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DHL FHWA Net Conference Presentation
October 20, 2004
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Ground Network Review
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Purpose
To discuss the strategic redesign of the Legacy
Airborne Ground Network into a fully integrated
DHL National Hub and Spoke Ground network
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Agenda

• DHL Background Who is DHL?
• Current Ground Network Design
• Transition from Centralized System to Hub Spoke
  Design
• DHLs Ground Hub Network (Why Transition)
• Network Design Methodology and Optimization
  Modeling
• Transportation Planning Considerations
• New Network Design Hub Spoke Network
• Transportation Economic Reality
• States That allow Double Trailers
• DHL impact on Existing Interstate/Turnpike
  network
• FHWA Assistance
• Summary

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Who is DHL?

• DHL was founded in San Francisco in 1969
• We are an express delivery company that services
  approximately 8 of the U.S. domestic market
• Under the DHL Express Service umbrella, we offer
  Ground Deferred, Express, 2nd day, and
  Residential delivery (At Home) service
• DHL is the 1 provider of international shipping
  in the world, with approximately 38 of the
  global express market share.
• We operate in 220 different countries
• Over 32,000 employees in the United States
• Thus our motto of We move the world
• We recently acquired Airborne Express to become
  the 3 domestic provider in the express delivery
  industry in August 2003
• Moving approximately 386 million packages each
  year in the Americas

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Current Network Design Central Hub System
Green Lines Aircraft Connection required
Orange Lines Trucks to and from Stations
Red Lines Interhub truck moves
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DHL Hub and Spoke System

• By December 2004, DHLs Ground Network will
  consist of 19 regional hubs, and 442 service
  centers located throughout the lower 48 states
• We service every zip code in the United States
• DHL is shifting from a Central Hub system to a
  Hub Spoke system similar to the UPS and FedEx
  operational designs
• Future business plan to invest 1.2 Billion

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Why are we Transitioning?

• In order to compete with the duopoly that is
  FedEx and UPS, we had to change the way we
  operated.
• Allowed us to realize some of the benefits of
  consolidation that werent being realized before
• Customers wanted a network that was competitive
  throughout the nation, not just in between one or
  two specific markets
• We are very competitive to the Industry Standard
• Setting the best transit in some markets
• Under the old system everything traveled to our
  hub in Wilmington, OH
• This caused extremely uncompetitive service
  between points located on the West Coast and
  Mountain states
• We previously used excess air capacity on
  existing flights to move ground packages on low
  volume lanes, but as volumes continue to grow, we
  will run out of capacity on these underutilized
  flights

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Network Design Methodology

• DHL is currently in the process of expanding its
  Ground Network Operations in the United States
• By using factors such as market density,
  interstate road connectivity, industry transit
  times, and road speeds, we select the most
  optimal location for our Regional hubs
• We also factor in criteria like labor
  constraints, traffic and weather patterns, and
  proximity to airports in determining the final
  location
• By shifting to a hub and spoke system, we are now
  able to provide competitive service, while taking
  advantage of the economies of scale that come
  with consolidation

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Optimization Modeling

• In the years past, DHL designed our network using
  manual trial and error
• Hub location analysis was dependent upon a blend
  of logic and gut feeling
• In todays world of simulation and statistical
  modeling, DHL uses state of the art Optimization
  software to identify investment opportunities for
  trucks and hubs
• By equipping analysts that know the ins and
  outs of the small package industry with powerful
  computing tools, we are able to identify
  profitable investment opportunities
• Decisions such as where to place a new hub
• What truck linehaul requirements will be needed
• Hours of operation
• Cost/benefit analysis
• Optimal routing and scheduling
• Volume arrival profile at hubs and service centers

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Transportation Planning Considerations

• The small package industry truckloads differ from
  typical truckload.
• 23,500 lbs looseloaded or 18,500 lbs palletized
• Truckloads will always cube out before we ever
  exceed maximum weight limits
• Most truck runs are serviced by team drivers due
  to the service commitment for our interstate runs
• We use a 47 mph transit standard for determining
  our transit times throughout the country
• We drive industry competition by dissecting the
  U.S. into 5 transit day regions
• We also operate a majority of our truck runs at
  night, between the hours of 8 pm to 8 am.

