Expeditors International of Washington, Inc. (EXPD) Earnings Call Transcript & Summary

All right. Hello, and welcome, everyone, to this Reuters Events & Tradeshift webinar on preparing for peak season. I'm joined by a fantastic panel today to discuss the upcoming peak season period in a very unusual time, as we are all aware. I'm joined by Charles Brewer, who is the COO of Canada Post; Jamie Lansdell, the manager for Expeditors for Automotive & Mobility; and Alan Edwards, Client Executive for U.K. and Northern Europe at Tradeshift. So just quickly, I'll hand over to everyone individually to give a bit more depth about themselves and their all role at their companies. So Charles, would you like to start off?

I would. So thank you very much. And my apologies to anybody who's listening to this. You may hear a bit of building work, I have a building site around me today. And I think we've got a few other things getting on around. So I guess it's the environment we operate in today. Anyway, very briefly, my name is Charles and as mentioned, I'm the COO for Canada Post. I've been here [indiscernible] February and prior to Canada Post, I was with DHL for 35 years around various parts of the world. So very delighted to be here.

And Alan?

Yes. Thank you. Everybody, Alan Edwards. I'm a Client Executive at Tradeshift. I have been, for 3 years, working in the Northern Europe region and primarily with our transport and logistics companies. For those of you who don't know about Tradeshift, we were founded in Copenhagen in 2010, and we're focused on the technology to help companies grow in the digital space to the global trade. And we have a global network of 1.5 million companies, which is the largest of its type.

And finally, Jamie.

Brilliant. Welcome along. So I'm Jamie Lansdell. I'm the automotive and mobility vertical leader here at Expeditors. And, Expeditors, we hire people with industry insight to help drive certain aspects of our business. So I come from 24 years, sure with my age -- 24 years of high-tech technology design manufacture and into transportation and logistics. So looking forward to this conversation today.

Thanks, everyone. And just a reminder to our audience, well, before we kick off the questions and the discussion, to send in your questions, if you have any, because we'll get sort of 15 minutes at the end where we can delve into some of the topics that are sort of most interest to you with our panelists. So yes. Sort of, to start off, we'll go quite broad. Obviously, we all know it's been a sort of unusual 6 months to say the least and certainly so for the transportation and logistics industry. So I'd like to sort of start off to get everyone's take on what they've seen in the last 6 months and kind of lessons that they have picked up. So yes, Charles, what are your thoughts on that topic?

Well, the first thing I would say, I'm very jealous of Jamie's studio setup, which is a result of COVID-19. I hope he didn't have that pre-COVID-19. But -- so I guess that's one of the things that change our life. I mean anyway, yes, I mean, in all seriousness, COVID-19 has been challenging, to say the least. And I work in the postal and parcel sector. And for us, it's been a tipping point in terms of how we operate. So if I just tell the story very briefly, so back in February, when I joined, I had a month out and about sort of seeing the plants. We have about 60,000 people here in Canada, about 20-odd plants, sort of major plant facilities. So I was out and about seeing those, everything was [indiscernible], we went to Vancouver, [indiscernible], had a few beers, [indiscernible] 50,000 people, everything is happy. I walk back in on Monday morning and COVID-19 started. And again, if we had -- I just don't think anybody could have guessed we'd end up where we ended up. But for us, from Canada Post perspective, there were sort of 2 or 3 things in terms of guiding principles. One was making sure we keep our people safe. That's been completely consistent throughout COVID-19 and we'll continue to do so as we look forward. Second one was keeping our customers safe, both the shippers and sellers, but also we have -- obviously, we serve Canadians, so the consumer; and thirdly, was continuing to deliver, deliver smaller in the last mall, making sure that we keep Canada connected as an essential service. So that was the guiding principles. I have to say we went sort of through various phases of our journey through COVID-19. The first one was a complete chaos. SO everything that was being thrown at us every day was brand new, and you have to work on a brand-new operation, every single day, from physical distancing to masks, should you wear them, shouldn't you wear them, gloves, hand sanitization. I mean the rules of the game are still changing every single day-to-day. But certainly in the first few weeks, it was payoffs. And then you get sort of a position of, I kind of get it. And you start to work in that new environment, a new operating environment. And now we're sort of very focused on the third stage. We're very focused in terms of how do we position Canada Post for success going forward? And to anybody sort of not perhaps so familiar with why that would be a relevant question, about 4 or 5 Mondays ago, we delivered the same amount of parcels, the -- more than 2 million parcels, a number that we had forecasted we would do in 2029. So we're sort of 9 years ahead in terms of the volumes that we're handling with pretty much the same infrastructure. So I was asked the other day, I said, what does that mean in terms of automation and your plans. Everything we had planned to do from an automation perspective back at, sort of out in 5 or 6 or 7 years is now estimated in 5 or 6 or 7 weeks, just trying to accelerate our ability to handle the volume and the demand that's coming. So it's been really a challenging time. But I think just last couple of comments. One is, it would be remiss of me not to say thank you to my team, we've done an outstanding job, like many postal operators but they've done an outstanding job through this, and for the most part, done it with a smile on their face, just handling huge volumes and also some rather bizarre volumes like kayaks and barbecue sets. I think Jamie ordered a brand-new barbecue set I may or may not have delivered. But so just really, some really weird and wonderful stuff that our team have been handling. And the second thing is, but there is -- I tend to be an optimist. I think there's a flip sign to COVID-19 from a positive perspective. It's helped us to realize that we need to invest in an accelerated rate in our infrastructure and whether that be physical or digital or anything else. So we now have our foot firmly placed on the accelerator in terms of how we do that. So really challenging 6 months or so, I think we've got a few more twists and turns to go. But on the flip side, we're working really, really fast to make it even better Canada Post than the other [indiscernible] instead of just going forward.

