Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the DHL Group Conference Call. Please note that the call will be recorded. You can find the privacy notice on dhl.com. Throughout today's presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you wish to ask a question, we ask that you please use the raised hand function at the bottom of your Zoom screen. If you have dialed in, please select star nine to raise your hand and star six to unmute. Instructions will also follow at the time of the Q&A. I would now like to turn the conference over to Martin Ziegenbalg, Head of Investor Relations. Please go ahead.
Thank you, and a warm welcome from my side. Good morning to you, wherever you're following this. This is the Q1 2025 results presentation that I take it you have in front of you as flagged. I'm going to have with me our Group CEO, Tobias Meyer, Group CFO, Melanie Kreis. We have the usual procedure. We will go through the deck. After that, there's time for Q&A. We are aware that there are other events going on in the sector today, so that should help us to go through what we have in a very focused manner. With that, over to you, Tobias.
Thank you, Martin. Good morning, everyone. Welcome to our Q1 call. On page two, you find the highlights. We believe we had a good start into the year 2025 in what remains an interesting environment. We had about 5% growth in earnings. We had slight growth in revenue as well. We delivered, from our perspective, a pretty good free cash flow. Based on what you heard earlier from us, that we also look carefully at cost and CapEx in this environment. Particularly, we had EBIT improvements in Express, Supply Chain, Supply Chain in a very steady and consistent way that you have seen over many quarters now. Also, again, with P&P Germany, which is a bit more due to the specifics of the quarter, given the elections we had in Germany and the stamp price increase ahead of wage increases in April.
The macro environment overall has been in line with our expectations, was quite subdued. Obviously, induced volatility due to changing U.S. trade policies, which makes the day-to-day quite interesting on a financial view for the quarter. It was actually quite a small impact. The operational occupation is much higher than the net impact that you see in earnings. We also expect that, and we'll talk about that going forward. We execute on our growth strategy. We announced further acquisitions, especially in the Life Science and Healthcare space. We continue to follow what we said. We want to buy capability, not scale, and then leverage, scale that capability across our network. It's not only the case in Life Science and Healthcare, but also in the broad range of sub-industries under new energy and obviously our continued drive in e-commerce as well.
We also executed against our cost and CapEx levers as planned. Overall, happy with capacity management, especially in Express. That was another quarter well done on the operational side. That was also supporting our results. The environment remains changing. You will follow that as well. On page three, you have a summary of some notable items in terms of the development of U.S. Trade Policy. It's important, and we obviously recognize it as well, that even with some of those tariffs being either exempted or being put on hold for a certain time period, there is a notable increase in the effective U.S. tariff rate. There is obviously a lot of uncertainty, a lot of changes. We've seen further changes yesterday night announced as it relates to auto. That not only has impact on our customers' financial calculation, but it also has operational impact.
We've seen this in February with the discontinuation of the de minimis for four days, which created quite some operational challenges. We also saw that with some of the executives' orders based on IEEPA, on section 50 of the U.S. code, that that triggered what we believe was an unintended consequence to move quite a substantial number of clearances from informal to formal. These are the practical implications that we see. For us, it's important that we continue to focus on quality, deal with those industry-wide impacts in a transparent way so that we keep a good relationship with our customers. What we see on page four, and that's obviously on a bit higher conceptual basis, there are a lot of individual, sometimes quite complex considerations that our customers have. We summarize this here in six different types of behaviors that we observe.
Quite strong is wait and see, especially on the industrial side. We see that customers just do not know whether things really come into effect and basically keep their current setup for the time being, while recognizing that if those tariffs would come into effect or stay in place, that would bring them into an economically disadvantaged situation. There is still the belief with many of our customers also in the U.S. that this environment is going to evolve and move back to lower tariff levels as those negotiations, much talked about, unfold. That is why wait and see is actually something that we see rather skeptical. It delays certain investment decisions. We also see some weighing on consumer confidence. Adjustment of pricing, obviously in space like e-commerce, an absolute necessity, but we have seen it also in automotive and electronics.
Post-delivery is something that we do expect now in April, May to affect heavily e-commerce, especially the front-loading of deliveries. That is coming to those effects that are rather positive for a logistics player like us, who has a strong global footprint and a disproportionately high market share in non-direct U.S. trade lanes, that the front-loading of deliveries, especially in electronics, took place some later and different than we expected based on historical experience. Again, this shows that some players, some of our customers do not act before a deadline because they are not sure whether the policy stays in effect. We have seen some front-loading and shifting of inventories and also thereby higher demand for air freight, for warehousing, especially in Asia. The structural shift of production, also supplier footprint, is starting.
