Vincent Clerc, CEO of Maersk: The two sides of war

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1:32Jonathan Josephs:Hello, I'm Jonathan Josephs, BBC business reporter, and this is the interview from the BBC World Service. The best conversations coming out of the BBC, people shaping our world from all over the world. If you're not a little bit afraid, then you're not paying attention. We have never seen a people so united. Do not make that boat crossing. Do not make that journey. Being born in America, feeling American, having people treat me like I'm not. We're more popular than populism. For this interview, I spoke to Vincent Clercq, the chief executive of Maersk. He's head of the world's second largest shipping company at a time of war in the Middle East.

2:14Jonathan Josephs:The conflict between Iran and the United States and Israel has led to the closure of the vital Strait of Hormuz. Before the war, about a fifth of global oil supplies travelled through the route. Cargo ships are being attacked and seafarers killed. At the same time, the world's biggest shipping lines are also avoiding passage through another crucial Middle Eastern waterway because of linked security threats. The passage through the Red Sea and Suez Canal carried about 12 % of all global trade when it was trouble-free. The economic shockwaves all this is causing have governments around the world scrambling to limit the damage.

2:52Jonathan Josephs:As the war continues, you're going to hear about the disruption to global trade, supply chains and energy flows, as well as proposals from governments, including the United States and France, to provide naval escorts to open the waterways again.

3:06Vincent Clerc:If this is extremely effective and the US and other nations are willing to commit assets for the long run, it can be a solution that can work for a longer period. I have personally a hard time seeing, though, that this is the permanent solution to the situation, because the traffic is very important, the strait is very narrow, but ultimately we need to get back to something where freedom of navigation and peaceful navigation is restored, and that will depend on some kind of deal between the two sides in that war.

3:41Jonathan Josephs:welcome to the interview from the ppc world service with vincent clerk the chief executive

3:47Vincent Clerc:of maersk there's no doubt that the last 10 days i've had a profound impact on our business and i can break it down in in three waves the first one obviously started already on on saturday when we realized that this war had started and that the the first response from iran started to land in different places in the Middle East and it was about securing our colleagues, securing our assets, securing our facilities across the region. We have around 6 ,000 colleagues living in the Gulf and Israel and we also have 10 ships that were stuck in the upper Gulf as the Strait of Hormuz locked down. So we had to find what were the best solutions for our organization and for all of our assets in the area.

4:29Vincent Clerc:The second wave of course is with the closing of the Strait of Hormuz was to figure out what is all the cargo in transit, what is going to happen to it, how we're going to deal with what promises to pile up ahead of being able to come into the Gulf, because all the ships continue to sail and they make it to a port near the Strait of Hormuz and have to drop the cargo somewhere so that they can move on. They can't just stay and wait. And we do about 40 ,000 containers in and out of the Gulf every week. So this is going to pile up very fast and there is very limited areas where you can stage that much cargo.

5:06Vincent Clerc:You get a lot of questions from customers about what's going to happen with their cargo. You have a lot of perishable goods, foodstuff that absolutely needs to move or risks getting spoiled. So you go into a lot of the contingency. And this led ultimately to us having to stop acceptance until the strait opens again because of the limited capacity we have to actually stage the cargo en route to its final destination. And then the third wave we're looking at the third one and it is that for the first time in a very long time at least in living memory the strait of homos is closed and it means that we are seeing important dislocation in the energy markets and we are obviously an energy intensive industry we need a lot of oil to power our network and we're starting to see important dislocation across the globe with facilities in the middle east and in the far east having some constraint looming about availability of fuel and also what it's going to cost to move fuel from areas where it's still plentiful in Europe and in the United States towards Asia and the Middle East, where we risk not having enough to power the networks.

6:14Jonathan Josephs:And it's not just the Strait of Hormuz that's been disrupted where cargo vessels are no longer flowing. It's also the Red Sea route through the Suez Canal. Arguably, that's even more important. It's just a few weeks since you resumed shipping that way after a two-year absence. How disruptive is that to supply chains beyond the Middle East as well?

6:37Vincent Clerc:Yes, as you rightfully say, a normalisation process with the return of some of the shipping lanes through the Red Sea and through the Suez Canal had started again in December. And this has been, of course, has had to be reversed for safety reasons. And this is maybe less disruptive in the short run because a lot of the network was still sailing around the Cape of Good Hope and around Africa to come to Europe or go to the east coast of the US. But still, this is setting an important pause or even setting this in a reversal trajectory. And I think it will take quite a while for things to reopen and for things to normalise again in the Red Sea.

