THE MIGRANT CRISIS AND ITS IMPACT ON SUPPLY CHAINS

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1 THE MIGRANT CRISIS AND ITS IMPACT ON SUPPLY CHAINS DHL RESILIENCE360 INTELLIGENCE BRIEF September 2015 dhl.com/resilience360

2 Running DHL title RESILIENCE360 8 pt, text level INTELLIGENCE 1 text level BRIEF 2 2 EXECUTIVE SUMMARY Supply chains are beginning to experience the consequences of the geopolitical crisis that has triggered an influx of unprecedented number of refugees to Europe. Most affected corridors are road traffic from Eastern Europe to Austria and in particular, the trade lanes Serbia-Hungary, Croatia-Hungary and Hungary- Slovenia. Certain crossings may close on short notice. Border controls and congestions will likely be of concern to those relying on just- in-time delivery of goods from facilities in Europe, particularly the automotive industry, as the situation continues to escalate. As European leadership contemplates a unified approach to dealing with the crisis, trans-european supply chains, cross-border commerce, and overall transport will continue to experience significant disruption. The situation remains tense and extremely dynamic. DHL Resilience360 advises those with transportation and supply chain routes in the affected areas to monitor the situation closely.

3 Running DHL title RESILIENCE360 8 pt, text level INTELLIGENCE 1 text level BRIEF 2 3 THE MIGRANT CRISIS AND ITS IMPACT ON SUPPLY CHAINS The consequences of the wars in the Middle East, extending from Iraq, Syria and most recently Yemen, have finally caught up with Europe after bubbling at its doorstep for some time. It is no surprise, then, that supply chains are also beginning to experience the consequences of the geopolitical crisis. The humanitarian crisis that emerged following an influx of refugees fleeing war and persecution, increasingly undertaking risky journeys to reach Europe s shores in search of safety, has caught the continent by surprise. While some European governments are desperately trying to catch up in order to handle the unprecedented numbers of displaced persons, most seem ill-equipped to be able to deal with the worst refugee crisis since World War II. Impacts on transportation networks have already been recorded and will most likely continue until the major flow of refugees subsides. STOWAWAYS AS AN EARLY INDICATOR News of stowaways hiding in cargo trucks is well-documented; reports go as far back as mid Migrants attempting to cross from Port of Calais and into the UK have been found on numerous occasions. Under the U.K. Immigration and Asylum Act 1999 anyone responsible for transporting a clandestine entrant to the United Kingdom is at risk of being fined. Transportation companies need to show that they were not aware of illegal entrants concealed in their vehicles to avoid a fine, as well as demonstrating that an effective mechanism is in place to detect clandestine stowaways. Not only can products carried in trucks that have had stowaways found in them have their integrity compromised, resulting fines can add substantially to the cost of transportation. One carrier in the Netherlands reported six incidents of stowaway introduction in a two-week period in 2014, leading to losses of USD 168,500. Reportedly, the estimated total cost to the United Kingdom economy due to the delays resulting from stowaways has already totaled USD 1 billion. In the months leading up to the current situation, DHL analysts have been tracking the unfolding crisis using Resilience360 s real-time alerts to predict the impact on supply chains and evaluate associated risks quickly.

Running DHL title RESILIENCE360 8 pt, text level INTELLIGENCE 1 text level BRIEF 2 4 PINNACLE OF THE CRISIS The current humanitarian crisis took a turn for the worse in August 2015, when 71 migrants

4 Running DHL title RESILIENCE360 8 pt, text level INTELLIGENCE 1 text level BRIEF 2 4 PINNACLE OF THE CRISIS The current humanitarian crisis took a turn for the worse in August 2015, when 71 migrants were found dead in a cargo truck in Austria. Desperate migrants seeking safe passage through the Eastern European corridors enroute to Germany or Scandinavia often fall prey to human traffickers. This incident highlighted the shortcomings of not having a unified European approach to dealing with refugees, and resulted in toughening of controls along the member states borders, prompting long queues and increased inspection especially of cargo trucks. The situation continued to intensify as migrants held back in the Keleti railway station in Budapest, unable to board trains bound for Western Europe, set off on foot between Sept 4 th & 5 th and marched towards Germany. Large groups of desperate yet defiant refugees started walking towards the Austrian border along the M1, the main highway linking Budapest with Vienna, on Friday, Sept 4 th. Congestions along the road occurred, and in some cases, stopped traffic altogether. The Hungarian government eventually sent a fleet of buses to Budapest Keleti station and to areas of the M1 highway where over a thousand migrants were camped. The authorities expressed hope that the migrants would board the buses and prevent Hungary s transportation system from becoming paralyzed over the following 24 hours. On early Saturday morning, Sept 5 th, the refugees were transported to Hegyeshalom, the main crossing with Austria while in parallel, Austrian and German governments announced that migrants travelling from Hungary will be granted unhindered passage into their countries. Warm feelings of goodwill were short-lived, as reports started to trickle in of the Hungarian police using pepper spray on refugees attempting to enter the country at Röszke, on the Hungarian border with Serbia on Monday, Sept 7 th. Local sources reported that the refugees reached the E75 highway and had started walking along the road towards Budapest. The police subsequently walked beside the migrants as they continued walking north along the highway, reportedly destined for Germany. The authorities eventually closed the border crossing linking Röszke to Horgos in Serbia and reopened the M5 highway to Budapest.

