Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moven news.
Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. All Right, the big thing for me, I think this is this weekly. I mean, there's a lot of ego data coming down, But are we going to have a strike in the auto industry? I mean, it kind of feels like it and.
That could push, by the way, not only the state of Michigan into a recession, but if it goes on for a long time, it could be bad for the growth trajectory of the US economy and for the inflation underlying inflation.
Yep, it's big, So hopefully they can get something done. Joe Levington joins us here. He's a director credit research for Bloomberg Intelligence. In his day job, he covers kind of the industrial companies, including the auto companies. Joins us here in our Bloomberg Interactive Brokers studio. So, Joe, what's your sense here. You know these companies for a long time. Does this feel like they're going to go on strike? The union will go on strike Thursday at midnight.
Yeah, no, definitely, Paul, it does feel like a strike is coming. You know, even when you see Bloomberg reporting that the UAW has offered some concessions, going from forty percent growth to thirty six percent growth, is still a huge difference between the fourteen and a half percent that the auto companies seem to be giving.
So let's look at the let's get the hard numbers behind that. This is what they want in terms of an increase for salary and benefits Rachel, So what does it boil down to in terms of the cost for the automakers to get an hour of work from a union member.
Yeah, no, you're totally right.
The way that I've looked at it is really in terms of EBIT for twenty twenty four, in terms of profitability for in the best case scenario, at twenty percent, you'd have something like Stilantis being about two percent impacted, So really not that much before you consider some of the things that they could do.
For Ford, which.
Has a bigger unionized auto group, it could be as much as ten percent of twenty twenty five or EBIT. Now, I do think there are ways that they can offset it, And going to your point about inflation price is the number one tool that they have to use is to increase prices and pass it on to consumers. Of course, that leads to different challenges and different.
Ways, also done numerous times over the past couple of years.
That's exactly right.
When I priced my Dodge Challenger RT scat pack.
Wide body, which is still not in delivery, which.
Still has not been delivered, and I hear, by the way from inside the company they're like, yeah, you know what, I think it's going to be delivered September fifteenth, and now that's just three days away, and I've gotten bup kissed in terms of anyway. The bottom line is when I ordered it in you know, a year ago, it's the price has already been increased like two or three times, and I'm wondering, do I have to then pay that price? But when they finally deliver.
It, I don't know that works. No, In fact, you don't have to pay that price.
But that's where some of the EV companies are getting hit materially, like a riythean or a Lucid, which made deals two or three years ago, and now they're, you know, like offering these cars up at thirty percent less than worth the prices today and they're taking that loss and gross profit and really killing their liquidity. So to your point, you won't have to get hit with that, Matt, but you did have to wait.
And I bet you the dealer is gonna try. I'll bet the dealer tries.
But you're savvy, old of guy.
You're not well now because Joel told me that, you know, I would say, I have documentation, I know the only day I ordered.
I know the owner of Stillantis, the CEO of Stalantis.
All right, So it doesn't help A dealer does not care.
That doesn't care.
Okay, I've interviewed Carlos Tavaris. That doesn't help me when I go into the dealership.
All right.
So Joel, if you're these big auto companies, you don't want to go on strike, but you feel like you can't pay thirty or forty percent increase in So where do you think this shakes out?
I mean, yeah, I think you probably get to a midpoint of maybe about twenty five percent over four years Now, the offsets to that is, you know, if you increase pricing one percent, that a huge chunk of that increase away, And then you start thinking about costs and where you can do that. One of the things I always think about is bringing in products that you have gotten from supplier, so insourcing some componentry. If you do that, that means
you might be saving money. That might be a pressure point for a lot of the auto suppliers and how they're gonna get hit. Obviously, if you're going for pricing, that's positive for the dealers and what that means for them, well.
If they can move the metal. Because consider that these increases are only gonna hit GM, Forward and Stilantis. So if you're cross shopping, say the new newest GM electric vehicle on a Tesla, and Tesla has to pay its employees like a third of what GM pays their employees, you're gonna find a better price over at elon Musk's company.
I think you're totally right, Matt.
I Also, I wrote about this a couple of weeks ago, how Tesla might actually be the biggest winner. Now, I'm sure, folks, is Tesla's plants see a let's say twenty five percent increase, and they're gonna be asking for something too, But my guess is it's incremental or modest relative to what the UAW is gonna get. So on a relative basis, Tesla's
gonna win on that. And as you've seen, what they've done this year is they've used that price to cut their prices or take a relative price cut and draw demand off of it, which I think means that Tesla will be, you know, like the eventual winner out of the out of this game with the auto companies.
And the others who produce here that don't have union labor, right, which is like a ton of Asian and European automakers.
So like the BMW plants in Tennessee or wherever they put them South Carolina, South Carolina are they're not unionized.
They're not And so you know, like there is going to be a relative trade here in terms of how much you can go. And it's one of the reasons why the auto companies are pushing back so hard because they play in a global market space.
