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

Good day, good afternoon to everyone. Thank you for joining the Expeditors webinar. I'd like to introduce our host, which is Mr. Shailesh Mor. He is our Global Ocean Product Director from the MEA region in support with Navin Naidoo who is based in South Africa, who is our Ocean Product Regional Manager. We will be shortly getting on with our presentation who will be hosted by Shailesh. I'd like to thank you for your patience. [Operator Instructions] I'd like to hand over hand over to Shailesh.

Thanks, [ Tasneem ]. All right. So I guess, you can move the slides forward with the agenda slide. All right. Thanks. So we're going to discuss today the ocean market update. And as everyone reads a lot of press and updates on the market ever since 2020 happened, today, we're going to just, I guess, help you understand what's happening in the global markets and then, obviously, how does it affect South Africa market. And one of the big questions that continues in 2022 is -- for every customer that we speak to is when is this ending? Is it -- and has it ended? Or, as we said, are we out of the woods or, shall we say, muddy water? So this is really the theme of the presentation today and we'll try to address the topics that cover those. So there's a lot of talk of recession, global demand slowdown and, therefore, how does it impact shipping? And does it help the scenario that has played out so far? Or does it -- or does anything change? So we're going to look into some of the actual data behind this and try to understand and put in front of you questions to see whether these things are improving or static or going to be the same as we move forward in this year. And then we'll cover the South Africa ports and logistics update. Navin will help me in that area. We'll talk about -- a little bit about real-time planning, hard [indiscernible] commitments, what to do when you have these kind of scenarios playing out in 2022. So one of the things that has been constantly now in the news is the GDP growth rate has been slowing down, the Russia-Ukraine impact as well. Overall, there has been a revision of global GDP growth rate. So I just want to start by saying that the concept of GDP growth rate to shipping is that there is an unstated ratio, which has played out over the years where if the GDP grows X percentage then the shipping or container shipping growth is roughly around 1.2 to 1.5, depending on the years, over the last 10 years. It used to be -- before the financial crash happened, it used to be in the ratio of 2 to 3x. So if the GDP was growing 5% in any country, the containerized growth rate used to be 10% to 15%. That completely changed in 2000 -- after the crash. And one of the biggest reasons for that ratio to change was that the inventory holding ratios of customers went -- dramatically changed. The concept changed. The reason was simple that when that crash happened, a lot of businesses were jeopardized or were completely wiped out because of sitting on very high inventories and the demand crashing down suddenly, right? So that's what happened back in 2009 and '10. So then obviously, supply chain leaders or CEOs or CFOs who rely on international imports or international trade, they had to think about how to avoid that in the future. And therefore, the whole concept of lean supply chain management, just-in-time shipping, don't hold too much inventory. So as that happened, the amount of goods inflow at any point of time came down. And that's what we saw that the ratio dropped from high of 3 to 2 to 1.5. Now in recent years, it was almost 1.1 to 1.2. That's what was happening until 2019, right? So when '20 happened, again, there was a crash of demand but for a very different reason, it wasn't a crash for -- which was due to economic reasons. It was a crash because of a pandemic at the end of the day. So overall, if we look at what happened in 2020, we saw a real crash because of pandemic. And then we saw a real upsurge within a year, within like 6 months or so where all the pent-up demand, which could not be shipped because of a disruption really, it was not a disruption of demand, but it was really a disruption of the logistics and factories and manufacturing and all of that, that led to sort of drop of global shipping, all of that started coming back when things started improving. And we saw that overall GDP growth rates were negative in 2020 for countries, as you know. However, the shipping growth for the year was still flat. We ended up shipping the same as 2019 on a global level. However, it all got compressed into literally a 3- to 4-month period versus being shipped on overall year basis and a weekly or a monthly basis. So that's what happened. So can we relate GDP growth rates to the state of logistics today? Is the demand coming down because of economic reasons? And the answer is that, yes, there is inflation, very high inflation for economic