We do see that particularly Chinese manufacturers who have overseas capacities as well, so production capacity in countries that are not impacted as much by U.S. tariffs, that such production is considered and reconfigured for export to the U.S. The markets which these plants originally served are then served by China export, by the production capacity available in the home country of these Chinese companies. This is starting. That is obviously for us quite a positive element because this leads to more transport and more complex supply chains than the more efficient setup before. The shift in delivery mode, and that also means the mode of entry into the country, is something that is especially relevant for e-commerce. We see that on the next page, on page five, that these are the additional services that we try to offer or collaborate on with our customers.
Particularly, the break bulk solution is something that is much discussed as a solution for some e-commerce imports. Now, whether that really works in the way it's foreseen and what's the specifics that are required to make this an efficient and compliant import in the United States is to be seen. As we speak, there are pilots and ongoing discussions on some operational formalities and details with customs, as is often the case with the implementation of such solution. We obviously had break bulk all along, but here it is also the question, who's importer of record and what additional data is required for these products. We obviously have multiple dimensions of U.S. trade policies and related barriers that need to be considered. We do indeed see that our broad portfolio of services, but also the geographic footprint, is an advantage in this context.
On page six, because we got the question, what is our exposure to the Trans-Pacific, particularly China, Hong Kong to the U.S.? You see this quantified here. Those figures have historically been partially higher. You know, and we have talked about in earlier calls that we've reduced our exposure, especially as it relates to e-commerce on the Trans-Pacific already over the last year, especially in the TDI segment as well. This is also why the shipment number in the B2C space has been notably down for DHL Express now for some quarters and also in the Q1 of this year. Yes, we have some remaining exposure, as you would expect, to the Trans-Pacific on the eastbound direction, but relative it is relatively small also if you compare it with some of our peers.
What is important for us to highlight on page seven is that we continue to execute our strategic initiatives as we have communicated last September and did a deep dive that many of you attended about four weeks ago, five weeks ago now. We continue to execute our strategy in life science and healthcare. We did one of those specialist acquisitions that we're looking for, capabilities that help us accelerate our progress in offering great solutions for our customers and then allow us to scale those capabilities in a rapid fashion globally. We are as DHL the global provider, and that's what we also want to achieve here. The main trade lanes is something that many can cover. We play our strengths as a global player also on those fringe lanes. This is something that has helped us to maintain good profitability as well.
We remain excited about some of those geographies that have intrinsically good characteristics, demographics, for instance, and therefore post for domestic growth and consumption, but also can and are benefiting from those geopolitical trends. We call this the GT20, the geographic tailwind countries of which we identified 20. Those have a specific focus for us to deliver great solutions and great service to those customers who diversify their manufacturing footprint, especially, and seek to set up shop in those countries for distribution and manufacturing. That is working out very well for us. We also, as the third point, continue to invest largely organically into the e-commerce space and continue to do so. It is a sector that has provided us with good structural growth and will continue to do so for the decade to come. On page eight, some examples only on Fit for Growth.
This is obviously a very granular program with many, many initiatives, the deployment of technology in several areas to enhance efficiency, but also some specific focus on bread and butter topics. Aviation net supply cost, for instance, declined by 7%. You see here with those examples, this is obviously supporting earnings as well in this environment, which again, from a macro perspective, is largely in line with what we expected. With that, I hand it over to Melanie for some more specifics on the divisional performance.
Yeah, thank you very much, Tobias, and good morning to all of you also from my side. Given how dynamic today's environment is, I could imagine that your interest today lies more than ever on the future rather than on past performance.
As this is the official Q1 call, let's still quickly talk about our Q1 performance, which you can see summarized for the five divisions on page nine. Tobias already showed the traction we are getting on our Express cost measures, and I will talk about the Express performance and also about the global Forwarding Freight development on separate slides in a minute, which is why I want to focus on page nine on the other three divisions. Starting with DHL Supply Chain, which I can sum up quite quickly. Another quarter with solid EBIT growth and nothing special needs to be mentioned. From my perspective, this is as it should be for such a resilient, structurally growing business.
The Supply Chain Q1 financials reflect the smooth operating performance driven by our high-quality service offering and operational excellence agenda, including our automation and robotics roadmap as presented by Oscar at our CMD at the beginning of the month. In DHL eCommerce, we continue to see good organic top-line growth at plus 6%, even in an environment of somewhat more cautious consumer spending. This top-line growth drives EBITDA growth, which is, however, currently not translating into EBIT growth due to our ongoing investments, exactly as expected for the current investment phase and as explained by Pablo in London. Turning to P&P, we were finally able, as you know, to increase prices on regulated mail at the beginning of the year. This will help to bring the full year EBIT back to the minimum requirement of about EUR 1 billion, as reflected in our full year guidance.