I don't know, so all right, from that, you've got to decide as a worker, Paul, do you want to live in Spartanburg. Do you want to live in Austin? Do you want to live in Motown?
Spartan Burs?
Looking pretty good?
Yeah?
All right.
So from the balance sheet perspective, jol, do any of these Ford GM stialantas do they have a balance sheet that you're nervous about should a long strike take place.
Well, the thing that I look at the most, and this is really a Ford and GM issue more than a Stalantis issue, is that the way that they get paid is that they get paid when they sell the car to the dealer, right, but they don't pay their suppliers until your typical forty five or sixty days afterwards. What that means is that they have a huge amount of payables that are lined up and very little receivables.
When you have a stoppage of work, there's no receivable of money coming in, but there's a huge amount of payables to the tune of maybe like five billion dollars a quarter. So you have to have massive amounts of liquidity to handle kind of such a situation, which is really what Ford and GM have. I think Ford has something like fifty billion of liquidity available.
GM has about forty five billion.
Dollars of liquidity available, so they can handle a near term impact, but it has.
A huge.
View in terms of free cap flow for a year, in terms of the liquidity on their balance sheet.
They got a lot of leverage here. I'm looking at GM. I mean they got to that the IBATA. I mean that's there's a lot.
There there there is, But keep in mind that that includes the finance company.
When you start that out.
If the leverage at GM and Ford is actually relatively modest, maybe more like one to one and a half turnska, it's really that they have finance companies, which is kind of hard to see, uh sometimes just because it's blended all together under their under their primary.
Now, I will say everyone we talked to from we talked to Seth Harris yesterday Northeastern, who used to be an advisor to President Biden and deputy director of the White House's National Economic Council, and Cloudy Assam, she of the SOM rule. They all say, look, the union took bad deals for the workers at the end of the financial crisis, and the carmakers have raked it in since then. Surely they've been setting aside billions because they knew these negotiations were coming right surely.
But you're right. I mean they kind of they got a certain deal to certain pay increases, and then this inflation came along, which nobody saw, and then boom, and now they feel like they need to get back. It's gonna be interesting, it feels, it feels contentious. Hopefully they can get something done by midnight Thursday night.
Especially if they haven't produced my challenger I know, I mean, I need them to make that instead it here.
It'll be the priority of the Nego.
She's the whole thing. We got to get that thing off the line. Joe Levington, he's director of Credit Research for Bloomberg Intelligence, senior auto and industrial credit analyst as well, so we appreciate getting some of his thoughts here. Again, Big big issues for the auto manufacturers coming up, big labor, big auto. We've got strikes seemingly in a number of industries across this country.
You're listening to the Team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
Monica Defend joins us. She's a head and chief strategy just at a Munday Institute that's Europe's largest asset manager. She joined us here in Bloomberg Interactive Brokers studio. I love to have her in studio here. So Monica talked to us about kind of the European economy. I know we can't talk about it as a whole because you
have so many different countries. But my concern, I think my understanding is if Germany is in trouble, Europe's in trouble, talk to us about how you guys view the European economies.
Well, short term, we are really relying on Americans taking over and during the summer, so probably we can have some lift on the quarterly GDP sequencing. But as you were rightly pointing out, on an aggregate, europe euraline is not doing bad. If you look at at the Commission at you Commission projection released yesterday, there is no recession but latisha growth. It is true that if you open the box, there are different countries within the same region.
With Germany that is running into our session for different reasons. It's started with a manufacturing sector paint at all of the industrial policy and of an economy centered on energy dependence, but now it's moving into the service sector. Industrial data and that's production data were soft last week. But it goes without saying that if Germany is in trouble, this
is going to be difficult for the entire region. Ivy said that we have some other countries, France, for example, where we see the political willingness to continue to run physical support for the country, and France is an important economy. Spain again has been supported by subsidies on the energy sector and this has been supporting consumption. It is going to fade away, and but at least Italy, where again the construction boomb is over. So it is true that
on aggregate the situation is manageable. Probably at country level there are several issues that needs to be tackled.
But not a super attractive place to invest right. I mean, Germany's manufacturing sector is going to be hit hard by problems in China, failures there and threats from companies like Tesla, who seem to be able to do Volkswagen's work far better. You know, the French have luxury goods that again won't be purchased by rich Chinese people anytime soon. The Italians have democratic disaster, you know, like a constant for the last what fifty sixty seventy years, and the Spanish are
just supported by the rest of the continent. Plus Britain shoots itself in the foot any chance it gets. I mean, where would you invest if you wanted to go to Europe?
Well, nice to see these from American perspective, it is not that bad.
You are are European.
But Evan said that first of all, in engaging the green transition bottom up level, there are some nice evidence. It is true that China slow down is not that it is negative for for the region, but we need to resize starting from Germany, the dependence UH to uh TO to China when it goes to to Treda and exportation because a lot is done within the region starting from uh from Germany, which is an important an important
take if you ask me. Long term, probably as Europeans we should think more on an industrial and on our industrial policy. But this is what we are discussing. When it goes to EarthCare, when it goes to pharma, it's going beyond the semiconductor story. And I think we are moving slowly, but we're active on that front.
