DHL Corporation and Subsidiaries - Page 107

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               In 1983, DHL decided to increase its domestic coverage, both           
          to protect its share of the outbound market and to handle more              
          domestic shipments that could improve profitability and provide             
          more potential for foreign outbound customers.  DHLI management,            
          however, was not in favor of DHL’s domestic expansion plan.                 
          DHL’s domestic expansion included the establishment of its own              
          airline (DHL Airways), which was a capital-intensive and                    
          expensive method to ensure expansion capacity and more                      
          individualized and reliable schedules.                                      
               There were also additional capital expenditures for new                
          locations, vans, couriers, and other equipment, which further               
          strained DHL’s cash-flow in the mid-1980’s.  Because Federal                
          Express had an established comprehensive overnight delivery                 
          network, it had achieved the highest volumes and the lowest per-            
          shipment costs, and as a result, the DHL expansion was                      
          insufficient to effectively compete.  A bigger company with large           
          volume and existing ground network, such as UPS, was better                 
          equipped to challenge Federal Express.                                      
               DHL bid low on a U.S. Government contract with the General             
          Services Administration (GSA) to help fill its planes and help              
          with the extra cost of expansion.  Additional costs, however,               
          were incurred under the GSA contract because the deliveries were            
          not at consolidated locations but rather were to specific floors,           
          offices, or desks.  The low bid and added costs made the GSA                

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