reasons, and that is where some of the talks on demand coming down. So we just want to know the result of data which is still happening. The latest that we have is the container port throughput indices. So this graph just shows you what's been the throughput ever since last few years. And then we see -- as we can see, the throughput is still pretty high even though we are -- this tracks up till April '22, 25th April '22. So throughput compared to previous periods still remains pretty high even though there is a massive slowdown out of China, as we all know. These are the GDP growth projections adjusted. They're getting adjusted pretty regularly now. So this is the latest that we have from a source called Focus of Economics. And the adjusted, as you can see, all GDP growth rate projections have come down slightly. China though still shows a very slight slowdown. BRIC, which is Brazil, Russia, India, China, also then combined basis, there were a reduction from 4.2% to 3.8%. So if we look at U.S., again, a reduction from 3.9% to 3.4%. So it is still showing growth in global major economies. Of course, Ukraine and Russia is negative by a big number. So -- but the role of Russia and Ukraine when it comes to containerized shipping, the percentage that it contributes to global sort of container flows is very small. So this does not change the scenario too much for -- except for this region. But for the rest of the world, it doesn't -- it's not a mover or shaker effect, this issue that is happening today. So we have to look at the fact that even though GDPs have been adjusted downward, there are still growth rates showing and therefore that means that there is a growth rate for container business as well over 2021, right? So then we come to the point where, okay, so if the growth rate is still there, then what is the capacity situation? Is that growing? Or is that static? And where is that? So again, we look at the data behind that. This is the -- this was our data which was available about a few weeks ago. So it was showing that if you look at '22 forecasted and '23 forecasted, if you look at these numbers, the red and the blue, so red is really the global throughput growth rate, so showing at 5.9%. And the capacity, which is the blue one or black, if we look at it that way, it's 4.1%. So what does it mean that there is a gap between growth and capacity in terms of goods growth versus capacity growth, which is negative, which means there will be pressure on shipping despite the fact that it's -- in '22 because there's not much new capacity coming in, in '22 in terms of growth. What will happen in '23, though, if we look at that number, there is a massive increase in capacity. That's because shipping lines started ordering new ships and the first deliveries will start happening '23 onwards. So this shows a significant jump of 8.1% versus cargo growth -- throughput growth showing a 4.7%. So this is where there is a gap in favor of capacity. And that's when we expect things to start easing down. But in '22, it looks very, very tight, okay? So this data got revised again now as of this week. And this, again, adjustment shows to you that the capacity growth is still at 4.2%, while the demand growth is showing at 4.9%, global throughput growth. So it's fallen by almost 1%. But it's still -- there is a gap here. So just keep this in mind that this is -- basically the numbers that you see here is an annual capacity growth and an annual throughput growth, okay? So that's one concept of looking at capacity and demand. It's what is the annual scenarios on an average. However, as we -- as I sort of highlighted, when we looked at 2020 on an annual basis, there was one story that overall container shipping volumes were almost similar to 2019. But the real story behind that was the compression of that volume shipping in 3 or 4 months versus shipping it all through the year. So we have to follow the -- this concept now. Other than looking at annual capacity, annual throughput growth, we have to look at how the flows are. Are the flows still normal or not? And the answer to that is they are not, clearly. As you know that China has gone into a situation, which we will talk about. But this is where the problem is, so -- right -- this shows data from 2012 onwards till 2022. So as you can see, over the years, the absorption of global fleet due to delays, which are weather-related, which are port-related, anything which normally happens in a normal year, was anywhere in the range of 2% to 4%, as you can see, till '20, right? And then as '20 happened, the disruption went dramatically up, as you can see, and it's been going up in a very high range. So the -- so this is where the real issue is that although the annual global capacity reflects a number, however, that is absorbed due to delays, which we've been seeing over the whole of 2020 and whole of '21 and we are continuing to see that even in '22. And this number is a very significant