorting services for DHL packages. It is our understanding that, if this agreement is finalized, DHL’s contracts with ASTAR and ABX will be terminated and nearly all DHL packages will be shipped on UPS’s airplanes, and the main hub sorting of DHL’s packages will occur at UPS’s hub in Louisville, Kentucky. It is expected that nearly all of the 9,000 jobs in Wilmington, Ohio will be lost. It is our judgment that this arrangement will substantially diminish, if not eliminate, the competition between DHL and UPS by rendering DHL a captive of UPS rather than an independent competitor, and therefore constitutes an illegal agreement in restraint of trade under Section 1 of the Sherman Act.

There are several reasons for our conclusion that the DHL-UPS agreement, if consummated, would be anti-competitive. First, once this agreement is implemented, DHL will become dependent on UPS for air delivery of its packages, obviously an essential part of DHL’s business. Indeed, it appears that air delivery is the most important cost of an express package delivery business. It seems highly doubtful that DHL will still be able to effectively compete against UPS since UPS will now have a large role in determining the cost and quality of DHL’s services. Whether, and how, DHL packages will receive priority should UPS planes fill to capacity is another serious concern raised by this deal. Should DHL suddenly pose a competitive threat, UPS might have the ability to degrade DHL service by giving DHL low priority on UPS planes. It appears contrary to the basic principles of full and fair competition to have DHL entirely reliant on one of its two main competitors for the air shipment of its packages.

Second, this arrangement would appear to give UPS the ability to engage in a “price squeeze” by raising DHL’s costs while reducing the prices it charges to its own customers. UPS would be free to raise the price on a key input for DHL (airlift) so that DHL would have to charge rates much higher than UPS or lose money on each package. This conduct, of course, would be wholly destructive to competition.

Third, critics of the deal have asserted that it would also require DHL to adopt UPS’s package tracking, labeling and hub distribution systems. If this is true, UPS would have access to DHL’s proprietary data, by giving UPS access to DHL barcodes or labels that include information such as package contents, name and address of customers, volume and price. UPS could gain the information it could use to undercut DHL on price, and to convince DHL customers to switch express delivery services.

Fourth, if the DHL-UPS agreement is consummated, the result will be that only two airlines (FedEx and UPS) will provide airlift for about 90% of the nation’s overnight express delivery services. Having only two airlines providing national airlift capacity for overnight package delivery could raise the risk of serious economic disruption should service on one of these two airlines be reduced due to unforeseen difficulties, such as a strike, maintenance issues, weather disruptions or other similar events.

Additionally, as noted above, implementation of the DHL-UPS agreement will likely result in the loss of approximately 9,000 jobs in southwestern Ohio. While not directly relevant to the competition analysis set forth above, we urge the regulators to be cognizant of the potentially devastating economic impact of such job loss resulting from this anti-competitive agreement. An agreement which substantially injures competition while destroying the livelihood of thousands of people should not be countenanced by your agencies.

In sum, the DHL-UPS agreement, if consummated, is likely to essentially eliminate DHL as an independent competitor in the express package delivery business. It will make DHL wholly dependent on the air transportation and sorting services of one it’s two chief rivals, will leave DHL subject to a price squeeze, and will enable UPS to gain access to the pricing and other valuable commercial information of DHL. Elimination of an independent competitor to UPS and FedEx carries the very substantial risk of higher prices and degrading the quality of services offered to consumers for overnight package delivery. If consummated, it is clear to us that this agreement would constitute an illegal restraint of trade under Section 1 of Sherman Act, and that therefore the antitrust agencies should take action to block it.

Thank you for your consideration of this matter.

Sincerely,


HERB KOHL SHERROD BROWN
Chairman, Subcommittee on United States Senator
Antitrust, Competition Policy
and Consumer Rights

FlyAstarJets

Did Barry or Mick actually say "the deal should be blocked or shut down"?? I thought the response from both was sorta like, "It's a damn shame. Someone should look into this more".

I figure to some it's a "big whoop" when a Chairman of a Senate committee ( one who is NOT up for reelection this year ) comes out and says, straight up, that the DOJ should block the deal. Or at the very least, it's an interesting development.