So at the MOUNDI were you guys in terms of your asset allocation these days and maybe maybe how it's changed over the last several years.
Well, it has been given the macro uncertainty and uncertainty on the monetary policy framework, it has been difficult really to pencil midium to long term strategy. We've been quite a jilt, for example on the durrection positioning with a preference for US longer and that you neutral position. But again it has been the time for agile, tactical relative positioning. When it goes to the risk asset, we've been progressively reducing the exposure to to credit it notably the.
High healed So reducing exposure to high credit is that that you guys are just generally more conservative on your economic outlook and industry policies.
It was also going into the US, I have to say, so it's really when you need to balance the risk return opportunity. Probably repositioning on govin and equity on the traditional was for US more appealing equity wise, while maintaining cocial stunts. We do like the US value and on the emerging market we have been repositioning moving to neutral into Chinese equity, but be more active in the emerging
market region, notably Brazil, India, for example, Indonesia. So these are all countries that for different reasons, are getting track.
But you are looking in the US value. Are you concerned that we do eventually have a recession here? The consumers looking pretty stretched. We're going to get some data I know out on Thursday retail spending, and it looks much worse than the last month's data we got. We're going to get inflation data out tomorrow that looks worse than last month's data that we got. Is the situation you're getting worse.
So when it goes to the recession call, we do belie if there will be a shallow session, this will materialize, likely in the first half of twenty twenty four. For the reason you were mentioning the labor market is eventually cooling, Excess savings have been reducing remarkably over time, and probably also the physcal diviidenomics and impulse to the investments business investments, I won't be there for longer. When it goes to CPI inflation, we think it is normalizing, it will normalize.
It probably not in a linear way energy prices. Recent prints on oil will have a positive contribution to headline and the core will prove to be sticky. But as I was saying, overall, we expect this nonlinear and volatile and probably less rapid than expected downward driven inflation to to continue. And this ands with the cold that we were making on the Fed where we expect them to orkish post posts.
I'm down with that, all right. So you spend half your time in Paris, half your time in Milan area? How was like Como this summer? I have yet to go too, but it's.
On my bull. You mean you yet to go to Lake Como ever?
Ever?
And I pend up on land like a dozen times.
Why would you spend so much time in boring Milan and get up to lake where the money is.
That's where the money managers are, all right?
So I was in Internobio early in September where all we are having these think tank meeting and the people out there were saying, we have been taken over by Americans, and we do think.
George Clooney, George, you must be happy to.
Have us, you know, honestly, being an Italian, I don't know why you guys are going to the Lake of Como and not to the seaside in Sicilia. Probably is the weather, but definitely there there are a lot of tourists. We are really seeing this renaissance in Milan itself.
Nice.
I love them a lot.
It's great, I love but they're taking down I spent in Sicily.
I know.
I've been in Bari, been in Venice a number of times. I've been in Florence. I got I got done cycling trips around the country. I've done cooking trips in the country. I've been to the horse.
I had to work. I had to work for a living. Monica Defen thanks for joining us. She's head and chief strategists at a Mundi Institute.
You're listening to the tape Can's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
All right, we had an M and a trade in like I don't know the packaging industry. Smurfit Kappa Group. It's Irish. It doesn't sound it, but it's Irish. I agreed to acquire west Rock, an eleven point two billion dollar deal that creates a package industry powerhouse domiciled in my home land of Ireland. Pretty cool stuff. And we actually have an analyst who knows this business. Believe it or not. Richard Burke joins us. He's a senior Aronalds.
The Bloomberg Intelligence covered all the basic materials. I want to talk about this deal. I want to talk to you about the potential auto strike, what that means for steal. Lots of stuff to talk to you about today, Richard, what's going on here with this deal. It's a big deal. I guess we need more heft in the packaging industry.
Well, what it is is, if you look at the two players. West Rock is undergoing what they call strategic transformation. They're trying to, you know, boost their margins versus their peers, their trail. They trail their margin, their margins trail their peers. They undertook a transformation program and it may be going a little bit slower than they want to. Smurf Kappa doesn't have a presence in the US. This gives them a large presence in the US. Smurf Kappa's margins are
about three hundred basis points higher than West Rocks. So and they undertook their journey about seven years ago. They started a capital improvement program and now they're at the end of it. And you know, from what the executives laid out on this morning's call was, you know, we think we can help west Rock on their journey and combine the company companies going forward and boost west Rock's margins, bring them more in line to what where what Smurfit Kampa is.
One of these companies I never heard of before West Rock. The other one I never knew what they did, Smurfed Kappa. Now they're going to have a combined annual revenue of thirty four billion dollars. What do they make?
They make basically pretty much predominantly just cardboard boxes.
See I told you it's a cardboard box company.
I mean yeah, but like so iPhone.