Perfect. And Alan, what have you seen, sort of, within your role in terms of sort of the clients that you work with as well? Have you seen a similar acceleration that Charles was mentioning?

Yes, absolutely. And I mean, just to build on what Charles said, I don't think we've ever had an event on this global scale before. We've had events before that were horrible like the tsunami in Japan or the volcano with Iceland where we -- things were happening that stopped the supply chain. But I don't think we've ever had a global event in itself fundamentally change the way operations had to work. But more importantly, actually, in itself drove a demand of increase of online shopping, of digital buying, and that in itself, put a strain on the transport and logistics industry. And some of the things that we've seen from a trader perspective, obviously, trying to -- firms really struggling with their BCP, where even their backup sites are being impacted. Their operations are having to change on a daily basis. BPO shared services perhaps are impacted. Something as simple as getting an invoice through the door from a seller to a buyer and keeping that supply chain flowing has never been sort of hit at this rate. And I think we saw -- we have an index of global trade health, which we take from our network at Tradeshift, which just kind of gives us an indication of how the global orders and activity is going. And we saw a 15% dip in Q1 to Q2. So it's starting to pick up in June, where it was the first time we sort of saw orders start to overtake invoices again. But I mean, yes, fundamentally, everyone's been hit in the same way. And I think the supply chains with the most kind of agility, which is a kind of classic phrase, how agile is your supply chain. But those with their closest relationships to their sellers and strongest relationships to their sellers have had the most success of being able to flip that around quickly and react to those key kind of demands that the supply chain is being put under. So it's definitely been a challenging time for our customers. And it's nice that Tradeshift is part of that solution space, but obviously, not underestimating just what they're going through from an operational perspective as well.

Absolutely. So you mentioned there about the importance of relationships between suppliers as sort of being really key. So that's definitely something that we'll get into sort of a little bit later in this webinar. Jamie, I don't know if that's something, sort of, Alan mentioned about sort of the depth in movements in Q1 and Q2 and the slight increase in Q3 that's happening now. Is that something that you're seeing?