Technical remark, I want to point out that we had some changes in our product portfolio in Q1, which somewhat skews the reported year-over-year comparisons between mail and parcel. We have therefore added the like-for-like comparisons onto the P&P slide in the appendix. On the trading side, similar to DHL eCommerce, we see continued volume growth at higher pricing in parcel Germany, although on a somewhat slower than usual growth level, reflecting consumer uncertainty. Fundamentally, however, the e-com parcel growth story continues and the parcel pricing discipline, as explained by Nikola in London, is fully intact. Now turning to page 10, let's have a closer look at Express. In Q1, we once again turned an expected volume decline into a year-over-year increase in EBIT. The question is, how did John's team do that?
Key drivers are fundamentally the same ones we saw in our strong peak season performance last Q4. It is a combination of pricing, mix, and cost management leading to good capacity utilization. With the expected volume dynamic in Q1, we continued to drive higher weight per shipment, higher yield in terms of revenue per kilo, and we have managed our capacity so successfully that we were able to turn year-over-year lower volume into a year-over-year higher weight load factor, which I think is quite a remarkable achievement by the Express team. As Tobias explained, there are currently a lot of moving parts in global trade with quickly changing rules and procedures. That comes with operational challenges, but Express has clearly proven that we are well equipped to adapt. As Tobias also showed, DHL Express is the most international network out there.
I think that is a good position to be in in current circumstances. Now turning to forwarding freight on page 11, the first observation from my side is that in light of the constantly changing news flow and speculations on trade policies, volume and yield trends in the core air and ocean freight businesses have actually been quite stable in Q1. Of course, since April 2, the weekly volatility in volumes across trade lanes has further increased and remains difficult to forecast. What is key to remember for DHL Forwarding is that we are a truly asset-light business and we have a highly diversified trade lane mix as shown before. Like in Express, the absolute priority for Tim and his team is to support our customers in these volatile times. We are convinced that this will ultimately also be supportive to our financial performance.
Let me have a quick word on the EBIT decline at DHL Freight, which is, as you know, our road freight business predominantly in Europe. As you heard from others, the core industrial markets in Europe have been quite challenging. We are addressing this by optimizing our internal cost base, notably through an improved TMS. In Q1, we have seen worsening markets combined with additional costs and distraction from the system rollout in the last major market, which is Germany. We are therefore not pleased with the freight performance in Q1, but we are convinced that we are working on the right remedies. That already takes me to my last page to wrap it up from my side. Despite some challenges, we delivered a good Q1, both in terms of group EBIT as well as in terms of free cash flow generation.
That gathers off to a good start on course to our 2025 targets. There's quite a bit of turbulence, but no real directional conclusions on the impact of trade and tariff volatility as laid out by Tobias. We hence today leave our 2025 guidance fully unchanged. The same goes for our midterm assumptions, where we are absolutely convinced that we are executing on the right cost, CapEx, and growth levers with Strategy 2030, as we explained in full length and divisional detail at our CMD. With that, I hand it back to Tobias for the conclusion, and I'm looking forward to your questions after that.
Yeah, thank you, Melanie. I think you hear that we have had a good start into the year and that we also have good confidence over the remainder of the year with focusing on what we can control.
We obviously recognize the volatility around us, but we see it in a balanced way. It surely produces some demands on our customers especially and also on our operations and will continue to be conservative and focus on profitability and cost control. We are both going to execute on our strategic initiatives to accelerate growth and also see opportunity in this volatile environment by leveraging our global footprint and the breadth of our services for our customers' benefit to deal with the uncertainties that are caused by the trade policy of the United States and the response of other nations. With that, I would turn it over to you for questions.
Excellent. Thank you, Tobias. Melanie, operator, if you then start the Q&A section, please.
Ladies and gentlemen, we will now begin our Q&A session. If you have a question, we ask that you please use the raised hand function at the bottom of your screen. If you've dialed in, please select star nine to raise your hand and star six to unmute. Once your name has been announced, please unmute and ask your question. If you want to withdraw your question, please lower your hand using the raise hand function. Thank you. A moment for the first question. Our first question comes from Alex Irving at Bernstein. Please unmute your line and ask your question.
Hi, good morning. Two from me, please. First one is on the 2025 guide. Does it change that? Do we interpret this as being that April has tracked largely in line with the plan, at least at an EBIT level? My second question is on DGFF. It looks on the volumes that you've also shared in air and boarding. Why would that be and what are you doing to address it?
Yeah, thank you, Alex, for those questions. The line was not very good. I hope it's better with other asking, so we hope we understood it in the correct way. In terms of the 2025 guidance, we don't see a reason to change it. The overall development, as you rightly assumed, is in line with plan. We assumed a relatively weak macro for the year. We were transparent about that. The effects that the changes in trade policy have, which are certainly for certain customers and certain parts of the business, quite substantial. If you look across the portfolio, we do continue to see pluses and minuses. Overall, in the Q1 , that is clearly holding the balance.