Boxes, uh, you know, the Gamut, the Gammon boxes, the Gamut from you know.
The regular U haul boxes like U haul the Gamut.
They go all the way across the universe to the cardboard box that Amazon puts on your well, probably the three cardboard boxes the Amazon puts on your doorsteps, the big one to protect everything, and then the smaller ones in and they also make all the way down to those very more brand where retailers are trying to get more brand experience. The other big thing that's driving this is especially more so in Europe, is the way away
from plastic packaging. So, for example, one of the big products that West Rocks just really introduced was a thing to do way remember when you used to buy a six pack of beer and the plastic rains. They have a product that does away with the plastic.
Grains and I use that and that is a great product because it's so much easier to get the cans out of there. So that was weir.
What what do you mean the black plastic caps that go on top of like, but you buy a six pack of soda instead of having a little plastic grains ahold, this is like a little cardboard top that just kind of hold them all together.
And it's just very easy to take the can out of the little cardboard top or take the whole carver top off. Genius whatever thought it, and.
Less likely to strangle fish exactly right, which I've been cutting those up since I was a little kid.
You know, the little things good for you. So I tell you I do my party care. The packing business, I mean the talk to us just about the cargated box business. There's pre pandemic, there's huge demand, but then the pandemic hit. Then everybody that got stuff delivered. Talk to us about the last three four, five years in that business.
Well, we've gone from pre pandemic where you know, historically the packaging business kind of GDP GDP growth. Okay, pandemic hits, everybody's at home, nobody can spend money on restaurants or food or travel. Well, you got to spend money somehow, so you ordered goods over the air and neet yeap then came to these boxes. So the box over a two year period went from GDP type growth to about
eight to nine growth. Then what happened, and it totally reversed because everybody after a pandemic over everybody had what they call what revenge travel, everything, and we've been in a downfall. In fact, we're actually back to almost pre pandemic levels.
Okay, so there's been.
But the bigger push longer term is again back to sustainability. Can we can we replace past plastic packaging car?
You know what, back way back in the day, I had a investment in a box company like just this Southeastern US. Never made a dime on it, and then the whole and I sold back my steak. Then this company named Amazon came out. I was like, oh, I missed it and bought them or what. No, it just just kind of came out and said we're gonna started shipping everything to you. And of course then this company's value went through the roof. All right, we got potential
strike coming out of the auto business. If they're not making cars, does that mean they don't need steel, in which we're gonna have some issues with steel talks about how that might impact steel.
Correct.
If you look at the auto market for the steel sucker or auto demand or the auto end market is about twenty five percent of the steel market. Okay, So if we see that and you know, not only do
you have you kin'd have a ripple effect. Not only do the big car makers stop making cars, but everybody who makes the parts, you know, the tier one, the Tier two, the Tier three suppliers stop making their parts too, and you know, in the last the difference between this strike possibly and the last strike is normally the UAW you would only target one auto maker. This time they're
talking about maybe targeting all three. So we'll see if the rhetoric, the rhetoric is definitely ramped up, and we'll see what happened.
What are the steel makers themselves saying or they just kind of staying out of it, and we'll say, well, you know.
They've been quiet. The thing that was interesting, I thought the second quarter on their earnings call, a few of them mentioned that they had and totally ship more in the second quarter than they were expecting to the automakers, which exactly tells me the automakers were like, Okay, well maybe we need to wrap up production and things like that, and and honestly, you're not going to see if they do strike their schedule. The contract expires this Thursday night
at eleven fifty nine pm. You know, we're already halfway through, you know, halfway through the month, but you're almost you're only two weeks from a course, so you may not see that big of effect on this quarter on the steel makers. It would probably be next more next quarter of things also the steel makers normally take some downtime and they kind of rejiggered their downtime to kind of.
Be see going forward.
So if there is a hit that they're not as impacted as they might have been.
Interesting, I mean, did the auto guys did they did? Are they like a justin time with their steel? It's like I place my steel orders because I'm gonnaut. I'm gonna start bending it like tomorrow or next week or something.
Most of it all depends on where you're at. Like the Oheit, the big three are definitely probably more just in time.
Okay, where the.
Maybe there's some of the spliers Tier one, Tier two, Tier three are is you know, everybody's trying to be just in time, but they probably do hold more.
All right, So boom, we knocked out cargated boxes and steal in one segment. How good is that you can do that with Rich Burke? Why he gets a bachelor's degree in engineering from Illinois. Then he goes and gets some masters in engineering electrical engineering, and then he goes against an NBA from Chicago. You can't get the guy out of the out of Illinois. All right, good stuff, Rich, We appreciate it. From Bloomberg Intelligence.
You're listening to the Team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
Let's talk about shipping boxes. We talked that we had an M and a trade in the carrogated box business. Who what a thunk it is Murphy Kappa buy yep eleven billion, so eleven large there, So kind of staying on a kind of the box thing and kind of moving boxes around. We have Mike Para. Mike joins us. He is the CEO for the Americas for d h L Express. He joins us live here in our Bloomberg Interactive Brooker Studio. So Mike, I don't know, do you
care where the boxes come from? It's your just job just to move.