Running DHL title RESILIENCE360 8 pt, text level INTELLIGENCE 1 text level BRIEF 2 5 INCREASING AD-HOC BORDER CONTROLS Major impacts on supply chains throughout Europe were becoming more evident, as

5 Running DHL title RESILIENCE360 8 pt, text level INTELLIGENCE 1 text level BRIEF 2 5 INCREASING AD-HOC BORDER CONTROLS Major impacts on supply chains throughout Europe were becoming more evident, as Austrian chancellor Faymann announced that random border checks would be gradually introduced at the Hungarian border to contain refugee inflows. Around the same time social media reports claimed that the Danish train operator DSB had cancelled all train services to and from Germany on Wednesday, Sept 9 th, due to the migrant crisis, exacerbating disruptions to cargo movement. Austrian rail company OeBB announced the following day that it suspended train services between Austria and Hungary for at least the rest of the day. According to a spokesperson of the company, OeBB could not handle the volume of migrants attempting to cross the border. Despite demonstrating more openness than its Eastern neighbors in accepting asylum seekers, Germany introduced temporary controls on Sunday, Sept 13 th on its border with Austria to cope with the influx of migrants transiting through the region. Germany s interior ministry did not initially specify how long the border controls would remain in place. Trains between Germany and Austria were suspended for 12 hours, resuming early Monday morning. Nevertheless, German border forces continued to impose temporary controls to stem the flow of migrants, causing services between the two nations to become delayed. In particular, sources noted that the route Salzburg- Munich was disrupted due to multiple persons on the track. Furthermore, regional highways were also reported to be heavily congested due to similar border controls being imposed at checkpoints between Austria and Germany. Germany s surprise decision to restore border controls had a swift domino effect, prompting its Schengen neighbors to impose checks at their own borders as thousands of refugees pressed north and west across the continent, while Hungary sealed the main informal border crossing point into the European Union.

Running DHL title RESILIENCE360 8 pt, text level INTELLIGENCE 1 text level BRIEF 2 6 According to reports, random police checks had also been implemented near the borders of the Czech Republic and

6 Running DHL title RESILIENCE360 8 pt, text level INTELLIGENCE 1 text level BRIEF 2 6 According to reports, random police checks had also been implemented near the borders of the Czech Republic and Poland. Meanwhile, Austria stated it would reinforce security along its borders, deploying troops to tighten controls on its borders with Hungary. Temporary closures by Austria near Nickelsdorf at the Hungarian border continued into Tuesday, Sept 15 th. The Austrian army deployed troops to support efforts managing the migrant flow and providing aid to the thousands who have been able to arrive at Nickelsdorf. By Tuesday, Sept 15 th, the police had sealed off railway tracks between Serbia and Hungary, impacting cargo movement from Eastern Europe. As the shockwaves rippled across Europe, Slovakia declared it would impose controls on its borders with Hungary and Austria. The Netherlands announced it would instate spot checks at its borders. Other EU states from Sweden to Poland stated they were monitoring the situation to decide whether controls were needed. Hungary s government in a unilateral decision shut the main land route for migrants into the European Union on Tuesday, Sept 15th, taking matters into its own hands to halt Europe s influx of refugees. Border crossing Horgos (Serbia)- Röszke (Hungary) was closed to all kinds of traffic on Sept 17 th. All trucks had been redirected to other smaller border crossings, which resulted in longer waiting times at these points. By Sept 18 th, the only available crossings were Batrovci (Serbia)- Bajakovo (Hungary) and Kelebija (Serbia)-Tompa (Hungary) but rows of trucks extended to several kilometers. What followed was a domino effect in neighbouring countries. Slovenia closed border crossings at Dobova Railway Station, while by the evening of Sept 17 th, Croatian authorities closed seven road border crossings with Serbia, preventing passenger traffic from entering the country at these locations. The traffic ban includes the border crossing at Tovarnik, in Vukovar-Syrmia County, where migrants have been attempting to enter the country from Serbia over the last two days. Croatia then closed the remaining border crossing, Bajakovo, to freight traffic. The crossings at Toavarnik, Ilok, Ilok 2, Principovac, Principovac 2, Batina, and Erdut remained closed. Its military continues to be in a state of high alert in response to an influx of migrants from Serbia. There is no indication of when the crossings will reopen.

