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Speaker 1: how those negotiations may begin over the next twenty four
Speaker 1: hours of the US delegation on their way to Pakistan.
Speaker 1: But one of the concrete consequences of the war has been,
Speaker 1: of course, the disruption to energy markets, and part of
Speaker 1: that leading to higher jet fuel costs that are forcing
Speaker 1: airlines to curtail their schedules. KLM, Luftanza and cath Pacific
Speaker 1: are among the carriers who are pruning their flight timetables
Speaker 1: due to higher costs. That's the passenger side of the business,
Speaker 1: but what does it mean for air freight. Joining us
Speaker 1: now in the Brussels radio studio to discuss is to
Speaker 1: Bias Myer, CEO of the DHL Group. Good morning, great
Speaker 1: to see you with us. Can you talk to us
Speaker 1: about what sort of impact you've seen so far from
Speaker 1: these increases in oil prices and as a result in
Speaker 1: jet fuel.
Speaker 2: Firstly, the crisis obviously indicted a direct operations in the
Speaker 2: Middle East that has now not fully normalized, but at
Speaker 2: least we have much better student I think that's very
Speaker 2: important to us. We have quite a number of colleagues
Speaker 2: in the region, so it's good to see that the
Speaker 2: military activity.
Speaker 3: Has come down.
Speaker 2: Now what hasn't changed, indeed, is that the world is
Speaker 2: lacking ten twelve million barrels of crudel supply every day,
Speaker 2: and also natural gas is needed in many economies in Asia,
Speaker 2: in Europe a critical supply of that also coming through
Speaker 2: that strait. We have seen some impact in Asian airports
Speaker 2: and we also see most concerned about the supply of
Speaker 2: jet fuel in Asia in Europe. So far, our suppliers
Speaker 2: tell us that for the coming weeks, maybe even months,
Speaker 2: there is security of supply, but in each of the
Speaker 2: situations more fragile. You also see this in the prices,
Speaker 2: which I believe is important that in this situation, prices
Speaker 2: need to steer how the shortage is managed. Prices need
Speaker 2: to steer where the supply is going to satisfy essential
Speaker 2: demand that is not crypt leading to crippling effects those
Speaker 2: shortages potential shortages of the global economy.
Speaker 3: So that remains a concern.
Speaker 1: How much visibility do you have. You're talking about there
Speaker 1: being situation being okay in Europe for the next couple
Speaker 1: of weeks, but when do are you starting to worry that?
Speaker 1: You know, if there isn't a resolution and a greater
Speaker 1: resumption to supplies that there will have to be greater
Speaker 1: curtailments to your services.
Speaker 2: Well, there hasn't been, Eddy Kotelman, and we wouldn't expect
Speaker 2: that because what we do is quite essential. We are
Speaker 2: not transporting tourists that might have a greater sensitivity to price.
Speaker 2: Our customers, especially in the express segment, need those goods
Speaker 2: to be shipped, and logistics cost is often only a
Speaker 2: small fraction of the price of goods, and especially the
Speaker 2: price of those goods not being available if you think
Speaker 2: about electronics, if you think about spare parts, so those
Speaker 2: costs are quite high and this is why our willingness,
Speaker 2: our need to pay is there. So we would absolutely
Speaker 2: do the utmost that we can to keep a supply
Speaker 2: of the essential commodity of jet fuel going.
Speaker 3: But it's not always in our hands.
Speaker 2: We do not control refineries, we do not control the
Speaker 2: jet fuel systems in.
Speaker 3: A lot of airports.
Speaker 2: Some airports which are where we have very large operations
Speaker 2: Leipzig or Central European and Global Hub for instance, we
Speaker 2: have our own fuel farm, so there we have greater
Speaker 2: degree of control.
Speaker 3: But that's not the case in all locations. We operate.
Speaker 1: I mean, how much do you have a sense of
Speaker 1: how much pricing power you have? Obviously the costs have
Speaker 1: to go up, and you pointed to the essential nature
Speaker 1: of the deliveries to your customers. I mean, you know
Speaker 1: how I can't freight costs go well.
Speaker 2: I mean we have seen a substantial rise on Asia Europe,
Speaker 2: especially the shortfall of capacity the Middle East and HUP
Speaker 2: carriers not being available and those both having full freighter
Speaker 2: operations that are now part suspended, but also a lot
Speaker 2: of capacity as belly freight on passenger aircraft. That capacity
Speaker 2: has fallen away and that is lacking now and that
Speaker 2: has led ari over the last weeks to very elevated
Speaker 2: freight rates Asia to Europe, India to Europe, Southeast Asia
Speaker 2: to Europe. So we have seen that that spill over
Speaker 2: already now. As it relates to the jet fuel prices,
Speaker 2: that is an important component of intercontinental flying, especially on
Speaker 2: the regional side, it is relevant, but it's not as
Speaker 2: big of a part of the cost structure we have
Speaker 2: seen spikes Stephen in You know, we had all prices
Speaker 2: of one hundred hundred and twenty before, so that is
Speaker 2: not a level that causes a big concern, But I'm
Speaker 2: not sure whether markets are pricing in that even if
Speaker 2: the Strait of Homus reopens partially or completely at some
Speaker 2: point in time, it will take weeks for that crude
Speaker 2: oil to be shipped, for that crude oil to be processed,
Speaker 2: for that those products to arrive where they need it,
Speaker 2: and that is something where it's doubtful whether that is
Speaker 2: really taken to account when it comes to also the
Speaker 2: resiliency measures of governments.