Them, right, absolutely, But we would I would say, we would like to see less air inside those boxes. So that was a great that was a great interview. And I am in so less air in the boxes, less air in the boxes?
What does that mean?
Well, I mean remember air takes up space, right and then also when you got more air in boxes, you have a greater propensity to have damage. Okay as well, so less air less damage, less air means we can put more boxes into our aircraft.
Are what percent of your aircraft? I guess what percent is full? Do they fly when they actually take off?
Oh, well, you're gonna fly. You're gonna fly. It's not gonna be at full weight because that would that would be ideal by the way that that means you're moving water right as an example, But on average, our weightload factor is somewhere between eighty and ninety percent. Is where we're at from a weightload factor on an aircraft.
So how does it look to you right now? Because you have a great position in terms of judging the US economy, right are we still buying and shipping just as much stuff as we were last quarter or the same quarter last year.
Yeah.
One of the great things that we're seeing as a result of what's going on globally in this move away from China. We're never gonna decouple ourselves from China, but we are seeing you know, friend shoring, near shoring, omni shoring that's taking place, and we're seeing a lot more outbound from the US, which is encouraging. It's encouraging for us, but we're seeing it predominantly in the space.
Of e commerce.
Okay, So that's what we're seeing, which is fantastic. But what we have seen is we're starting to see that China plus one really starting to happen. As an example, near and dear to me because it's within my region is Mexico, and you're starting to hear this term made in Mexico. We're starting to see that in the northern
part of Mexico, so Guadalajara. So that's what is those markets were starting to see an explosion raw goods coming in being assembled and then exported out of Mexico, either back to the US, to Canada or throughout the rest of the world.
Where does DHL Americas fly to.
What are your planes going across the entire Americas? So we fly intro America, okay, and then out of the Americas to Europe, Asia, the Middle East, and Africa.
Are there certain airports that are hubs for you guys.
Absolutely.
Yeah.
A big air hub for the Americas is in northern Kentucky and Cincinnati. We're doing ninety departures in and ninety arrivals in on a daily basis.
How do you compete with I mean, when you talk shipping in this country, everybody knows I just moved here by the way from Germany, so no problem for me. DHL was on my doorstep every single day. But now you know it's ups FedEx Amazon.
How do you compete with those big guys. Yeah, we're We're not competing in the space of intra US. So we got out of the US Book of Business back in two thousand and seven going into two thousand and eight because we wanted to focus focus on our core competency, and our core competency is international, so the world into the US, the US to the world. So that's our focus. That's what that's the lane that we play in, and we have been extremely successful.
Is it getting harder or easier in terms I actually have a lot of experience with those kinds of shipping as well, and I'm constantly trying to get you know, a set of triple trees from Italy to here, or shipping Olan sporks back to Sweden for something. So it's difficult to deal with customs, all the different regulations. Is that getting easier or is that getting hard?
In reality, it's been the same. What is getting easier is through automation and digitalization. We clear ninety two percent of our shipments are cleared in the air, so they don't they're cleared by customs in the air, and then they're only really looking at somewhere in the range of seven to eight percent is what they're looking at. They're
targeting those specifically. Now you get that through having a great relationship and a consistent relationship that spans over a long period of time with customs, where the reliability of the information the contents that we're moving line up with the manifest that we're submitting to them electronically. So that part is getting easier. Where it gets difficult is when you have someone who refuses to give you the right level of information, an EI number, the HTS code for
clearance is wrong. Those type of things is where a shipment gets delayed. But ninety to ninety two percent of our goods are cleared in the air, so that makes it easier. Whereas before would have gone twenty I started thirty seven years ago in this industry was much harder. It was much more of a manual process, much more of an opener ship and look and see today it's much easier from that perspective.
All right, so you ship from the Americas out to the rest of the world and back. Yes, where are the growth areas versus maybe the not so growth areas well.
We're seeing growth out of Canada, so in what we're calling Friendshory Canada, the US, and Mexico, we're seeing a lot of growth from that perspective, we're seeing growth in parts of Central and South America. As a matter of fact, we just launched our own dedicated flight now to Argentina, so we're starting to see growth and it goes it goes Miami, Argentina, Argentina, Chile, back to Central America and then back up to the States. So we're seeing growth
in those markets as well. Every time we have a growth market, we'll pull we'll come off a commercial airline and we'll put our own aircraft in place.
So what does that mean. You'll take oh, you'll take some of your packages.
Off commercial airline where we were by belly space before, and then we'll put it out about.
That business, which I never really understand. So what percentage of your business goes on an airline and what goes on your plane and how do you make that decision?
Met Well, okay, so thank you for asking that question. By the way, we're the largest commercial airline purchaser of belly space in the world, Okay, through all of our entities. From a DHL Group perspective, the decision is made once you have greater than fifty percent way load factor that you can put on your own plane, where you can start to pay for the physical asset up and down and the fuel that you have going into that plane. So the cost of operating an aircraft.