7:15Jonathan Josephs:So how disruptive is that, though, to supply chains around the world when goods are having to take that longer route around the Cape of Good Hope instead of going through the Suez Canal and the Red Sea?

7:26Vincent Clerc:I mean, obviously, this going back and forth between the Red Sea and Suez is extremely disruptive for many customers because ships take longer time to arrive to port, meaning that suddenly for a few weeks you don't have a ship coming because it took a different route and it's longer. And so our customers don't get their weekly injection of goods in their distribution centers. So this can have some important impact on the ability to supply their different products to their different customers, timely and without interruptions. So this is something that we're taking very seriously. Is that an impact you're already seeing, though?

7:59Jonathan Josephs:Are some of your customers already saying to you, we need our goods, we need to get stuff moving?

8:04Vincent Clerc:I think this has mostly been the case in the Middle East so far because it has shut down. This is an area that is heavily reliant on import of foodstuff to feed the population. And having suddenly ports being closed, both on the Red Sea and the Hormuz Strait, is creating a lot of logistical challenges to keep the food moving into these areas and make sure that it continues to be on the shelves of supermarkets around the region.

8:27Jonathan Josephs:Are you concerned that there will be shortages of some goods in parts of the Middle East, perhaps those inside the Gulf, if we think about Saudi Arabia, Qatar, Bahrain, for example?

8:37Vincent Clerc:We've seen a fantastic reaction, especially in Saudi Arabia, with opening land bridge between the ports of Jeddah and the different areas of the eastern provinces and also Qatar, Bahrain and the UAE. We also see some trucking increasingly from Oman into the UAE. And I think all our focus right now is on making sure that the cargo flows and arrives at this destination so that we don't get into a shortage situation.

9:03Jonathan Josephs:How feasible is this land bridge situation, though? Is it really a long term solution? Is the capacity there to be able to replace what you've been doing by sea for all this time?

9:14Vincent Clerc:No, I think it's very important to say that the capacity is sufficient so that we can prioritize the most important goods, the ones that really need to keep on flowing, and that we can do. But for a lot of the industrial production, for a lot of exports from petrochemicals and so on coming out of the Gulf, this is going to have to take a backseat for a while as we focus the capacity that we have on what is most urgent.

9:38Jonathan Josephs:Petrochemicals, though, were arguably very urgent for lots of businesses in other parts of the world. How long do you think it's going to be until that situation resolves itself? And so we see oil tankers and others moving through the street again.

9:52Vincent Clerc:That's the real important questions right now. Obviously, as you rightfully say, what is very important in week one and can take the backseat in week one is not necessarily true. If you move yourself five weeks or 10 weeks down the road, because suddenly what was a bit less important at the beginning is going to have increasingly importance because it's going to start causing ripple effects and disruptions around different parts of the supply chains in other regions. So that is something that we're obviously monitoring very, very closely. For now, I think that we have the situation more or less under control, but nobody knows how long and how many days or weeks it's going to take until the Strait of Hormuz opens again and when cargo starts to flow again normally.

10:34Vincent Clerc:So this is something that continues to be a very, very dynamic situation.

10:38Jonathan Josephs:Some of your rivals have said that they are stopping cargo short of its final destination and returning it to the owners there and then. Is that something you've had to do as well? Are you having to abandon cargo in destinations that it's not intended for? And what sort of disruption might that cause to global shipping?

10:57Vincent Clerc:We have not done the same, but we are in heavy discussions with our customers, seeing if they want to actually have it staged somewhere, waiting for things to reopen, if they want to have it returned to their point of origin because they might want to ship it elsewhere, or if they have other customers in other regions that could take on these goods and then we would move them to that new destination. So all of that is quite intense right now, has been a lot of colleagues involved for the last week into reaching out to our customers to sort this out. And this is still something that is actually in the process of taking place because some of the cargo is just on route.

11:30Vincent Clerc:It just left either China or the US or Europe just a couple of days before the situation or the war started. And as we are today, it will be on the water still for a couple of weeks where we have to find solutions for what is going to happen to this cargo.

11:47Jonathan Josephs:You're listening to The Interview from the BBC World Service.

