DHL Corporation and Subsidiaries - Page 108

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          contract an additional burden on DHL’s financial condition rather           
          than helping to facilitate expansion.                                       
               In addition, DHL embarked on its expansion at a time when              
          the U.S. overnight delivery market was becoming more competitive,           
          especially because UPS had entered that market.  Federal Express            
          responded to the market forces by cutting prices, and U.S. market           
          prices fell steadily during the period when DHL was trying to               
          expand.  Because of its expansion and the market forces, DHL                
          experienced increased financial strains and severe cash-flow                
          problems during the mid-1980’s.                                             
               From 1983 through 1988, DHL’s domestic volume increased                
          sharply, and its domestic revenues also increased, although at a            
          lower rate.  Although DHL did achieve some reductions in its per-           
          shipment costs, the cost of the expansion, price competition in             
          the U.S. market, and DHL’s failure to achieve the same economies            
          of scale as its larger competitors caused DHL to sustain heavy              
          losses, ranging from $5 million to $25 million per year.  Some of           
          the reasons for DHL’s poor performance in its attempted domestic            
          expansion were similar to Federal Express’ poor performance in              
          its attempted foreign expansion in attempting to compete with               
               DHL’s losses from 1983 through 1988 were attributable to its           
          domestic business, not to its outbound business.  During the same           
          period as the domestic expansion and losses, DHL’s outbound                 
          volume and revenues were steadily increasing.  DHL experienced              

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