And fuel costs, I mean, right now, the outlook isn't great with we're reporting that there's going to be a three million barrel a day shortfall in the next quarter because of the output cuts from OPEC.
Plus yeah, fuel costs is interesting up and down, right, So fuel is always somewhere between seventy and one hundred and we almost think that there's a reason for that. The interesting part about that is we have what's called the Fuels our Charge, and that's where we take those expenses and we pass on the least amount that we have to to our customers associated with it. But that's how we protect ourselves and it either goes up or comes down and wet. We protect the customer on the way down.
The other big cost is labor. How's that looking.
Yeah, Okay, we're fine because it was tough. It was tough for a while. The good thing about now is we're replacing roles, we're hiring roles where we need to, which is a good thing, and we're getting ready for peak season, which is, by the way, in our opinion, is going to be a soft peak season. The uncertainty remains. It is going to be a soft peak season. It's going to be in line with what we saw last year. But really the next couple of weeks are going to
be very telling. The end of this month, the beginning of October are going to be very telling to see what's going to happen in peak season, because really what starts to happen is people start to order in advance of Black Friday, Cyber Monday, and the lead up to the Christmas holidays. So we're keeping a close eye as to what's going to happen here over the next couple of weeks.
Twenty seconds, what kind of aircraft do you flying? Can you get them?
So we're flying triple sevens, we're flying seven six sevens, seven three sevens, and then we still have a couple seven four sevens that are out there eight hundreds. Can we get them? Yeah, there's a lot of there's aircraft today that are available. Much more aircraft today available based on the shortfall and volume that was out there in people standing down planes and right sizing their network. We right sized our network eighteen months ago. We're constantly right
sizing our network. So it's not a new initiative for us at DHL.
Fascinating. I can talk about this stuff all day. Mike Parat, thanks so much for joining us. He's the CEO of the Americas for d h L Express. Kind of getting a good view on kind of the economy and we're we're seeing some growth and not so much growth.
You're listening to the tape. Can's our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, just Say Alexa playing Bloomberg eleven thirty.
Well.
We also like is commercial real estate because I have no idea how this business is going to shake out. So we're glad that we have an informed guest joining us. Barry de Ramondo, founder and CEO steel Wave. He joins us live here in our Bloomberg Interactive Broker's studio. Barry, thanks so much for joining us here. What what steel Wave? What kind of real estate do you guys plan? And where we'll start there?
Well, we're West Coast based, okay, right, and the triangle is really San Diego south up to Seattle, to the north out to Austin.
It's all the tech hubs, okay.
And it's office, it's life science, and it's it's industrial all right.
So office, well, you can't paint it with a broad brush, right you When you say office, you're talking about Third Avenue here.
I was. We talked about Third Avenue and so now I understand that he's like in the real world, Yes, Austin, San Diego, stuff like that. How is office space in the real world outside in New York City.
Well, it's got its challenges, sure, I mean, look, you've got the capital markets issues with high interest rates and cap rates and you know all the stuff that that brings. But you've got that with multifamily or industrial. You know, what you don't have in multifamily and industrial is the supplied demand headwinds that you have in office. You know,
and you're still dealing with work from home. So you've got all that stuff going on on the office sector that you know is candidly created an enormous dislocation you know, in that market.
So is office space. I mean when you say life science is in tech, I'm thinking about chip fabs and laboratories, but you're talking about actual office office where the same thing could be done from home.
Yes, yeah, I mean, look on some level, you're competing with someone's couch. Yeah, all right, right for office space. And in order to bring people back into the office, you've got to create environments that people want to come to work in. And this isn't you know, post COVID, This this has been happening for We started seeing the trends really in the early two thousands and it's just
magnified over time. But you've got to create a work environment that's highly amenditized, where people actually want to come to work and it doesn't feel like you're at work when you're at work.
So have you done that? With your properties and what have you done, how have you done and has it worked?
Yeah, I mean that's that's kind of our design theme. You know, we're very much of a design driven group. And it's it's it's adding hospitality, it's adding residential elements to it so it doesn't feel like an office building candidly, you know, it's you know, we tend to cater to the innovation workforce. It's all tech, media, tech, traditional tech, biotech, you know, go down the list. So we're trying to
attract the innovation workforce back to the office. And you have to create amenities such that people don't think they're the office.
So when you say amenities, I mean to think about Google, ping pong, table and snacks, right, but you're talking I would guess more about fitness, you know, gyms, maybe restaurants, daycares, all of.
That, right, you know. Cool, And it's not just the run of the mill stuff. It's creating kind of differentiated you know, food and beverage, you know options, you know, full health centers, you know, for people to take advantage of. What you're trying to do is bring people together. That's really what you're doing. So it if you just create a gym and stick it off in the corner that
that's not collaborative. What you got to do is amendetize the gym, and you got yoga classes, you got stretch where people actually get together.
