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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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