DHL wins deal to supply goods to UK health service

Deutsche Post AG's DHL express-delivery and logistics unit won a 10-year contract to supply up to £ 3.7 billion ($7.1 billion) a year of goods to the UKstate-funded National Health Service. The deal, in which DHL will operate parts of two NHS agencies for the government, is worth £ 1.6 billion in revenue to the German company, which will manage £ 22 billion of spending, DHL said in an e-mailed statement. Europe's biggest postal company, bought Bracknell, England-based Exel Plc for £ 3.8 billion last year to increase DHL's business managing warehouses and distribution. The purchase was part of Bonn-based Deutsche Post's strategy to expand abroad as it prepares to lose its monopoly on German letter deliveries at the end of 2007. “The size of the contract indicates that their acquisition of Exel is beginning to pay off because they now have a presence in this market they wouldn't have had otherwise,” said Per-Ola Hellgren, an analyst with Landesbank Rheinland-Pfalz in Mainz, Germany, with a “market perform” rating on Deutsche Post shares. “This is certainly one of Deutsche Post's largest logistics contracts ever.” Shares of Deutsche Post rose as much as 14 cents, or 0.7%, to € 20.30 and were up 0.2% at 10:27 a.m. in Frankfurt. The stock has fallen 1.6% this year, valuing the company at 24.1 billion euros ($30.9 billion).

The Department of Health said the total amount of spending DHL could be handling is £ 3.7 billion a year. Both parties said the deal could save the NHS £ 1 billion over 10 years. “Healthcare is a very promising for us long-term,” John Allan, head of DHL's logistics business, said in an interview. “This is a big contract and the priority is getting it absolutely right.” Profit margins on the contract will be “single digit,” Allan said, without giving further details. Any increased private-sector involvement in the NHS is opposed by unions and many lawmakers in Prime Minister Tony Blair's ruling Labour Party. Blair came to power in 1997 promising to “save the NHS” from privatization. “The arrangement means substantial scope for bringing down the prices of the goods that NHS trusts buy,” Health Minister Andy Burnham said in an e-mailed statement. “The NHS is not an expert in distribution or warehousing. There is a compelling case to bring in a company which is.”  

Under the agreement, DHL will be responsible “for delivering all procurement and logistics services across an initial 500,000 products to support 600 hospitals and other health providers in England,” the company's statement said. DHL will run a new service, to be called NHS Supply Chain, which will involve it taking over operations currently controlled by the government-run NHS Logistics and NHS Purchasing and Supply Agency, the Department of Health statement said. DHL said it will supply bed linens, clothing, medical supplies, food, office equipment, stationery, cleaning products and other items. The NHS, Europe's largest employer, provides health care to UK residents. Blair is trying to improve the agency's productivity and performance. While he has increased health-care spending per person by 63% between 1999 and 2005, fewer than half of English hospital workers surveyed last year said they would be happy with the standard of care in their unit if they were a patient.  

The DHL deal will result in 1,650 jobs being transferred to the private sector from Oct. 1, the Department of Health said. It added that 1,000 jobs would be created. “NHS logistics is an award-winning organization. It doesn't make sense to sell it off,” said the chief spokesperson for the union Unison, who requested not to be identified. “This is an awful way for workers to find out about the deal, through the media.” Union members from NHS's logistics division have been holding a strike vote ballot for the past several weeks over the issue and the ballots will be counted Sept. 11, Unison said. DHL employs 70,000 people in the UK and has worked with NHS for several years handling its hospital deliveries, according to DHL spokeswoman Sarah Jones. (Bloomberg)