7 Running DHL title RESILIENCE360 8 pt, text level INTELLIGENCE 1 text level BRIEF 2 7 The main road linking Belgrade and Zagreb, however, remained open on Friday, Sept 18 th after the authorities closed road border crossing between Croatia and Serbia. The crossing at Bajakovo is allowing traffic, however increased security has been reported. As a result of increased security and traffic volumes, disruption in traffic towards Zagreb is expected. The Serbian Customs Administration stated that border crossings Horgos 1 and Horgos 2 were closed to the passage of both individuals and goods. The Croatian authorities attempted to transport migrants onward to Hungary and Slovenia; however, both of these countries have also closed their borders. The situation remains tense and extremely dynamic. CURRENT SITUATION It remains unclear how long the border-check measures will remain in place. The delays extend beyond road transport to rail transport, which had been temporarily halted early last week as the new border checks were being implemented. The Horgos (Serbia)- Röszke (Hungary) was reopened on Monday, Sept 21 st. Being the most frequented point of crossing for imports and exports, the move eased congestions though long queues are still in place at the time of writing this report. As of Sept 22 nd, border crossings between Hungary and Serbia (with the exception of Bajakovo) are closed to all traffic. Trucks are being allowed to cross the border from Hungary to Serbia, but there are several hours of waiting time. However, commercial vehicles are not allowed to enter from Serbia into Hungary. The border crossing at Harmica, between Hungary and Slovenia, is also closed to all traffic. Tensions are running increasingly high, both among migrants and between affected countries as governments try to deflect the emerging crisis from their nations. Croatia claims it will force Hungary to accept migrants by continuously transporting them to the border. The EU is scheduled to hold emergency talks this week in an attempt to formulate an over-due coordinated and cohesive solution to the crisis.

8 Running DHL title RESILIENCE360 8 pt, text level INTELLIGENCE 1 text level BRIEF 2 8 CONTINGENCY MEASURES AND ALTERNATE ROUTES Companies using the trade-lane between Hungary and Serbia may consider alternative entry points such as Slavonski Brod and Zupanja (via Bosnia and Herzegovina). As the border situation between Hungary and Serbia remain volatile, closures may be announced on short notice. In Germany the checks are slated to be extended to the borders with Poland and the Czech Republic. It is to be expected that Czech Republic and Slovakia will also boost controls on their borders with Austria. While the situation is still developing, potential for delays is high. It is still unclear how long the border controls will remain in place. IMPLICATIONS FOR SUPPLY CHAINS Most affected corridors are road traffic from Eastern Europe to Austria and vice versa, as well as from Austria to Germany. Shipments to & from Eastern Europe, particularly in the trade lanes Serbia-Hungary, Croatia-Hungary and Hungary-Slovenia, will most likely experience major delays. Exports via Frankfurt, Amsterdam and Paris also need to take into consideration earlier cutoff times, as these destinations are served with road transportation, and clearance times may be longer. Schaak Poppe, spokesman for Rotterdam Port which also handles a majority of goods of Germany s trade with China, stated that containers would take the hardest hit. Hungary has announced that it will no longer tolerate persons entering the country without passing through official checkpoints, after the country completed a 175- kilometer (108-mile), 3.5-meter (11.4 feet) high fence along its southern border with Serbia. This is likely to put pressure on other crossings into Western Europe, as increasingly desperate refugees scramble to seek alternate routes. Hungary is now rushing to finish a new fence along its Croatian border that will no doubt exacerbate the situation. The administration has signaled that it plans to build additional fences along its border with Romania. If such plans were to be realized, migrants still in transit will most likely attempt to cross into Europe through alternate routes and disrupt cargo flows at border checkpoints throughout the western Balkans. Confrontations between border security guards and migrants at specific crossings may also worsen the situation and lead to further delays.

Running DHL title RESILIENCE360 8 pt, text level INTELLIGENCE 1 text level BRIEF 2 9 Increased border checks have already caused considerable delays at the Hungarian- Austrian borders for all

9 Running DHL title RESILIENCE360 8 pt, text level INTELLIGENCE 1 text level BRIEF 2 9 Increased border checks have already caused considerable delays at the Hungarian- Austrian borders for all passenger and commercial traffic as the authorities check vehicles for traffickers and migrants. In the absence of a EU-wide solution to the migrant crisis, it becomes increasingly likely that other countries in the Schengen area will also introduce ad-hoc measures at their borders, causing long border delays to cargo which in turn would raise costs for companies and impact their ability to meet deadlines, consequently negatively affecting their overall supply chain. Further ground cargo delays are likely to be caused by large-scale anti- and pro-immigration rallies, particularly in Hungary and Slovakia. Border controls and congestions will likely be of concern to those relying on just-in-time delivery of goods from facilities in Europe, particularly the automotive industry, as the situation continues to escalate. If the border-less Schengen Area were to be disbanded it would call into question not only the road haulage industry s current time-sensitive business model but the supply chains of industries across the continent. Slovenian Prime Minister Cerar confirmed that reinstated temporary controls on the Hungarian border will last until the EU-level solution for the refugee crisis is reached. If that statement holds true, then trans-european supply chains, cross-border commerce, and overall transport will continue to experience significant disruption. DHL Resilience360 will continue to monitor the situation closely and provide updates on developments.

African region. This report outlines the findings from an assessment conducted at several locations along the Croatia- Slovenia border.

African region. This report outlines the findings from an assessment conducted at several locations along the Croatia- Slovenia border. The European Migrant Crisis Situation Overview: Harmica, Bregana, Croatia & Slovenia 19-21 September 2015 SITUATION OVERVIEW INTRODUCTION The past week saw a rapid increase in the number of asylum seekers