We also expect that to be the case currently for the rest of the year. On air freight, we see this largely as a sectorial topic. We have a different exposure. We talked about that earlier to certain types of industries, e-commerce included, tech. We do obviously recognize the numbers of competitors. We also see quite a competitive and uncertain air freight market currently. There is a lot in flux. We do not see that we structurally lose share, but we also still have to see and analyze what our competitors publish. Obviously, we had Kuehne+Nagel and DSV now this morning. We are still looking at those figures and trying to fully understand them and compare them with our portfolio.
All right, thank you.
All right, thanks, Alex. Continue with Alexia, please.
Our next question comes from Alexia Dogani at JPMorgan Chase & Co. Alexia, please unmute your line and ask your question.
Thank you. Good morning. Just two questions as well. Firstly, notwithstanding the comments you just made, Tobias, could you just give us some indication of what you're seeing in terms of bookings out of China currently or maybe in April? What do you see as the opportunity to reallocate some of that lost booked volume from other locations in Asia and, kind of subsequent to that, do you think overall, given your low exposure to the China to U.S. trade lane, the current situation can actually provide more opportunity than challenges in the current environment? That is my first question. My second question is slightly similar on the 2025 EBIT Guide.
I think when you introduced the Fit for Growth cost program, you indicated that most of the benefit will potentially come towards the end of the year. But today, the Express performance was quite strong, supported by cost action. So maintaining the guidance and change, is it because you're seeing better cost capture faster that may have set some weakness in kind of current trends? Or how should we think about, yeah, the cost versus revenue trade-off? Thank you.
Yeah, thank you, Alexia. It was also great to understand acoustically. Let me take the first question and then Melanie will comment to the second. By mode and by week, we have quite some fluctuations. That is to be expected if you have that type of measures with the order of magnitude discussed, announced, changed.
The way I would describe the impact is for four main elements that we see. Two of them are negative and two are positive. We obviously do expect and also see some structural decline in the China-U.S. trade, as you would expect that there is some elasticity of demand as it relates to price. Even on the baseline tariff, as it is called, with 10%, that is still four times higher, the effective tariff rate that we had before. That will have some impact on the trade with the U.S. Now, our exposure to that, as you rightly picked up, is less, disproportionately less than in other trades and also disproportionately less than other competitors will have.
There's a second element that occurs as some level of concern also when we look at April, but we do not see that as a trend for the rest of the year necessarily, which is this wait and see on the business side and also some weighing on consumer confidence. That is also a negative. The positive is, and we've seen some, especially intra-Asia moves to reposition inventory and, yeah, just deal with the day-to-day of those tariffs. Shifting to higher value modes, there is some observation of that. We would expect that to continue as these changes continue to happen. We just had another change yesterday night. There is the fourth point, which is the reconfiguration of supply chains. That has only just started.
We see increasingly customers thinking about this, that they have manufacturing capacity that currently does not serve the U.S., but is in a country that we currently expect to be in a favorable position as it relates to tariff. That production then being used for exports to the U.S. and the local market being served by production capacity in China that obviously also looks for employment. That fourth element could indeed be quite positive because it significantly increases logistics cost. It leads to higher complexity, and that is in tendency good for us. How those four factors, two positive and two negative, how that balances out for the rest of the year, we do not really know, but we see both the plus and the minus. This is also why we did not change the guidance.
Yeah, taking the second question on the cost development. We have two things happening here. The first one is Fit for Growth, which is our fundamental structural cost improvement program. There we said that we expect a relatively linear ramp-up over the next two years to the full run rate coming into effect towards the end of next year. That is supplemented by the typical flex we do with regard to volume and seasonality. I think in the Q1 , we saw the first positive benefits of Fit for Growth, for example, in Express, but also in P&P. On top of that, we saw what we had prepared on the volume flex side because, as already mentioned, the volume development in Express was not a surprise. We had prepared for that.
Fit for Growth delivering increasing benefits in combination with the typical volume seasonal flex made Q1, from my perspective, a very good quarter on the cost side. I think that cost focus is top of priority for everybody. You can nicely see it, for example, in the Express and in the P&P results.
Thank you, Melanie and Tobias. Can I just ask a follow-up on the wait and see approach that Tobias mentioned? Do you think there's a credible scenario that if things kind of materially de-escalate on the level of tariffs, that there is a bit of a bullwhip effect of your customers kind of suddenly reordering very quickly whilst there has been some near-term capacity adjustments? If I think about ocean freight, blank sailings, if I think of Express taking some capacity out, just kind of your view on that potential scenario. Thanks.