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New Network Design Hub and Spoke System
Green Lines Aircraft Connection required
Orange Lines Trucks to and from Stations
Red Lines Interhub truck moves
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DHLs Hub Ground Network (19 hubs/450 stations)
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Transportation Economic Reality

• Package Density is essential to success in this
  industry
• Each added package that moves over network
  (265,000 lane segments) translates into a
  marginal decrease in unit cost
• Current loads are either loose-loaded or a
  combination of pallets and roll on/roll off
  containers
• As density builds, we will transition to a more
  loose-loaded truck network
• Transportation costs offset the additional labor
  costs
• One power unit can move a 53 trailer or Double
  28, 45, 48 trailers, thus driving favorable
  economics
• As density builds, we will transition to more
  double trailers on high density lanes

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States that allow Double Trailers
States that allow Double Trailers
Interstate Highways that allow Double Trailers

• With less than 40 of states allowing double
  trailers on their Interstate highways, carriers
  would need locations to where they could
  deconsolidate and reconsolidate trailers
• If we dont have locations to do this, it would
  be virtually impossible to use double trailers on
  only but a handful of lanes.

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Performance Management

• In the small package industry, transit times are
  quoted in business days.
• Thus pickups made toward the end of the week have
  a higher on-time service rate than ones picked
  up at the beginning of the week due to weekends
• With weekends, we get 2 free days to move our
  product without incurring service penalties
• Since the industry treats every day the same,
  weekends give us the opportunity to recover from
  any delays in transit
• Since failures are bound to occur during the
  middle of the week, recovery via aircraft is our
  only other option.
• Many of our current hubs have aircraft that are
  used to move our 2nd day product and recover any
  failures that occur on the Ground side
• Our long term goal is to have a fully optimized
  intermodal system to provide a variety of service
  offerings to our customers
• Adhering to schedules is essential to on-time
  service
• Hub to hub truck movements will be within 15
  minutes of the schedule
• Service center to hub truck movements will also
  be with in 15 minutes of the schedule

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DHL continually evolving (Future Plans)

• Qualcomm tracking
• DHLs goal is to trace every truck in our network
  just like we are able to pinpoint where each one
  of our aircraft at any given time of the day.
• Optimization Modeling software
• By using state of the art modeling software, we
  are able to identify areas of opportunity
• Linking North America with an extensive ground
  network
• Our goal is to have a network that can move a
  package from the southern tip of Mexico to the
  northern edge of Canada in a seamless integrated
  network
• By setting up cross border points and customs
  clearance locations in strategic locations
  throughout the country, DHL will be able to offer
  its customers a more robust product offering
• Refleeting our network
• Currently DHL has been refleeting our courrier
  vans, but our goal is to expand this to include
  outsourced tractor-trailer fleet
• Outsourcing
• DHLs core business is moving packages, so we
  continually plan to outsource our linehaul to
  companies that have proven they can support the
  rigid standards that our customers expect out of
  the 1 express service in the world

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Help from the DOT

• Locations to consolidate and deconsolidate double
  trailers
• Doing this could help bring down the number of
  tractors running over the interstate road system
• Example Florida Turnpike DHL cannot implement
  doubles because breakdown locations do not exist
  off exits near our service centers
• Additional direct Interstate connectivity between
  major cities
• Memphis to Atlanta, Kansas City to Memphis,
  Denver to Phoenix, Tulsa to Kansas City, Dallas
  to Denver, Salt Lake City to Phoenix
• Hours of Service
• Finalize the changes for the Jan. 1, 2004 hours
  of service
• Switching back and forth is costing our carriers
  millions of dollars in software upgrades,
  drivers, and equipment. This in turn is passed
  on to DHL and our customers

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Summary

• DHL is expanding its Ground Deferred Business
• Changing from a Centralized Super Hub network to
  a a National Hub Spoke network
• Overall there will be little change in truck
  traffic on the National Highway System
• Existing carriers 160 Truck runs per day
  1,750
• Volume market share shifts among the Top 3
  package companies
• Will use more doubles which will reduce the
  number of power units on the highway system
• Identified areas where we need support from the
  DOT