It is in the same way. So I look after a key segment of our business of the automotive industry. And that could be anyone from -- there are certain areas of the industry that have had massive disruption. There are certain areas of industry that have had a massive uptick. As Charles alluded to, that COVID-19 has been an enabler to move things faster and to bring through technology or to break through some bottlenecks into actually capitalizing on some opportunities. But -- so -- but we, as an organization, we have 18,000 employees worldwide. And as we first saw the breakout within Wuhan, and we saw effectively a shock wave of disruption across the globe as we saw a shock wave of disruption. And so supply chains, all of us have -- I'm sure whatever sector you're in, that global shock wave and that first disruption area within Wuhan and then Greater China, and then we saw parts of the U.S. and Europe go on to lockdown. And we've seen this gently migrate into different areas. So this has been probably the most volatile period in recent history. We, as an organization, try to take a 30,000-foot view, as Alan said. Yes, there have been events like this before. The volatility is the new normal is -- we've seen what happened with the tsunami in Japan and the volcano. I was going to try to say the name, Alan, but I won't. The volcano in Iceland that changed supply chain disruption. But really, COVID has been a massive, massive change for us all. And then just moving that slightly to the right. As we've seen [Audio Gap] areas reopen, we've seen then a second wave hit certain areas. We've seen some people come through it unscathed, then we have the other side. So the next 6 months is a hugely telling period for us all. And I'm sure, today, we're going to share quite a lot of experience between us as to how that's affected some different supply chains and how we can all learn lessons moving forward.

Absolutely. I mean, all of that sort of lays the foundation perfectly really for the topic of this webinar, and that's what we're looking at over the next few months in peak season. So yes, taking all of that into consideration, I mean, do you feel -- have you changed your approach to peak season based on sort of the COVID-19 pandemic the recent 6 months? And what are you expecting over the next sort of few months to see? So we'll start off with Charles again if that's all right.

Yes. So the way you sort of phrased it has been coined is peak on peak. So we're already operating at peak levels in terms of volumes. So again, pretty consistent. Most postal operators are running between 20% and 40% up year-on-year in terms of volume at the peak of COVID-19 when most were on lockdown, it was more like 100% up year-on-year. And then you've got peak come into weeks 48 to 52 and as I said, I think you were going to find it's going to be peak on peak. So I guess like most of my colleagues around the world who work in this space, they're also working with the same sort of opportunity and headache. And I guess a couple of points. One is, there's no question that demand is greater than supply. But doesn't matter whether it's domestic or international. And with the exception of a few markets, but demand is going to outstrip supply. So -- and you've seen plenty of evidence just over the last few weeks of logistics operators from the big 3PLs through to whoever else, implementing surcharges to try and there are 2 things. One is sort of, in some respect, control that demand, both in terms of the volume, but I think more importantly, in terms of the shape. So again, like I mentioned earlier on, historically, if you wanted to buy a barbecue set, you probably popped on your local home furnishing store and bought it but because that's not necessarily an option. You buy that online or you become an online shopper through COVID-19. I think we're seeing people buying weirder and stranger things, and I think that's very true across the world. So number one, the sort of large 3PLs and postal operators are having to deal with this sort of increased demand, also this increase shape and size, which I think is incredibly challenging for the infrastructure they've built. We haven't built an infrastructure for barbecues and kayaks. We have an infrastructure build for a [Audio Gap] 10-kilo type packets and boxes. So that's one. And so you're seeing sort of an increased usage in surcharges, and we can talk later about how perhaps to mitigate some of those challenges for sellers and vendors later on in the call. But -- so we're certainly seeing that. Secondly, what most -- I think many don't perhaps appreciate is that, as I mentioned earlier on, the health and safety of our employees is paramount and of our customers. So we've instigated like, again, most postal operators and most logistics companies, all the right measures to try and protect our price. So social distancing, masks, hand sanitizers, that wrap. And then you have the increased absenteeism because of high-risk employees that shouldn't be in the workplace. So that creates an attendance level that's lower than normal. So you have more volume, bigger, stranger shaped items in the same infrastructure, but with perhaps less people and less productivity. That creates that supply-demand challenge from a domestic perspective. Internationally, it's created by just less planes and ships moving, which means you are in less capacity around the world. So I think the short version is, it is going to be a tough peak, up-peak season, I think that's well-known already by most who play in this space and work in the space. But there are things you can do about it, and we'll get to that later on. So definitely, peak within peak. There's a lot of challenges ahead. We're working hard and furious and again like everybody else, hard and fast, and furious to plan and prepare for it as best as we possibly can, but it's not going to be easy one.