The wait and see is indeed on the short-term inventory management, but more importantly, and more worrying on investment decisions. I agree with you that if there would be a substantial easing, how likely that is, others are in a better position to judge, then you definitely would see flipback effects and then shortage of capacity. I think that's to be expected. Again, how likely that is, I leave to your judgment. The weighing on confidence is something that we believe we will see for the coming weeks. Whether that really then transpires for the second half of the year, I have my doubts. Historically, particularly on the consumer side, you see that these topics ease out after some weeks and consumers retain normal buying behavior. Again, that's speculation about the future, but that's how we look at it currently.
Our next question comes from Cristian Nedelcu at UBS. Christian, please unmute your line and ask your question.
Hi, thank you very much. Could I please ask a few questions on Express? Firstly, one of your competitors yesterday talked about the Q2 revenue declines and around 400 basis points of EBIT margin erosion in Q2. Your exposure on China-U.S. does not seem very different today. Could you offer us any color on your expectations on Q2 Express? Secondly, remaining on Express, could you please tell us what percentage of your Express imports into the U.S. are clearing customs under the de minimis? Your chart is very helpful, but could you also tell us total U.S. inbound, what percentage of your Express volumes roughly? I think you alluded is not that much, but if you could offer us some numbers.
The last one, if I may, we've seen in Express the dedicated freighter capacity and block hours, I think, down 4% or 5% for a while now. I think you started around the middle of last year, if I remember well. Starting the 1st of May, could you tell us a little bit how you're thinking about capacity in Express? How much is that developing year over year? Yeah, thank you very much.
Okay, so Cristian, with regard to the first question, Q2 guidance, yeah, we also saw what a competitor released in terms of Q2 guidance yesterday. We do not give a quarterly guidance, and we stick to that practice. I think there are lots of moving parts. We are confident on the full year guidance, and we have to see how Q2 really plays out. In terms of the second question, Express exposure to de minimis.
I think we wanted to give you with the slide we included a bit of a feeling for our exposure in Express TDI to the China-Hong Kong trade lane into the U.S. We have a mix there between B2B, B2C, and including a de minimis portion. We're not going to go into more details on the number side. I think the important thing here is that we have already reduced our exposure. We talked in the course of last year about the pricing measures. We took on Chinese e-comm, which led to a reduction in volume. It will have an impact, but I think we are in a comfortable position and know how to manage that.
Maybe further on the e-commerce, it's important to note that especially on the weight side, the dominant part is B2B. As it relates to aircraft movements, the B2C side, as Melanie also described, does not have that a big impact. The other element and what is to be seen is whether the de minimis volume goes into break bulk type of solutions. That is clearly the intent of many shippers to continue to be able to offer the products. There is a whole variety, as we know, of executive orders out there and different hurdles to trade. Whether those solutions are applicable for our customers, we do not know yet. It is yet to be seen. We do not expect a complete wipeout of the de minimis volume.
This volume will, to some extent, find other channels. We need to remind ourselves that a lot of those products are not manufactured in the U.S. Even if they are manufactured, that capacity would not suffice to serve that relatively large market. That's our expectations. There will certainly be a decline on the e-commerce side, but we do expect other solutions to also take up a certain amount of volume.
Okay, yeah, let's continue with Patrick then.
Our next question comes from Patrick Creuset at Goldman Sachs. Patrick, please unmute your line and ask your question.
Hi, Tobias, Melanie. Congrats on the Q1 performance. Just two questions on Express. The first is, can you talk a little bit about the weight per shipment trends that you see in Q1, but also to the extent you can go into Q2? I mean, you alluded to some customers shifting to higher value modes of transport. That's the first. Second, you've talked about your limited China-U.S. exposure, but I think you have very strong market positions in Southeast Asia. To the extent you can, can you quantify some of this? I mean, some of the market shares you have there, your % of your network, % of the Asia network, trends you're currently seeing, and big picture, to what extent essentially strength in Southeast Asia offsets the sudden stop in China-U.S. trade?
Yeah, thank you, Patrick, on the weight per shipment. I mean, that is more of a continuation of the trend we have already seen in the last quarters where we have successfully targeted attractive business with regard to good pricing on the right weight brackets. Of course, we also see the mix element here that the B2B volume development is more stable than the B2C decline, which of course also has an impact on the weight per shipment. With regard to our Southeast Asia exposure, we have a fantastic market position in all of the Southeast Asian countries with Express.
We are the clear market leader in all of these markets and are hence in a fantastic position to benefit from the dynamic there. Overall, naturally, those markets also in combination are still substantially smaller than the production capacity you have in China and Hong Kong, and hence also the outbound flows are still at a smaller level.