Speaker 1: Wait, I mean, how much do you think is that
Speaker 1: being underprice? What's the potential that's not yet in the price.
Speaker 2: Well, I mean, if you see the extent of shortfall
Speaker 2: ten twelve million barrels on ninety million barrels roughly one
Speaker 2: hundred million of total demand and supply, that is substantial,
Speaker 2: and historically I alluded to that we have seen higher prices.
Speaker 3: I'm not an expert in the trade of crude.
Speaker 2: Oil, but also if you see the reactions of other markets,
Speaker 2: equating markets included, I'm not sure whether markets are well
Speaker 2: prepared psychologically for this on off, which we have seen
Speaker 2: here in the case of Iran, but we've also seen
Speaker 2: it and other situations like the teriffs, where the markets
Speaker 2: are really factoring in what this could entail with a
Speaker 2: certain probability in the mid to long term.
Speaker 1: In terms of your practical operations in the Middle East
Speaker 1: queries your capacity now versus before the war started.
Speaker 2: We are fully operational, and I'm very glad and proud
Speaker 2: I can say that it was the really great work
Speaker 2: of our colleagues in the regions to keep goods moving,
Speaker 2: to keep supply chains running. We couldn't use our hub
Speaker 2: in Bahrain, which has served us well for so many years,
Speaker 2: but we use Riat. We used Musket for air operations.
Speaker 2: We have, or we's had since forty years now, very
Speaker 2: good trucking network across the regions. We've secured additional trucking
Speaker 2: capacity to move ocean freight containers from Oman ports, from
Speaker 2: the Saudi West Side ports, the Red Sea ports across
Speaker 2: to other GCC countries and that has allowed us to
Speaker 2: serve our customers well over the last weeks.
Speaker 1: To some of the matters you're hearing Brussels, to some
Speaker 1: of the matters I suppose focusing in focus for the
Speaker 1: European economy as well. The first of Gene is going
Speaker 1: to see the end of the EU's deminimus threshold for packages,
Speaker 1: so similar moved to what the United States has already done.
Speaker 1: I mean, do you see that having a major impact
Speaker 1: on e commerce and is it something that's going to
Speaker 1: affect you consumers significantly? Yeah.
Speaker 2: First, if you allow me, I would contradict in saying
Speaker 2: it's similar to what the US has done, because the
Speaker 2: US came from a very different situation. We do not
Speaker 2: have a true deminimus in Europe since many years we
Speaker 2: had an import VAT that was also applied for law
Speaker 2: value shipments. Already, there were some rules for really low
Speaker 2: value shipments to make this a little bit simpler, but
Speaker 2: by and large we had import vat already, which the
Speaker 2: US didn't. The US had a true diminimus where neither
Speaker 2: duties nor taxes were applied. So the economic impact, the
Speaker 2: economic change before and after in Europe is more limited.
Speaker 2: What we see more as problematic is a very European theme.
Speaker 2: Again that Europe makes it very bureaucratic, additional data elements
Speaker 2: to be gathered.
Speaker 3: Different types of fees.
Speaker 2: We're not only going to have the minimum duty to
Speaker 2: be applied to every article, but we're also supposed to
Speaker 2: have a handling fee. Then in November, I mean it's
Speaker 2: good that at least we don't have a fragmentation across
Speaker 2: you member states, everybody inventing their own. But you ask yourself,
Speaker 2: why do we need two instruments handling fee and the minimum.
Speaker 3: Duty for every article?
Speaker 2: And why do we need again an extremely bureaucratic solution.
Speaker 1: And if you tell the Europan Commission this, have you
Speaker 1: been engaging with them on the subject.
Speaker 2: Sure, and they have listened to some elements, for instance,
Speaker 2: the election method. The original ideas were entirely decoupled from
Speaker 2: the existing VAT as it leads to who's supposed to
Speaker 2: pay and how the payment is going to happen. So
Speaker 2: some of those procedural elements people have listened. But it
Speaker 2: is still a big problem here in Brussels that people
Speaker 2: make it as bureaucratic as they like.
Speaker 1: No, no, you know, the drive here in Brussels is
Speaker 1: for simplifications, they like to call it. No sign of
Speaker 1: that in this particular side of the business.
Speaker 2: No, I think it's you know, clearly this year will
Speaker 2: add significant bureaucracy in Europe and it is just not
Speaker 2: true if people I mean, it's fair for people to
Speaker 2: share the intent, but we also need to be honest
Speaker 2: what's happening on the ground.
Speaker 1: What's the cost of that.
Speaker 3: Well, there's a whole wave. If it's not only the deminimus.
Speaker 2: If you think about that, the pay gap director for instance,
Speaker 2: extremely bureaucratic. For large companies, extremely.
Speaker 3: Difficult to fulfill.
Speaker 2: This will need to significantly more legal disputes with employees.
Speaker 2: We have a packaging guideline that comes into place, extremely bureaucratic.
Speaker 2: There are other elements also. If you now think about
Speaker 2: the industrial policy again, you know by Europe with proof
Speaker 2: of the entire value chain, extremely bureaucratic. So I think
Speaker 2: people really need to wake up and say, how do
Speaker 2: we make things simpler? This has not happened here in Brussels.