number. So you see 12% going up to 14% in '21. It's still at 12% -- 10% to 12% range, which means that even though all shipping lines have deployed all capacity, the actual operational capacity available is only, instead of 100% deployed, it's actually only 88% or 90% at best. So that creates an additional gap between the demand and the capacity. So even if demand is growing at, let's say, 1%, the fact that there is capacity not being used due to disruptions around the world in imports, et cetera, then the actual gap is 9% to 10%, which is why the rates continue to be very, very high and which is why we continue to see pressure on space and capacity. So I'm going to run through this pretty quickly, the next few slides. Basically, it talks about what happened since 2020 and the events behind it. So these 1, 2, 3 are kind of category of events that rolled behind this. The reason why we are showing this is because similar events are coming up. So I just want to quickly talk about the numbers. The first was the Chinese New Year factory closure due to COVID-19 lockdown in 2020, right? Then liners reduced sailing capacity. So I'm talking about this '20 story, taking you back as to what happened then. And so in response to the COVID situation impact in '20, the liners reduced sailing capacity. And third was when the cargo started coming back, liners started adding sailing capacities as shipping looked to make up for the delays with low inventories, right? And then the congestion started to rise in global ports, and it was -- the worst was basically LA Long Beach in U.S. West Coast, right? And then there was another event, which was the Swiss canal, which you all know. And then constantly, there were issues around Chinese ports and these all U.S. West Coast ports, which continued through, right, in '21. I'm sure you heard about the fact that there was a 100-plus vessel congestion back in '21, not so long ago. And that again was slowing down. The lead times which used to be 25 to 30 days went down -- went up 60 to 90 days. All of that disruption caused disruption across the world. So we talk a lot about China and U.S., but the reason why we talk about this is that this is where one of the biggest disruptions is and that causes disruptions across the world in all supply chain of the container world. So the container world also has a supply chain of ships going through planned flow through different ports. And containers, shipments, a planned flow, which is supposed to happen on a regular weekly frequency. When that planned flow gets disrupted, either in form of vessel availability or vessels getting stuck at the ports or containers not throwing back and forth according to a normal flow, that's when that whole disruption played out in that 2 years and that's what is continuing to play out. It's the disruption of the flow -- of a planned supply flow. So one of the results, what happened through '21, was that carriers had to shift capacity into this area which was most affected, right? So there was -- this shows that there was -- if they had vessels, then how did the ship vessels in terms of percentage into areas where there was problems of more demand and less capacity. So there was a shift from Far East in North America of 51%. South America, West Coast 25% and so on and so forth. The significant thing to note here is that the shift happened from these countries feeder vessels and Middle East and then idle vessels. So this is where -- in Africa, you see also there was increased capacity, but it actually started going down back in '21 because there was a shift of vessels from even Africa trade into feeding the problem that was happening from China to North America and China to Europe as well. So this is where the disruptions happened and this is why the capacity into South Africa as well then gets disrupted or the equipment availability from where you import from, whether it's Europe or whether it's Asia or U.S., that becomes a problem. So what is the disruption scenario that we need to consider? So these are the questions we kind of ask ourselves and the traders as well. How long will it take for port congestion around the world to normalize? So our sense is that we actually are seeing a real-life example playing out today where there is -- in the biggest area where there was a lot of shipping happening and congestion happening for the last 3 months, literally Feb, March, April and now into May as well, there has been a real slowdown of volumes from China to U.S. It's first because of the New Year holidays -- Chinese New Year holidays and then after that, the COVID issues, right? So what has happened in 3 months? The vessel congestion has come down from 100 to 30 vessels. So it's improved a lot. The dwell times at Los Angeles port have improved a lot. And even the transit times, which were taking a long time because of the dwell times at the ports have come down dramatically. So in 3 months of, let's say, a