If I may add, Patrick, what's important to note is the annex to the executive order, I think it was 14257, which has the exemption list. It has a lot of electronics. It has a lot of stuff that is relevant for the Express and also the air freight market. I think that's important to keep in mind as well because you said the China-U.S. trade stopped. That exemption list is of relevance as it relates to the total flows as well.
Okay, just quick follow-up, Major, on the weight trends. Do you see those underlying dynamics continuing post Q1?
I mean, the average of Express is obviously also influenced by the share of B2B, B2C, B2C being substantially lower in weight per shipment. If that plays out, then we see more also B2C going as a B2B2C. Break bulk solution or similar things, you would see a significant impact of the overall getting heavier. That also then depends how we report break bulk, for instance. In tendency, we would see that whether that trend really is an important one for the rest of the year is to be seen.
Thanks.
Thanks, Patrick. Let's continue with Cedar, please.
Our next question comes from Cedar Ekblom at Morgan Stanley. Cedar, please unmute your line and ask your question.
Thanks very much. Can you guys hear me? Yes. Perfect. Great. I just wanted to shift to the freight forwarding business. It was an area of weakness in the Q1 . It really looks down to the cost element and also that land freight business. Can you talk a little bit more about how we should think about tailwind from cost improvement as we move through the rest of the year? How should we think about the evolution of the conversion margin in that business, which took quite a big hit in Q1? We've been thinking about conversion margins being meaningfully down on a full year basis, or is there scope to recover some of that weak start at the beginning of the year? Thank you.
I think if I start with that, Melanie might add, you clearly need to separate the land freight topic from the air and ocean freight topic.
Obviously, we've also seen very different dynamics there between air freight and ocean freight. On the land freight side, we're clearly not satisfied. The European market currently, you also have seen this with our competitors, is really weak. It's demand weakness, which causes high competitiveness. We also had some extra costs. We're finalizing the largest country, the transition of the system that clearly hasn't helped in the quarter either, with some additional costs that we'll get rid of. We also see the structural challenges in the European land freight market, and we'll spend time on this to improve our position there, which clearly is unsatisfactory in Q1. The air freight dynamics we have already discussed is also something where we obviously see that relative to competition, the Q1 doesn't look good. We need to understand that in more detail. We see higher competitiveness.
We talked about the uncertainty, also due to the uncertainty about the employment of those aircraft currently in the e-commerce trade out of China. That is clearly something that is also on the mind of some customers. I think there were good questions, and we made some comments about the positives and negatives, how this could evolve going forward. On the ocean freight side, we are quite satisfied. Generally, as it relates to DGF, we see ourselves on a good path of productivity enhancement, good quality. Structurally, that is well underway. Cedar, does that address your question, or do you have a follow-up?
Fine. Thank you very much.
Thank you.
Thanks, Cedar. I think next in line is Andy Chu.
Our next question will come from Andy Chu from Deutsche Bank. Andy, please unmute your line and ask your question.
Thank you. Good morning. Just one question for me, probably for Melanie. Profits are up, but the CapEx is down, and the guidance is maintained. In sort of past periods when there has been uncertainty, the sort of CapEx has been sort of cut to protect free cash flow. It feels to me there's a little bit of a sort of conflicting signal between actually the business is doing pretty well in a tough environment at the profit level, but CapEx is going the other way. Maybe you could just comment on that, please. Thank you.
Yeah, thank you, Andy. I think, as always, in that area, we are taking a balanced approach. We are clearly not starving the business of CapEx needed for future growth. Across all divisions, we see a good cost and CapEx discipline, which is exactly the way it should be.
I think for me, in the current environment, it's the right balance. As we have shown in the past, we are really able to flex here. If things pick up, we can also speed up again. If things remain subdued, we will keep the cautious approach.
I think if I may add, Andy, we talked about that also. We had a big catch-up, especially in Express. If you look at our European infrastructure, we spend a lot of money there over the last years to upgrade it, to enhance capacity, and we just don't need that currently. We have good capacity, and we have state-of-the-art infrastructure. That's important to keep in mind as well. We can assure you that we are very keen to continue to invest in those growth areas. You've seen this on the M&A side, but also on the organic side. We do continue to invest in those growth opportunities.
Thank you. That is maybe just one quick follow-up on the guidance. Melanie, although they gave formal guidance in previous quarters, particularly last year, you did give an indication for quarterly group EBIT, which typically was around about EUR 1.3 billion for the first three quarters of last year. Is there any sort of help you can give us this time around? Any indication of how we might think about modeling Q2 in a very volatile environment? Thank you.
I think looking at historical patterns is never a bad idea. Factoring in, obviously, from a day-to-day basis, what we see, I think there is not much more we can say to that, Andy.
Thank you very much. Thanks, Tobias. Thanks, Melanie.
