Express giants battle it out in bid for aerial superiority

Date: 05/06/03

Top American express delivery companies are lobbying hard to put the airbrakes on German-controlled DHL. But they insist it is not an EU-US trade war. Peter Chapman takes a look at the multi-million euro dogfight

EUROPE and US are doing battle again. This time over who gets the control of the lucrative US express industry.

It is the epitome of a modern lobbying campaign.

It is often dirty, it's underhand and, more to the point, hundreds of millions of euro are at stake.

US express giants United Parcel Service (UPS) and Federal Express (FedEx), which control 70 of the market, are using every available means to thwart the efforts of their European rival DHL, which is controlled by Germany's Deutsche Post, from muscling-in on their territory.

Access to a dedicated fleet of aircraft is a big advantage for an express firm with ambitions to be top dog.

But the pair have invoked old US rules capping the foreign ownership of airlines at 25 to peg-back DHL in America.

They insist DHL's American airline subsidiary DHL Airways, which carries its parcels across the North American continent, is illegal.

This is because a German company effectively controls it - even though it has been sold to US-based management.

For the same fundamental reason, they are crying 'foul' over DHL's takeover of rival express firm Airborne, because the latter's airfleet, though spun off to separate owners, would likely be reliant on DHL for most of its business.

A judge ordered DHL Airways to hand over extensive financial information last week to help decide the parenthood of the firm, as part of a hearing demanded by UPS, FedEx and Congress.

Behind the scenes, things became even more colourful when the US Senate called for amendments to a bill covering military cargo - a lucrative business given the situation in current post-war Iraq and Afghanistan.

The law, if finally adopted, could stop air carriers with foreign links from carrying US military cargo.

Alaskan Republican Ted Stevens, who sits on the Senate Appropriations Committee, tabled the amendments and House of Representatives Whip, Roy Blunt of Missouri, was also an active supporter.

Observers on Capitol Hill have pointed out that an Alaskan cargo firm just happened to lose a lucrative contract to DHL Airways recently - while Blunt's son just happens to be a lobbyist, acting for UPS, back home in Missouri.

Machiavelli would doubtless have been proud.

Back in the old continent, European Voice has learned that senior officials from the Brussels-based DHL Worldwide Network are using their good offices at the European Commission to get a helping hand from Pascal Lamy, the trade commissioner.

In private, Lamy's officials say there is little the Union can do to force the US to play fair, for the moment at least.

Nor should the European trade chief step in, insists Anton van der Lande, the Brussels-based European public affairs director of UPS.

In fact, if the EU decided to help out, it would actually be confirming what his company says, that DHL is controlling its US airline 'partners'.

"This is not an EU-US trade dispute and we don't want it to become an EU-US trade dispute.

"It is merely a matter of compliance with US law requirements on the ownership and control of US airlines.

"DHL Airways claims that it is a US carrier and that they meet US law requirements on the ownership and control of airlines. We want to make sure that this is the case and we don't understand what would make this issue an EU-US trade dispute," he says.

In any case, he claims, what UPS and FedEx are trying to do in the US is not as blatant a case of protectionism as it looks: the two firms are merely insisting that DHL plays by the rules.

"We are asking DHL to comply with US law, just like we have to comply with EU law and national member states' law when we operate in Europe."

Klaus Zumwinkel, CEO of Deutsche Post cuttingly replied to questions on the issue: "There are brown planes at German airports". (UPS' livery is a trademark shiny brown.)

But Van der Lande says Europe is far from a liberal haven for foreigners. Costly restrictions abound, as well as the fact that Mario Monti, the competition commissioner, has accused Deutsche Post of cross-subsidising its parcels business with profits from its state-granted letters monopoly.

"UPS does not have full access to the European air transport market and there are many things that DHL can do in Europe that UPS cannot do there."

For example, he says, so-called 'fifth freedom' rights to fly on to another European destination after dropping off parcels in the UK, Ireland, Spain and Greece are "limited".

The right to carry goods between domestic points such as Paris to Lyon or Edinburgh to London is also curtailed.

For UPS, these restrictions mean in effect that the "vast majority" of its European air network is operated by 14 European sub-contractors and not by its own low cost airline operations. The best way to move towards a level playing field, says Van der Lande, is for Loyola de Palacio, the EU's transport commissioner, to convince the member states first to tear-up their "archaic" bilateral aviation accords with the US.

Then, they should replace them with an EU-wide 'open skies' deal that scraps all the restrictions on the comings and goings of foreign firms.

"That would solve the ownership problems," says Van der Lande, "although we would still have our arguments with Deutsche Post over cross-subsidy and state aid."

"We and FedEx are faced with limitations in Europe. We can't own an airline. We think it's unfair that a large international courier company - DHL - in the US is an American company and in Europe it is a European company. We have always been in favour of open skies. But until that happens the rules that are in place should apply equally," he said.

As European Voice went to press, EU transport ministers were discussing single skies issues.

EU and US companies are battling for control of the lucrative US express industry.