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13:06Jonathan Josephs:I spoke to Vincent Clercq on a line from his company's headquarters overlooking the historic harbor of the Danish capital, Copenhagen. He's been at Maersk for more than 20 years, so has seen global shipping disrupted before, notably by the Covid pandemic and Ukraine war, as well as the Houthi attacks on shipping in the Red Sea linked to the Hamas-Israel conflict. He knows how vulnerable these massive, slow-moving container ships can be, and he told me about the efforts his company is making to reassure both his crews and customers around the world. It was striking to hear how the fallout from events in Iran and the surrounding region is so quickly being felt around the world.

13:47Jonathan Josephs:The role shipping plays in keeping the global economy flowing is often overlooked, but it's one of the first places disruption is being seen. OK, let's return to my conversation with Vincent Clerk. Just lay out the dangers for us if some of your ships did try to navigate these passages, the Strait of Hormuz or the Red Sea route.

14:07Vincent Clerc:What is it that you are concerned about? You know, with the experience that we have had in the Red Sea with the attack by drones from the Houthis towards international transits there, we have learned an important lesson, which is that you don't need very sophisticated naval capabilities. You need to have sufficient drones that you can try to overwhelm the defense that those ships can have from the escorts that they might have. And so for us, the concern, the main concern is the safety of our crews, is the safety of our assets. And as long as there are significant drone capabilities, no assurance of a truce, then it's very hard for us to put our colleagues and our ship in harm's way and risk having an attack be successful and create damage or loss of life in the process.

14:54Jonathan Josephs:We know from the International Maritime Organization that at least seven sea varres have been killed in the region already. You've got 10 vessels stuck in the Gulf, they're sitting targets. What are you doing to protect them and to look after your crews that are on board?

15:12Vincent Clerc:That is a very important question for us. Normally, when you have a situation like this, you direct your ships to go to a safe harbor. Unfortunately, in this war, ports have been targeted as a strategic asset as part of the war effort. And therefore, the harbor is actually less safe than staying in the sea. And so today our ships are actually in the middle of the sea because this is for now the safest place for them to be. But we are consistently monitoring also how the situation evolves, where they should go, where they should move. Is there a place that would be safe for them to be and can direct them on that.

15:50Vincent Clerc:We also have fantastic support from the Saudi authorities with respect to bringing them supplies, food whenever needed. if some of the seafarers need to check out or come on board those ships, that they can shuttle them back and forth. And this is actually working really well and has been very quick to come into place. But it is a very, very dynamic and uncomfortable situation we're in. And we truly hope that we're going to find a good solution for this, for the crisis at large, but also specifically for our ships as soon as possible.

16:20Jonathan Josephs:And Vincent, one of the big fallouts from this conflict in Iran and the wider region has been a surge in oil prices. It's certainly on the mind of President Trump and a lot of people around the world. Just explain, what is the impact of Maersk as a company? And do you have to pass on extra charges to your customers? And does that ultimately end up being paid by the consumers who are buying the goods that are on those ships of yours?

16:49Vincent Clerc:Yeah, so I would break this into two buckets of cost. One is the cost of the fuel itself, which has, as you mentioned, shot up as a result of the war. This, we have traditional contracting mechanisms that pass on this fuel fluctuation, whether they go up or they go down, onto the customers. So what it means is that ultimately, in this case, these increases will pass to our customers and will pass on to the consumers. But on top of that, we have key dislocations today because the oil market is not just a global market. Actually, the oil from the Gulf is primarily distributed in the Middle East and the Asian Rim.

17:26Vincent Clerc:And what you're seeing is already appear some concerns about levels of inventory in places in the Far East, in South Asia and in the Middle East, where we're having some concerns for weeks down the road, being simply able to get the fuel that we need, irrespective of the price. Because there is enough fuel in the world, but not necessarily always in the same places. And what we need now to step in and doing is actually move some of that fuel from the areas where it's still plentiful, like the Gulf in the US or even in some of the reserves in Europe, and move it towards some of the ports where we're going to need some inventory to replenish our network.

18:04Vincent Clerc:And that is actually another bucket of cost. Prices for moving oil around the world have shot up dramatically over the last 10 days. But it's something that will need to happen. Or we risk having shortages in areas which would be extremely detrimental to the global supply chain and to the safety of the stocks of our customers for how they want to move their goods around the world.

18:25Jonathan Josephs:If the oil isn't in the right places for you to be able to fuel your ships and get goods moving, whether it's from Asia to Europe or from America to Asia. How is that going to impact you? Are you going to end up in a place where supply chains are disrupted in a similar way to what we saw during the COVID crisis?