Do you have any evidence that if you do that, if you make that investment which impacts your returns, if you do make that investment, does it work?
Not equivocally.
Look, we're at a point in the market where if you don't make that investment there's no rent that will clear for a car.
I something like that.
I like it. I like it because I want to work in your office. I hear about office.
We got fish, we got food, we got flowers, we got I mean, look at this office.
Well we have a pretty great office.
We got the best, I think, but out there. But I just think about driving out there in real America, which I do occasionally get off this island, and there's so many office buildings and every single one has of you know, announcing how much space they have available there.
And all you gotta do is look at the parking lot.
Yeah, yeah, that's right.
That's your biggest indicator. If there's no cars, guess what, there's no bodies.
So how how do you guys in that office reels, I mean, how do you think about your business? Do you have you taken your return parameters down dramatically because at the time you've got your properties, I'm guessing have higher occupancies than pre pandemic, and your cost of capital is higher.
I think that's right, I mean the cost of capitals. I mean at the moment you got to I understand, today is a dislocated market, so it's kind of upside down. So you can't look at what's happening at this very moment as a barometer to you know, the market in general.
You know, I would say a commodity office building, whether it's New York or San Francisco today, if it had to trade compared to say eighteen twenty four months ago, is trading at forty to thirty percent of what it would have traded for, not forty to thirty percent off talking you know, sixty to seventy percent off.
Oh man, And I don't know how.
I don't know if that's a commodity office building, but what you do is different. And also the rents that you get are higher, I imagine because if you create the kind of space that you're talking about. People will be bidding on that space and willing to and trying to outbid competitors.
Right.
Well, more importantly, there's a rent thatal clear, and if you're a commodity there is no rent total clear. I mean there's people think, well, I just lower the rent and my occupancy is going to go up. That actually doesn't work in office for commodity office. You know, for if it's apartments, you lower your rents, your occupancy goes up. For office, depending on what kind office you have, there may not be a rent that clears. And you know, it's a very bifurcated market. Excuse me. I mean if
you look at Hudson Yards, you know they're pushing rents up. Yeah, right, But if you look at sort of mid block third Avenue here, I'm not sure there's a rental clear.
Wow.
See that's that's kind of where I think the market is. And that is brutal. Did they start knocking down office buildings around the country.
I would want to work in Hudson Yards, yep. And I would not want to work on that.
See that.
I know.
I guess before I would tell you, I don't care what you want but now I have to care, right, I have to care again. You're another guy who could talk go all day long on this stuff. Barry di Rimondo, Founder and CEO Steelwave, based on the West Coast. Whenever you're back in New York, let us know you're listening.
To the tape catcher line program Bloomberg Market. It's weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
I'm gonna put this on the bucket list. I have to go on a cruise. Yeah you do.
You have to.
You just have to tie me one thing. You got to be curious. I'm curious. I'm curious, So I'll put that on the bucket list. But you know how I love the cruise business. I think it's a fascinating business business model. And we've got a great person to talk to you about that. That's tors Hoggen, CEO and chairman of Viking Cruises Tours. Thanks so much for joining us here.
I got a million questions here, But I'd love to just get a real thirty thousand foot view from you about how is the cruise business today versus pre pandemic. Just it was just no industry in my mind or what You're one of the industries that really got impacted the most immediate and most directly. How is your industry changed?
Well, I can't speak so much about the industry, but I can speak well about ourselves, and you can say we are now back to a higher level of demand than we had before the pandemic. I've never seen anything like this in my life. So our ships this here have been full and we are heading into twenty twenty four with the I think it's seventy percent of our capacity sold on the ocean business and sixty percent of the river business.
So it's it's rebounded very nicely.
Now, in your introduction, we meant that you're curious, and I think that's one of the reasons we're doing so well, because our guests.
Are curious travelers.
They don't go on a cruise to sit by the pool and get some tanned and so forth. They go places to experience and to relive history and so forth. And of course Europe is a very big destination for us, so we hit it quite well. And we are kind of contrarian. So during the pandemic, we took delivery over I think was sixteen new ships and people said, you must be nuts, what are you want to do when this is over?
And this year we're filling it entirely.
So Viking Cruises is very different from the you know, Royal Caribbean kind of Disney. It's not as you say, tours about you know, drinking a pina klada by the pool and it doesn't matter where you.
Are, don't object to drink a pino konada. But that's not why our guests got no.
I just look at the destinations and it's more about exploration for for a Viking cruises more about adventures.
It's exploration in the widest sense because you know, exploration is seeing places you know. It's also I call it the mental exploration because our guests are material travelers. They're seeing most things in life, but now here's a chance of sort of reliving things they'd only read about before. So it's it's a it's a great thing to do to do, and we are different. We are so different
from the others that that. A couple of years ago we even dropped cruises from our name, so we are now just playing Viking.
So you know what, what I understand about your business that you know is different from some of the others, is you're not just ocean. You're in you have a river cruise line and expedition well, and.