very slow shipping scenario, this has reduced the congestion down. And the pricing though has come down only from $10,000 plus levels to about $7,500. It is nowhere close to where 2019 rates should be. By the way, 2019 rates in this line used to be around $1,500 to $2,000, okay? So -- okay. So if we take this as an example of supply flows slowing down due to a reason and therefore congestion coming down, we can tell ourselves that this is how long it takes. It's still not over, by the way, and the pricing hasn't dropped back to 2019 levels, nowhere near it. It has dropped but it is still at an all-time high comparatively. But the real issue now is, is this a real slowdown where cargo will start shipping normally post the lockdown? Or is it the same situation that we -- that happened in 2020 where there was a pent-up demand and as soon as production came back, there was a lot of shipping that happened? So compressed period in which the shipping is supposed to happen. The industry forecast with the carriers, CEOs and all of us on the ground realize and understand is that this is going to be a repeat, where there's going to be a lot of shipping in a very compressed time set. And there are several reasons behind that. One is obviously the factory coming back and starting production, so they will be shipping. Secondly, there's pent-up demand. Thirdly, there is peak season coming up, which is usually in June, July. And lastly, the -- even in the peak season, shipping will happen early and this is to kind of avoid inventory issues in 2022 end. So we'll talk more about that specifically as I move to the next slide. But the real question is, are we anywhere close to having normal flows of cargo between different parts of the world? And the answer is not yet, okay? Because production is still a scenario where there's a start and a stop. And again, the biggest issue which happened in 2020 has repeated in '22 now where China has stopped literally and we are now waiting for it to come back. The other issues remain oil prices, because of the war, and commodities, everything has become more expensive. All of us know that. When we go to supermarkets, there is inflation as it's out there. So that's another side of the story playing out. And supply chain planning for anybody today and understanding as to how this will happen in '22 -- the rest of '22 still remains in a highly disrupted environment. We are not a function of a normal flow either of production or even container shipping side, okay? So this is what is happening in Shanghai port scenario. There's a lot of vessels backed up, although there's not much cargo to ship out because there is production slowdown. There is a lot of cargo coming in still imports-wise into China, the regular imports, and that is backed up in terms of delays. So the delays on import side now are pretty high. They're in the range of 12 to 15 days or even going up to 21 days for cargo coming into China. So that's because there is congestion on the ports and the berthing and all of that stuff. Export is relatively easier right now but again the issue is on the import. Export is easier because there is not much exports happening. So I'm not going to read through this, but this is an update that we sent on our global website. You can -- I'm sure you probably already get it. But if not, you can look onto it. So right now, the latest update that we have is of 9th May. And what it speaks to is that there is still a heavy lockdown, people are not able to get out. There are issues on trucking side. Truckers are not available, drivers are not available. And therefore, there is a real impact on shipping at the end of the day, plus on people as well. And as you would have seen in the news, the lockdowns are spreading to different cities other than Shanghai. And that's, again, a cause of big concern because some of these cities that it's spreading to are actually very big manufacturing hubs, okay? So we continue to be in a very disruptive state in terms of production and manufacturing out of China. So this is another set of data and charts that we took out to say that what is the real-time temperature check on the Shanghai trade route? So it's great you can get your product in a container, but you'll have to wait more than 10 days to get it loaded on a vessel. Container is -- at rest is not making money. So this is basically container dwell time at port of discharge at Shanghai. This is what we were speaking about earlier. The next data is, again, once the container is out on the water, it again has to wait on the destination port. So the destination port delays are still there, although they've come down dramatically in the last few weeks, okay? So this is where there is a massive drop in terms of the arrivals, the weekly shipments coming into Port of Los Angeles. It's really fallen off the cliff, as you can see. That's why the congestion has come down and that's why the disruption has come down. But