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