UPS Inc., the world's largest package-delivery company, said it expected as much as $1 billion a year in new revenue as it takes over U.S. air shipments for Deutsche Post AG's unprofitable DHL unit.
UPS shares rose in New York trading after the company announced the tentative agreement yesterday with Deutsche Post, Europe's biggest mail carrier. A final contract should be completed in 2008 and run 10 years, Atlanta-based UPS said.
The new business will help UPS cushion the blow from declining package demand as U.S. economic growth slows. Deutsche Post said it would shut some U.S. sorting facilities and cut as many as 1,800 jobs, saving $1 billion annually as DHL struggles to compete with UPS and FedEx Corp.
Annual revenue at UPS totaled $49.7 billion in 2007, so the boost from the DHL accord would be about 2 percent. While UPS also will take on flying for Deutsche Post for packages being shipped between the United States, Canada and Mexico, it will not handle pickup or delivery to DHL customers.
Working with DHL will create "a substantial and profitable revenue stream," UPS chief operating officer David Abney said in a statement.
UPS shares rose $2.14, or 3.13 percent, to close at $70.54 in New York Stock Exchange composite trading for the biggest gain since March 18.
Shares of Air Transport Services Group Inc., whose ABX Air Inc. unit flies for DHL, tumbled $1.24, or 41.75 percent, to $1.73 in Nasdaq Stock Market composite trading. DHL is ABX Air's biggest customer.