what's happened simultaneously is there is congestion happening on U.S. East Coast ports. We'll tell you why. So this one, as the rest of schedules remain in complete disarray, the reliability in these trade lanes have dropped and is still at very record low, 14%. And the most likely scenario now, which is already now out in the open, is that carriers have announced blank sailings. So again, like I said, this is literally a repeat of the 2020 scenario playing out where production goes down and carriers respond by dropping the number of sailings, okay? So there are many blank sailings announced to both the U.S. as well as Europe, and this is going to throw down -- this is going to again create that ripple effect of the supply chain breaking down. And when the production comes back, there will be compression and there will be congestion. This is the -- this is another data. So the reason why we show you a lot of these data slides is that we -- everybody can read a lot of news, et cetera, and form an opinion. But we try to look at things and data indicators objectively to see how it is -- what is trending to be able to make a forecast. We just don't want to say things out of our minds to say, oh, we think it's going to be like this or it's going to be like that. That becomes a personal opinion. But we really look through all data points, study them, watch them as a company and then try to put it out to all of our customers to say, this is why we think these things are going to happen and this is a prognosis of future in 2022. So as you can see, this is one -- another indicator is inactive fleet, and this has started going up since February quite steeply. And this is a combination of idle vessels, blank sailings as well as vessels which are taken out for repairs. So that's another way carriers instead of just saying that we have blank sailings, and we are not going to sail our ships, actually, a lot of ships are going into yards for repairs and upgradation to be able to keep up to the industry norms of carbon house emission gases and all these sustainability initiatives, which we'll talk about very briefly at the end of this presentation. So we expect the phase 3 will be reopening and then we expect the surge to start, and then peak season will start early in 2022. There is congestion on East Coast increasing, and this is because a lot of importers in the U.S. have started avoiding West Coast as a port of entry because of the upcoming labor union negotiations, which happen once every 3 years. And they expect a disruption in the West Coast, and they have started, therefore, diverting their shipping to U.S. East Coast and that's where the congestion has started. So we are watching this and there is clear congestion at U.S. East Coast. There is less congestion at West Coast, but East Coast congestion has increased because of this diversion. Again, why are we telling you all of this U.S. updates? It's because this is going to cause an anomaly into all capacity to all trades at the end of the day. And that is why it's important to understand this particular scenario because it causes disruption worldwide. So overall, there is congestion around the world that's continuing. And European ports have started getting congested after the Russia and Ukraine situation particularly. And so China port congestion we showed you. So congestion continues and that's why that capacity absorption that we spoke about, that continues. This affects the schedule reliability as well. Reliability slightly improved in Feb versus January and March. However, it's still much -- very, very low, as you can see, compared to normal periods in the previous years. So stats from 2016, the different colors are '21 and '22 are the ones around the range of 30% to 40%. So I just want to call out the Africa scenario overall. Asia Africa reliability has been improving pretty well in the last few months. It was up in Feb-March to 41%, if you look at this one. But again, because of the Durban Port situation now and the floods et cetera, this might hit different results and reporting further [indiscernible]. This is also another chart to show you what's the reliability carrier-wise. So it tracks from '21 onwards, different carriers, different reliability numbers. So some of the carriers, which were at really low reliability have certainly improved. Whether it's sustainable or not, it's to be seen. But as you can see, a lot of carriers are not -- major carriers, for example, have improved in the last month or so. Some of the carriers have actually still in very low position. So this helps us also device our own strategy and recommendation to customers to say, which carriers, which services or trading are more reliable relatively than the others. So hopefully, it allows you to choose and take better options -- or relatively better options in case of your plan. So I'll stop here. Basically, I'll ask Navin to step into the South Africa ocean for update.