Absolutely. Jamie, I mean, sort of have you seen a similar sort of uptick in terms of health and safety? Are there certain trends that you're leaning towards sort of Expeditors over the next few months?

Yes. In the same way. It's been a hugely challenging environment. And for us, we implemented a work-from-home scenario where I think I've been at home now, probably like the rest of the team, for 9 on 8 months now. And in the same way, 18,000 employees and then a huge amount of customers, we've got to take very, very sensitive and careful measures to make sure that we can protect ourselves, protect our customers and protect supply chains. And it's -- what we've tended to see is a lot of our customers used to be just in time, but what we're seeing now is just in case. So in that way, that we know we're heading in towards a more volatile period. We know where the rollout of the vaccine is going to take up more capacity that isn't even there with the lack of airfreight. And some of the ocean freight buying sailings that we're seeing. So we're going to see this peak on peak -- I like that, Charles. And I think that's a great phrase. So we're going to see huge challenges moving forward. And this is really a lot of what I hope we can talk about today into how we can learn some lessons into how we can cope with this peak on peak scenario. So yes, interesting times ahead for all of us, I think.

Absolutely. I mean, a big takeaway, I think, for our audience will be around sort of contingency planning and how to ultimately prepare for this upcoming season, which will be changing week-on-week. So I mean, Alan, what are your thoughts on that particular topic area? Are you sort of recommending any particular moves with your clients? What are your thoughts on that topic?

Yes. And again, from where Tradeshift can -- technology and services can help, it's about where we can sort of offer tactical, operational or strategic advantage, I guess, during those times. And just picking up on what both Charles and Jamie said, it's interesting to see that a lot of the peak time preparations that we normally get sort of pulled into with our customers about infrastructure is it got the capacity, the bandwidth. All of those questions, those were happening in sort of July, August time this year rather than in preparation around September, October. So you can already see the strain on the supply chain and obviously, the infrastructure that's already in place. And I think the world is tired of this phrase, new normal, because everybody, to their credit, was very quick to react to the COVID situation and try and make the best of a bad situation and obviously keep everything flowing. But I think we've had a bit of a false dawn in some respects because we're still in contingency mode. Governments are still plowing money into the supply chains. People are still potentially going to be in a lockdown scenario again. So this idea of new normal, we're not quite sure what that new normal is yet. And I think the best thing that people can do at this point and certainly where Tradeshift is focused is very much around the strength, the efficiency and the liquidity of the supply chain specifically. So if you've got strong enough collaborative relationships in your supply chain, is your data sharing strong enough so you can preempt trending, is it adaptable enough so that you can react to the BCP scenarios that are bound to come up again over the next couple of months, a really critical time. And then when you start to look at your efficiency, can you make that throughput time reduction? Can you make it more touchless? Can you start using AI and things like that to do coding for you and start unlocking some of that ability to be more streamlined. And then I guess in terms of the liquidity topic, one in 4 businesses are impacted by financial failure. I mean that's of a seller at some point. And this is the most desperate times for sellers, particularly who are trying to sort of get money, keep the supply chain going, provide services. And we've seen a lot of defensive type tactics, which is fair enough during this period where you see extended payment terms. But things like that actually kind of compound the issue because you're actually putting money away from potentially the sellers that need it. So actually, what we want to be starting to see is getting that liquidity into the supply chain as best you can. And Tradeshift's had a pilot recently in Denmark, which is where our company was founded with the Danish Export Credit Agency, where we were looking at piloting a program designed to lock around $55 billion in supplier payments in 12 months. So there's things like that, that are taking place to try and drive liquidity where it's needed rather than sort of -- where we don't quite know where governments are going with this injection of money in a blanket effect into the supply chain. So there's a few sort of things that we can do. But I think preparation is the key. If you can analyze that data, you can see where things have gone wrong and have the time to take stock over the last 6 months. I think it got as bad as it probably could. It may get worse, but it's certainly not going to be much different from what we've seen at peak time of the COVID virus. And it's about how you set yourself up to go forward from there.