Thanks, Andy. Let us continue with Muneeba, please.
Our next question comes from Muneeba Kayani with Bank of America. Muneeba, please unmute your line and ask your question.
Can't hear you.
Can you hear me now?
There you are.
Okay, great. Good morning. Firstly, on Express, and kind of a bit of a follow-up to the earlier questions around what we heard from your competitor yesterday on their international business, they talked about kind of lower demand-related surcharges in Q2. Can you explain to us kind of how your demand surcharges have worked in Express? I don't think you have one currently, and also how you would think about those through the course of this year, understanding all the volatility and uncertainty that you have talked about. Second question, we've heard from a couple of companies and industry sources that China-U.S. volumes are down something like 30% or more, but that's being offset by increase in volumes in other trade lanes. Would you agree with that?
Is that what you're seeing across your Express and forwarding businesses? Thank you.
Thank you, Muneeba. On the surcharges, we did not implement a surcharge ahead of those deadlines out of China in particular. We did not see that as adequate in the current environment, where also due to the customs situation in the U.S., for instance, there were service delays across the industry. We want to take a balanced approach and charge where there's a peak and where there's quality in the peak and not do it arbitrarily. We still believe that's the right way and the fair treatment of our customers. As it relates to the demand surcharge for the seasonal peak, that's to be seen. We currently do expect such a peak. We do not see yet or would not expect that we would not have a normal seasonal pattern, particularly as we look towards Q4.
Yeah, to be clear, we had our demand surcharge, which was a peak season, was into effect from mid-September till end of January. It was phased out as indicated, and we have not done anything since. In terms of China-U.S. volumes, yes, they are down. In terms of is that fully compensated from growth somewhere else, I would expect that it will not be fully compensated, but it is really very volatile and a moving target.
Thank you. Great.
Thanks, Muneeba. Marco Limite is next in line.
Our next question comes from Marco Limite. Marco, please unmute your line and ask your question.
Hi, good morning. Can you hear me?
Yes, thank you.
A quick question I have. You have mentioned before that you're seeing a switch to a higher value mode of transport, but one of your competitors yesterday was actually mentioning that there will be a switch from air to sea, so opposite direction. Just if you could give a bit of color on that. The second question is on your follow-up on the road freight business. When do we expect that to turn around? For how long should we expect, let's say, negative EBIT, and what are the expectations for the rest of the year? The third question is on Express capacity management as well. You have improved the utilization of your capacity in Express in Q1 is that, let's say, the target for the remaining part of the year, and how easy is it to do that in the current environment, which obviously is more volatile than Q1?
Okay, then starting on your first question in terms of modal shift, obviously, there's been a situation where customers will say different things. If you have something that is steady, you aim for optimizing inventory cost versus transportation cost, and you generally then would like to downgrade to a lower-cost transportation, particularly air to sea. What we were referring to is if there is volatility, if there are deadlines looming, then there's obviously a different consideration. That is what we have been seeing and do expect in this environment of changing elements, changing regulation with substantial financial impacts to our customers, that that pressures volume into higher quality, faster modes of transportation. That is what we have seen historically over many decades, and that's what we would also see in this situation.
If you expect a smooth, constant type of environment, cost pressure, you see this in automotive again and again, moves from air to sea. If you see volatility, you will see a higher share of air freight and also Express. I think that's the way to bridge these two statements. In terms of the road freight, we do expect it to get better, but it is also market-dependent, and there we don't expect miracles. There is work for us to be done. We also need to see how the European economy goes. Again, we do expect the run rate to get better, but we also have a dependency here on market developments.
Yeah, and then on the Express capacity flex, as we have now shown over many quarters, we are in a position where we can flex down.
I think also maybe coming back to Alexia's earlier question, could there be also a situation where we all of a sudden have to flex up? We're able to do that as well, as we also showed during the pandemic. I think the big strength here is our virtual aviation network, where we have this great mix between owned aircraft, long-term leases, short-term leases. We operate with different partners, so we feel well-positioned to deal with whatever scenario now unfolds.
Okay, Marco, useful enough?
Yes, thank you.
All right, good. Thank you. We're approaching the full hour. Still two callers that I can see. Let's continue with Marc.
Our next question comes from Marc Zeck with Kepler Cheuvreux. Marc, please unmute your line and ask your question.
Good morning. Thank you for taking my questions. Just a couple already left for me. You talked about extra cost in road freight forwarding in Germany due to system transition. Can you quantify this cost? Similar question for actually the Letter business in Germany. Can you quantify what was the EBIT boost from the election, if there was any? Third question, really on the de minimis. I would expect that you got some boots on the ground that talk with U.S. customs. Do you feel that U.S. customs this time around is better prepared to handle the changes to the de minimis, unlike two months ago or so, where they were utterly unprepared? That's from my side. Thank you.
