UPS in pact with DHL to take over US flying

United Parcel Service expects as much as $1 billion in revenue per year from its deal with Deutsche Post AG. (George Widman/Associated Press/File 2005)

DALLAS - United Parcel Service Inc., the world's largest package-delivery company, said it expects as much as $1 billion a year in new revenue as it takes over US flying for Deutsche Post AG's unprofitable DHL unit.

UPS rose $2.14, or 3.1 percent, the most in four months, to $70.54, after disclosing the tentative agreement yesterday with Deutsche Post, Europe's biggest mail carrier. A final contract should be completed in 2008 and run 10 years, Atlanta-based UPS said.

The new business will help UPS cushion the blow from declining package demand as US economic growth slows.

Deutsche Post said it will shut some US sorting facilities and cut as many as 1,800 jobs, saving $1 billion annually as DHL struggles to compete with UPS and FedEx Corp.

The deal "shows that UPS and FedEx are handily beating DHL in the US," Standard & Poor's analyst Jim Corridore said in a note. "The agreement could lead to a larger alliance, should DHL decide to exit its US business."

Annual revenue at UPS totaled $49.7 billion in 2007. The agreement includes taking on flying for Deutsche Post for packages being shipped between the United States, Canada, and Mexico.

UPS has a 52 percent share of the US package-delivery market, followed by FedEx's 30 percent share, according to SJ Consulting Group Inc. in Sewickley, Pa. The US Postal Service controls about 13 percent of domestic packages, and DHL has 6 percent.

UPS said it plans to add 12 new planes by the end of 2009 and complete a $1 billion expansion of its hub in Louisville, Ky., as part of its strategy to expand North American capacity.