UPS Spokesman Norman Black confirmed in an interview with LM that talks between UPS and DHL have ceased. But he declined to disclose additional information, citing the "quiet time" period prior to UPS's quarterly earnings announcement this Thursday.

And an AP report cited a DHL statement that said "We have not been able to come to a conclusive agreement that is acceptable to both parties." UPS and DHL officials were unavailable for further comment at press time.

The deal was initially announced in May 2008, prior to DHL's announcement last November that would eliminate U.S. domestic-only air and ground services to focus on international import an export offerings in major metropolitan areas by the end of January. When DHL officially exited the domestic market, many industry observers noted that it left the status of the proposed ten-year, $10-billion deal in flux.

Under the terms of the deal, DHL Express would have worked with UPS for airlift capacity in an effort to reduce its ground infrastructure operations costs. UPS would have provided all airlift services for DHL Express U.S. domestic and international shipments from airport to airport within North America, giving DHL a single airline partner in the U.S., and UPS would have provided main hub package sorting services at UPS' Lousiville, Kentucky-based hub. The deal was originally supposed to be completed by the end of 2008.

One factor for the deal being shuttered centers around the decline in volume being handled by DHL now that it has left the domestic market.

Before DHL officially left the U.S. market, its air network handled about 1.2 million daily shipments for domestic and international shipments compared to its current levels-for international shipments only-that are around 100,000 per day. It also had roughly 13,000 employees, and will pare that down to 3,000-4,000 U.S. employees after it makes U.S. staff reductions. These job cuts are commensurate with DHL going from 412 stations and 18 ground hubs-when it still had a domestic footprint-to 103 ground stations and no ground hubs with an international-only U.S. presence.

It is likely that DHL's decrease in volume played a significant role in the deal not coming to fruition.

In an earnings conference call in February, UPS CEO Scott Davis said that UPS was finding it difficult to make an agreement, given the reduced scale of DHL's needs in the U.S., according to a Wall Street Journal report. He added that UPS is seeing "significant new volume" with DHL's exit from the U.S. market, and he expects that to continue. 

Shipper impact?: "On the domestic front this announcement does not herald anything new for shippers," said Doug Turner, president of Toronto-based Obsidian Consulting. "The main event was last November, when DHL announced the withdrawal from the US domestic, followed by the January 30th implementation. This withdrawal removed an important element of price and value competition from the US domestic market." 

DHL's current air cargo partners: In March, it was reported that DHL was in talks with its current air cargo partners-ABX and ASTAR Air Cargo-to handle, sort, and fly packages in the UPS since the UPS deal had not been inked. ABX and ASTAR have long served as DHL's airlift partners out the of Wilmington, Ohio Air Park, which has served as the home base for DHL's domestic and air ground hub.

But it now appears that DHL will be moving its U.S. hub operations to the Kentucky-based Cincinnati/Northern Kentucky International Airport (CVG) by mid-to-late summer, according to various reports. The driver for this move is nearly $2 million in tax incentives to relocate from Wilmington to CVG, noted reports. This announcement was made to DHL employees last week, but nothing was disclosed in regards to whom will serve as DHL's air carrier at the new location. DHL Director of Corporate Communications Jonathan Baker told the Associated Press that DHL will continue to use ABX and ASTAR to provide the airlift services that UPS wanted to take over, but he would not discuss any potential agreements with other providers.

The AP reported that this move was made by DHL to save money, adding that DHL worked out of this facility from 1983 until it moved to Wilmington in 2005, and it will re-activate its automated sorting facility at CVG as well. 

An industry source that declined to be identified was skeptical of this move to CVG, noting that it "should go as well as the move from CVG to Wilmington in September 2005 that brought the [DHL] network to a halt."

But Obsidian's Turner had a different take.

"The move to Cincinnati should give [DHL] more flexibility from a service standpoint and from a cost standpoint in terms of airlift options. It should allow them to be more competitive on international."