Thanks, Shailesh. Hi, everyone. So South Africa has been impacted by some flooding recently, but we have some good news is that the Durban Port productivity has improved. So April 1 saw some tariff updates for South African ports where shipping lines were impacted by a 5% increase in terminal handling fees. Our port coverages remain unchanged, and that is in line with the CPI increases. What Transnet also did was they imposed some new restrictions on the shipping lines and sent out a notification to all carriers to ensure that all cargo manifested onboard those vessels were cleared prior to the vessels arrival into port. So that created another 72-hour documentation deadline from the shipping lines to ensure that all containers were cleared. The truckers were nominated for those containers because the ports needed a very fluid movement of containers from the port into the truckers depots and directly to customers as well. So the 72-hour documentation deadline just means that import brokerage has to preclear all the shipments way before 72 hours prior to the vessels arrival because of deadline for producing documents to the carriers is 72 hours. So there's also a charge that is being implemented for unassigned containers. So if a shipping line have to have any unassigned containers on that vessel, there would be some punitive fees that the port raises on the shipping lines. And that, in turn, will be passed back to customers. So in terms of the Durban Port statistics, we're seeing there's a 2-day waiting period in Durban for vessels' berthing. So vessels are not impacted very poorly due to the floods. It's fairly improved, productivity has improved 2-day berthing delay in Durban. Pier 1 and Pier 2 is 2-day berthing delay. The point multipurpose terminal is just the 1-day berthing delay as well. So that also works on a first in, first out situation. Port Elizabeth, we have no challenges with Port Elizabeth vessels berthing on arrival. The terminal's fully operational. Coega, fully operational, vessels berthing on arrival. Cape Town has been severely impacted for the past quarter. We've had in excess of 14 days berthing delay in Cape Town. But recent of last week, we've seen that, that reduction has come down very drastically. We're seeing a 3- to 4-day berthing delay currently in Cape Town. So weather permitting, we're seeing that vessels are berthing. There's been a lot of vessels that omitted the Port of Cape Town due to the severe dwell times. But with the improvement, we're going to see a lot more stability in the scheduling and vessels expected to arrive in Cape Town and wait for those 3 to 4 days currently. And that is always due to adverse weather conditions with Cape Town being very wind bound, prone to wind delays. Multipurpose terminal as well. First in, first out, 3-day berthing delay on the multipurpose terminal. So there was a huge backlog of vessels but things improved. In terms of the Durban flood situation, the government depots were nearing capacity because of a lot of containers that were either dislodged during the floods or a lot of depots that were closed because of flooding. So shipping lines that are -- that are receiving containers into the depots are spreading those containers [indiscernible]. So some carriers are actually having containers returning to outline depots and that is creating some additional costs for truckers taking those containers into those depots as well. For Johannesburg, depots space is available. Port Elizabeth as well, we have no issues with capacity for stranded containers. Cape Town as well space is available. So the only challenge currently being Durban because of the flooding where depot capacity has been reduced. Can we move on to the next slide? So yes, we covered the [indiscernible] deadline for carrier overstay containers. And basically, what this means is that containers that are not assigned to transporters will be moved on overstay [indiscernible]. So with the shipping lines appointing their own nominated truckers to any containers where documents were not processed, those containers will be moved directly to the shipping lines depots and containers moved on overstay. So any containers that are not manifested with the transporter details are moved to ship lines depot. The other thing is in terms of a truck booking system. The port has the truck booking system. There's -- during the flooding in Durban, that booking allocation was reduced to 70 spots per hour. That has since improved to 140 spots per hour. So all truckers reporting to the terminal have to have a formal appointment to collect containers. Any trucks getting into the terminal without an appointment are turned away. For truckers that make bookings on the port system and do not show up for those appointments will be suspended for a period of 24 hours, according to the port. So some harsh penalties that are being applied, but that's all for the betterment of the port to be as good as possible to evacuate containers. Move on. So with the impact of the floods in Durban, all rail operations on the Natal corridor have been suspended. So Transnet has declared force majeure on rail. And they are currently doing some due diligence on the rail system and surveys in terms of the impact of the damages to the line and they are reporting back. So we expect that for the next 7 weeks, all shipments that were manifested for rail will be moved by road bridge into Johannesburg and Pretoria. So the Natal cargo service between Durban to Johannesburg will remain suspended until June. So we'll provide further feedback in terms of the updates on that. So currently, we're seeing some drop in volumes out of Asia, like Shailesh mentioned. We're seeing that capacity has become available, there's equipment, there's a lot of also blank sailings coming about because of the additional capacity in the market. Carriers are doing their best to balance the supply