I just want to -- just to add, I think it's a really, really good point, by the way. So the cooler situation obviously is -- some people have benefited some people haven't. But there's a lot of small and medium-sized companies out there that really struggled through COVID-19, whether it's in whatever inch they're in. And I think logistics operators around the world are working hard to try and get help and get those companies back on the ground. If you're a large platform, the big platform operators that are selling into this space, I'm talking about e-commerce specifically. Then you've made hay, while the sun has shined and very successfully [indiscernible] but that doesn't necessarily help the small and medium-sized retailers. And I think that -- brick and mortar's already in a bit of a tipping point, a bit of a problem already that COVID-19 has clearly accelerated. I think, again, being slightly optimist. Well, not slightly, very much the optimist, but being so slightly biased towards the small to medium, one of the things we've certainly seen is that they've responded. And it always struck me as rather bizarre that there were so many companies that weren't online, pre-COVID [indiscernible]. And again, if you say the flip side of COVID-19, for those who have decided to push back and fight back and stand at their own 2 feet and try and make a success of it. We've seen a big push and a big change where retailers, small and medium-sized retailers and brands are pushing to get online as quick as they possibly can and capture that opportunity. Because again, if you look at the sort of context of that, around about -- I know I'm sure everybody on this -- I can definitely tell most people on this webinar shop online and probably shop online a lot. But anyway, to the point, still only about pre-COVID, about 12% or 13% of what was bought is bought online. So it's been a flexible number. It was growing very healthily, but it was only 10% or 12%. Obviously, COVID-19 has accelerated that. And the big question is how much of that sticks. How many people who've switched and become online shoppers stay online going forward? There'll be a bit of a change as countries start to open up again. But there will be a big proportion of those that will stick into the point, which I fundamentally agree with. It's about how do we help those small and medium-sized companies to get back on their feet and to start operating again. Because it can't just be a 2-platform business around the world. Yes.

Yes. I don't know if you've seen the same thing, we talked about a shock wave earlier about how disruption affected flows of material around the world. But in the same thing with large enterprise into small and medium enterprise and whether it's the automotive and mobility industry or whether it's e-commerce or this is probably the same across the board. But when lockdown happened effectively, those who had made hay whilst the sun shone and had the assets or the cash to deal with that lockdown, it's the small and medium enterprises that have felt that financial shock wave. So if the big 2 closed down for a couple of months or so, then the next wave won't have been paid until 30 days after that, then the Tier 2 is -- won't have been paid for perhaps 30 days after that. And that's the area of most of our -- most industry that will have been at risk throughout this. So certainly, in the automotive and mobility segment, we've seen consolidation. We've seen lots of the bigger fish swallow up smaller fish or people who are in constraints with us. But in the same way, is as we're coming out of this, we're really seeing a smaller world, less -- those who have really prepared for the harsh reality of what we've just seen are going to dominate. And they're the ones who have been able to put money or more money into e-retail and e-commerce platforms or finding a route of their sellers away from the traditional platforms, I guess. So have you both seen that kind of setup in your industries?

Alan, you can go first then...

Yes. Yes, I think so. And I mean, there's an element of it that fundamentally, there's some parts of the T&L business and then the providers to that. It's difficult to be a successful tire provider when you can't get hold of tires and things like that, that just fundamentally keep the industry going. But I think across the board of all our verticals, we've definitely seen the impact of COVID. It's the same in terms of its impact, the greatness of its impact and the way that businesses have had to react around their digital strategy, but also just their day-to-day working. And those companies with lots of assets, when you think about something like an airline where it has planes and pilots and all sorts of costs that just continue to run irrelevant of whether they're flying or not is obviously going to be less agile than perhaps an organization that has no assets at all. So it's something like an e-commerce platform. But I don't think that dictates from the changes that had to be made from an operational perspective. And the challenges in terms of overcoming those are very similar. So the same key lessons can be learned. Where can you be more efficient? Where can you see where our process is actually detrimental rather than adding value to you? And I think that those lessons are the same. But yes, absolutely. I mean we've seen that impact across the board.