Yeah, let me start with the first one, the extra cost on the Road side. We have, over the last years, rolled out the new transport management system for freight. We went live in Germany as a last big country.
That led to extra cost, and I would say that this is actually the main reason why we are in the red. Otherwise, it would probably have been more around the break-even line. In terms of Letter business boost, yeah, we were not going to quantify it, but you can see that in Q1, also when you look at the like-for-like numbers, we had a better mail volume decline than we have seen over the past quarters. Here, obviously, the elections played an important role.
On the U.S. customs side, yes, I think people are better prepared. Whether it is efficiently well-prepared is a different question. To be honest, there is still a lot to be worked through. It is also for that organization, the Customs and Border Patrol, obviously a time of high workload. As you know, there are quite a number of factors at play.
This is not only the de minimis. We have seen this shift from informal into formal clearances. Now the exemption there again to reinstate the scope of informal clearances. That also covers some of our and the industry's concern as it relates to de minimis shipments not falling directly into formal clearances because that impact is much, much more severe, especially when we do not have robust break bulk solutions. It is a whole set of legal bricks here in play. If one really does not fit on the other, it is a problem for the entire structure that we want to build here. There is some uncertainty and concern around that. It is definitely operationally not boring. We have to see how this comes together. We are not, as you hear, not that much concerned.
Some of that might actually be good for us because it shifts volume into channels where we have a good value proposition and a stronger presence than the traditional challenges. Even if overall volume is expected to go down as it relates to e-commerce into the U.S. on the China-U.S. lane in particular, how much of that comes our way very much depends on these moving factors.
Mark, question answered, I guess.
Yes, thank you.
Good. Abigail, still one caller?
Our last question comes from Oliver Holmes at Redburn. Oliver, please unmute your line and ask your question.
Hi, thanks for squeezing me on the end here. Just a quick one. I was just wondering if the current volatility is potentially delaying execution on your $1 billion plus cost out program. I know there were some good stats that you provided, but is there any risk that the volatility is impacting that? Thanks.
Basically, the answer is no.
No, it's related to that. I also feel very blessed that our management team so far has been able to execute the day-to-day, the structural cost improvement, but also, in that sense, we're not quite satisfied with the Q1 . It could have been much more in terms of growth. We're also working on that and will continue to do so.
Thanks.
Yeah, one more.
Our last question comes from Michael Aspinall at Jefferies. Michael, please unmute your line and ask your question. If you've dialed in, press star six to unmute.
We heard you very briefly.
Seems to be a poor line. Yes, good.
Good morning. Sorry for that. Just making a couple of quick rounds in. You helpfully pointed out some of those services you can provide to your customers. Can you give us a quantum of order or magnitude in terms of how big those products and services like bonded warehouses or break bulk Express are currently? Just if you have capacity or the capability to increase those services and materials?
I think we can't quantify that. This is a lot of different stuff in a lot of different countries that ranges from free trade zone warehouses to things that are customer-specific worked out with customs. It is significant, but we can't quantify that.
It is quite often also part of the integrated offering and baked into the pricing. It is definitely a strength we can build on. It is already sizable and a good growth opportunity.
You wouldn't look at it to increase the services in line with demand at the time?
Yes.
Okay. One, you may not be able to find any more color on this, but I'm just thinking again about the U.S. segments and TDI. Do you have a sense as to how much or what kind of proportion of those segments you need to ship to other destinations or source countries? I'm just trying to get a sense of how critical those deliveries or components are for your customers to continue to get, for example.
The list on the annex shows that there is mutual dependency, and you will also be aware that in China, the criticality of some imports from the U.S. has been discussed on different levels.
I think both nations recognize the criticality of certain supply chains working, spare parts for aircraft, medical equipment, pharmaceuticals, electronics that have in the quantity the U.S. needs no other source than that involving China as well. We have already quite a notable list of exemptions and special treatments. How this unfolds depends on whether this escalates further or we see, which currently seems to be the mood, some level of de-escalation as well. We do not want to speculate about that. I think we have the flexibility Melanie laid that out in terms of shifting capacity. We will feel well prepared as well as we can for these different scenarios. We see significant proof in the developments of the last weeks that global trade is quite essential in its benefits, and there is increasing realization of that. What effects this will have, time will tell.
Okay, great. Thank you very much.
Thanks, Mark. That almost serves as closing remarks, I guess. I want to close the Q&A session now with that. Thank you for your very focused approach. Looking forward to seeing you at conferences, at roadshows over the next couple of weeks. Wishing you a good rest of the day and rushing on now to the next call. Thank you.
Thank you. All the best.
Thanks.
This concludes today's call. Thank you, everyone, for joining. You may now disconnect.