I would imagine necessarily the focus is right.
Because yeah, the two, the two, the two are about our equal size.
We started as a river company in Russia, of all places that that we we we are now about fifty to fifty. We're an ocean and the expedition business is very, very nice too. I took my first vacation twenty five years over Christmas and I went to Antarctica and somebody asked.
Me where we did like to go next? I really like to go back. It was a phenomenal experience.
Talk to me about the labor because so many industries have suggested that that labor is one of the real challenges they face. Is that also the case with your company? And if so, how do you deal with it?
You know, if I say no, that's a little bit strong maybe, But the point is that during pandemic we took care our staff. We didn't do like the others and sent them all home. We took care of our staff greatly, so we didn't have any problems starting up people. Other travel companies have had big issues getting restarted, and we didn't have that quite frankly, so I think we are we are. We're quite different, you know, we are.
I can call it family control company, but we have to financial shoulders too.
But but you can say we are not a conglomerates.
We're not part of a conglomerate, and we can generally say that we you know, customers do come first. And when I said customers come first, maybe I should even say our staff come first. So we we we have very good ratings by our guests.
They love our staff. Ships is one thing.
But the way we deal with the staff and the way our staff deals with I guess the second or none, it's very different.
I wonder a little bit about you and how this company started. You briefly alluded to the fact that I guess what your first cruise was river cruise in Saint Petersburg, Russia, or at least the business started there. And now your headquarters I believe, are in Basel, but you're clearly Norwegian. So how does this all work out? How did it all work out?
Yeah, Well, I've had a long life in the cruise industry and I've done a lot of things in my life, but my heart had always been and with cruises. I ran a company called Royal Viking Line once upon a time, and I thought it'd be nice if we could recreate something something like it. It was the cruise line of the times in the eighties, but somebody went ahead bought it and destroyed it.
So I said, maybe I could have a chance of recreating it.
But I've had a life, you know, full of ups and downs, and that's called life in my vocabulary.
And we're very pleaseful where we are now.
Of course, it's been a phenomenal success, and we're doing it because there's some things that make us stand out. We have one brand, not part of a conglomerate. We have no children on board, no casinos, no Nicholin diming, and then there's only one language on board our ships, so it's not this mixture of everything.
We are very clear as to what we do.
So what are some of the popular destinations right now.
Towards I say Europe remains popular and we have a very more than half our cruises involved Europe, and you can see even Europe in the winter is quite okay. Now we have you can go to Norway and see the Northern lights. The weather can be a little bit rough, but you know, to see the Northern lights from a ship in Norway is fantastic.
Of course. The other thing we have is we have started an operation in Egypt.
We were there now and a couple of months ago to take delivery of new ships. We have by far the greatest ships on the Nile River. I think we have four now and we have another for cooming. So the Nile is extremely popular. As a matter of fact, it's virtually sold out for next year twenty four, and it's pretty much sold out for much sold out for twenty twenty five.
Even so we have now had to open twenty twenty six.
That's it's an amazing.
Up and down the Nile.
It's the only place I've ever gone on a cruise.
I was there.
It was forty two degrees centigrade and that's a FO one hundred and four far a night or something. It sounds terrible, but the heat is dry and to be on the Nile and have the wind, the breeze in your in your face.
It's it's so we decided, hey, we can do this in August.
How has the Russian invasion of Ukraine at all impacted your business?
Yeah, we have. As I said, we start our business in Russia, so we still have five ships there. They're doing nothing.
Of course, we have to take care of our staff so that so that when this will reopen, whenever that will be, they'll be ready to go. Of course they need they need to feed their families too, So it's have five ships doing nothing is not fun. It it's not such a large part of our business anymore. And we have one ship in Ukraine. It has been in Odessa. It has still is there at least the last things I saw on television.
But who knows. It's a terrible situation for everybody involved.
What about the China situation? Have you got I know you have Chinese flags over some of your ships. Are they cruising?
Yes, we started in twenty nineteen or a couple of years before that. In twenty nineteen we had four river ships in Europe with Chinese staff, Chinese food and Chinese sign it and the guests are all one language. That's all the mantra we have when we do something. It's important that people travel like the people. Then we have had one of our ocean hips that have been part of become part of a joint venture with China Emergence that is now operating between between Shanghai and Japan, and
we'll be going between chen Chin and Vietnam. But you can say the startup after Code and China as being a bit slow, but of course when you look at the potential for the Chinese market, it's huge. We have had we have had the consulting firms assessed what is huge mean, and when we look at it, it's huge. So it's just a matter of being prepared to take some losses for a couple of years and then we'll be all through the races.
All right, tours, We're gonna have to leave it there. But thank you so much. We really appreciate getting your time. Fascinating discussion towards Hagen, CEO and Chairman of Viking. It's not Viking cruises, it's Viking, so we're going to go with that. That makes a lot of it's a fascinating discussion. We appreciate getting some of towards his time.
Thanks for listening to the Bloomberg Markets podcasts. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
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