After a 10-year break, DHL is returning to the U.S. domestic shipping space. The new DHL Parcel Metro delivery service is the carrier’s pitch for a hotly contested market: low-cost next-day or same-day delivery to urban areas, utilizing an existing network of fulfillment centers and on-demand contract labor.

Germany-based DHL has been a bit player in U.S. logistics since a failed expansion into the country a decade ago. They currently deliver about 500 million parcels per year. For comparison, FedEx expected to deliver 400 million parcels during the 2017 holiday season alone.

But in 2016, DHL announced a $137 million investment in seven new or expanded U.S. fulfillment centers. Analysts suspected a reentry into the U.S. domestic market was possible.
In March, the company confirmed it: meet DHL Parcel Metro.

Related: Comparing Shipping Rates in 2018: FedEx vs. UPS vs. DHL vs. USPS

How Will DHL Parcel Metro Work?

DHL describes the new parcel delivery service as follows: customers make purchases from online retailers. Retailers prepare those ecommerce delivery packages for pick-up. Drivers take them from retailers to DHL facilities, where they are then assigned to a DHL-serviced delivery route. DHL notifies retailers and end customers of scheduled deliveries. And finally, drivers collect parcels from DHL and complete the deliveries.

The courier service currently offers same-day and next-day delivery and plans to add two-hour delivery. Tracking shipments in real time will be able to customers, send special instructions to their couriers and rate parcel service deliveries.

Parcel Metro will utilize what DHL calls a “virtual delivery network,” including both local and regional carriers and “crowdsourced” on-demand couriers, in the vein of Postmates or UberEATS.

If this model works, it should allow Parcel Metro to adjust to high-and low-demand periods efficiently. However, contractors constantly come and go. Relying too heavily on a third-party labor force could cause DHL to struggle with meeting demand.

DHL says retailers can “offer a fully branded delivery experience,” including a custom branded design of DHL’s mobile interface. The “virtual delivery network” software selects drivers that have the capacity to meet service levels along specific routes; a promise to retailers that DHL’s technology can keep their customers happy.

For non-urgent orders, the company said it will continue using the U.S. Postal Service for last-mile delivery as it has for years.

DHL Parcel Metro is already available in Chicago, Los Angeles and New York. The company plans to roll it out in Atlanta, Dallas, San Francisco and Washington, D.C. throughout 2018.

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How Does This Compare to Other U.S. Domestic Delivery Services?

DHL Parcel Metro is only available in urban areas. The company has not hinted at plans to provide cross-country courier services. In other words, DHL is positioning itself as a last-mile fulfillment partner. It can move packages from retailers to their customers, but won’t get involved earlier in the supply chain.

That will likely keep costs down for DHL Parcel Metro. The company doesn’t have to assume any of the high costs of long-distance fulfillment services as those will still fall to retailers. As such, we expect Parcel Metro’s rates to be lower than those of its direct competitors, UPS’ SurePost and FedEx’s SmartPost.

By limiting itself to urban areas, DHL is positioning its services close to consumers. That allows it to offer delivery times as short as two hours. Even if FedEx and UPS are able to make deliveries in such a short amount of time, they usually don’t promise it because they often have to cover larger distances too.

One Cowen & Co. analyst told CNBC that she suspects DHL is working with Amazon. “Amazon is growing 35-plus percent per year, and they need to figure out a way to get stuff to the buyers” Helane Becker told the business news channel. “FedEx and UPS have told Amazon they won’t scale with them, meaning that Amazon has to figure out a way to support their delivery network themselves.”

Whether that prediction turns out to be true or not, Parcel Metro will pose a direct threat to FedEx and UPS services in the ever-more-crowded last-mile-delivery space.

Related: Compare Shipping Rates: Your 2018 Carrier Rate Increase Guide

Is DHL Parcel Metro an Option for Your Company?

DHL has not said that Parcel Metro exclusively serve the retail market, but it hasn’t mentioned any other sector. Plus, its tight focus on urban markets makes much more sense for retailers than for manufacturers or other mid-supply-chain companies.

If you’re a retailer serving one of the urban areas where DHL Parcel Metro operates, you’re likely to benefit from its presence even if you don’t pursue a contract with the new service. Having a new parcel delivery competitor could force FedEx and UPS to lower their rates to compete. DHL hasn’t published Parcel Metro’s rates publicly. For now, the company is encouraging retailers to contact its representatives for a quote.

At Reveel, we believe more information is always better. If you want input from a trusted expert as you consider making DHL Parcel Metro part of your shipping strategy, contact us today.

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