Yes. And likewise, as I mentioned earlier, we've seen sort of the -- sort of rise and rise of the small and medium online seller, which is really [indiscernible] at a rapid rate. And certainly the conversation is in terms of their preparation for peak. They're looking for how obviously, logistics operators like us can help them and help them be successful. So I think in the world, again, if we are running at sort of 12%, 13% of what's being brought online, it's probably more like an 18% or a 20% now. So it moves us forward by -- depending on who you read, some people would tell you 2 years. Some people will tell you 10 years. I reckon it's about 4 or 5 years. The world is going to [indiscernible] for about 4 or 5 years that we've moved the e-commerce environment on -- again, going back to the original question and sort of where we started this particular part of the webinar is for logistics operators is how to keep up and how to get the capacity at the level that is 4 or 5 years advanced. And that draws on us also. You've got physical space that you're trying to create as quickly as you possibly can. But I think increasingly so, and again, talking to my colleagues and peers around the world, it's about being smart, using automation and technology as best we possibly can to create incremental capacity, it's about being smart with the infrastructure you already have. So how can you gain and set the asset even further and still get another 10% or 20% on your existing asset? Otherwise, it costs a lot of money to build that capacity, but there's no question about it. We spend -- but I'm not on webinars. I spend most of my day with my team focusing on how do we rapidly create the right environment that supports small and medium-sized sellers. But it's also big ones too. I mean they're on the fronts every single day, wanting more and more, I think more and more space. So it's a bit of both. But yes, it's a good [indiscernible].

Perfect. I have a question actually around sort of customer expectations and sort of I've sort of read reports that it has been altered in COVID because everyone understands, obviously, longer lead times and kind of the strain on the industry. Do you think that customer expectations will be how they typically are in peak season this year? Or do you think that they will sort of be more understanding? And how are you preparing for that?

Maybe I'll just jump in. So the -- it's been interesting, let me give both sides of the coin. So on the one hand, there's been an outpouring of appreciation and love from the majority of -- and I'm talking about Canada, majority of Canadians just thanking the postal operators and the delivery agent for doing what they do day and day out. They don't forget as well, and I don't want any violins playing, but these guys and girls have been doing this 24/7 now for 6 months. So I think it was Alan who mentioned it earlier, it's not like we just work up on a Monday and start delivering kayaks and barbecues and then we finished on Friday because of the volume, we're working say -- well, for the most part, working 7 days a week, and they've been doing that for 4, 5, 6 months. And again, as I mentioned onto your question, for the most part, the appreciation from the Canadian consumer has been amazing. I mean we've had drawings on sidewalks and pictures and windows and stones painted and our delivery post boxes with little message. I mean, it's been really wonderful. And it's really heart-warming. And we had drive by cavalcades with people choosing their home saying thank you to essential workers, nurses, postal operators. Perhaps, it is something that I will definitely take away. That's it. There's also an element who wants their barbecue sets at 5:00 on a Friday evening and not at 9:00 on a Monday morning. And yes, I suppose, rightly so, they have a right to say hey, hurry up and maybe don't fully appreciate some of the challenges we had. I think the reality is -- I'm going back to what I said earlier, we have peak on peak. And so we already know that the service is not going to be where the service number is normally. And I think it's true for all postal and logistics operators. There's -- peak is normally a challenge from a service perspective. But most companies, the biggest, the smallest drop their service standards through that period. I think it's going to be offered still as we go into peak. I think for the most part, there is an understanding. So I don't anticipate too many emails to myself. I'm not going to give you my email address just in case. But I don't expect it to change fundamentally. But I think one of the things that we've observed through COVID-19 and then again, going back to the point, what does it mean and how does that change our operation, visibility and predictability have become much, much, much more important than, in fact, maybe than time. So if you've ordered something and this is actually mission-critical, most people are okay with 2 or 3 days or whatever it may be. But not having necessarily having really good visibility and really good predictability, [Audio Gap] to create greater customer dissatisfaction than the time itself. So again, something we're working hard on is how do we create great reliability within the movement of the goods. I think that's definitely something that came through. Again, as I mentioned earlier, taking the things that we think we need to work on through COVID-19 is that ability to have a -- I don't like using the phrase, but the UBER-like visibility for a packet and parcel. So people know where their barbecue set is and when it's likely to be delivered, that's become more critical than perhaps even time itself. So for the most part, people have been really great.