versus the demand and remove any excess capacity so -- and also maintain the pricing. So with the terminal operations in Shanghai that were impacted by the COVID lockdowns, we think that a lot of cargo that was manufactured in Shanghai is moving to Ningbo. But there's also some restrictions that we believe the Chinese government are applying on truckers to have the COVID testing when they leave the Shanghai. And also when they're reporting back or traveling back to Shanghai, they need to have their COVID tests or are possible to be quarantine in Ningbo. So the challenge is that the availability of trucks has reduced. So it's very important for customers to book as far in advance as possible. So we're recommending at least a minimum of 21 days prior to the cargo ready date to initiate bookings for the offices in China. On the South Asia business, we're seeing a lot of erratic sailing schedules. Carriers are either avoiding blank sailings on short notice. We're also seeing a drop in volumes because of the slowdown in China. There's production delays happening in South Asia. And the challenge is that we expect that shipping lines will shift their services to cater for available demand in the market. So again, we encourage customers to book as well in advance as possible. Move on to North America. So on the North America trade, we're seeing that both inbound and outbound, it's very, very challenging on the South African route because of the carriers using much smaller vessels. So there is shortage of equipment. And also the inland locations are also impacted by trucking availability. So on this trade, we find that carriers are booking way in advance, so as much as a month in advance. So bookings here on this trade need to be handled as early as possible. So an indication of cargo ready for the month of June, bookings should be made already in the month of May. On the Europe, there's challenges with transshipments. So we're finding increase in transfer times because of the vessel rotation. And also carriers at short notice are moving direct services into transshipment services as well. And containers are being lifted at transshipment ports, it's based on a first in, first out basis. And we hear that shipping lines have a backlog of containers at transshipment ports and those could actually spend a dwell time of 2 to 3 weeks at minimum at a European transshipment port. So once again, we encourage customers to book as far in advance as possible. And we select the direct services as far as possible with these carriers to avoid transshipments. Shailesh, if you want to continue.

You want to cover this or...

Yes. Okay. Yes. So just in terms of the slide, it's just varying equipment shortages, a slowdown of imports over the next 60 days, especially from North Asia. Carrier schedule integrity is decreasing because of the erratic nature in terms of planning vessels or redeploying vessels, potential shutdown of terminals due to COVID-19, as we're seeing in Shanghai currently. Detention and demurrage chargers for shippers and carriers due to long dwell times of containers at either the origin ports or the discharge ports, shipping lines are not entertaining any requests for extended free time. They are very, very strict in terms of the allowed dwell times or free times on containers upon receipt at load ports or at the discharge ports. And limitation in gate hours at the ports because we think that the [indiscernible] are consistently moving. The provisional stacking windows change very, very frequently. So again, just be mindful of these challenges that the market is experiencing.

Okay. Thanks, Navin. So just continuing market conditions in 2022. This is kind of an overall summary. We still see that capacity will be constrained. There is not much new capacity coming in and also because of the amount of disruption and the normal supply chain of the container world. The -- from a strategy perspective, the primary focus for this year, since we are in April contracting or the new season setting up started back in December, for some people even October. So the primary focus, as we saw, was capacity, both by BCOs and NVOs. And the reason for that is simple, that is where customers are really, very effective, whether as an NVO, we were a customer of the carrier. And if you deal directly with the liner, you are their customers. So the real issue which everybody wanted to solve was get an allocation or committed volume allocations, which meets your shipping seasonality or your shipping flows, et cetera, right? So everybody focused on that and rates are secondary. Also, because of the fact that the 2021 spot market or FAK market was very, very high, as everybody would have seen in '21. The starting point for the long-term rates for '22 were actually the numbers on the FAK side. So if you saw that, and maybe some of you can give us some feedback on this call, the annual numbers, if you were talking to the carriers and saying, hey, give me the whole 2022 pricing. For the whole year, there were 2 or 3 things which kind of changed in this contracting season versus what we saw in '21. One was the fact that the rates were very, very high. They were literally many trade lanes double of the contracting rate in '21. Secondly, the carriers put a lot of conditions around these rates and capacity because they wanted to make sure that if the flow from the customer side is not regular, that they are not committing anything regular from their end, too. And also, if the markets continue to behave or there are further disruptions, that they leave it open for a big season surcharge or a GRI, et cetera. So there was a complete change of behavior by the carriers. And that is why if you look at the financial results for the first quarter that has come in for some of the major carriers, again, record numbers. And they are still projecting record numbers for -- they're actually up -- their guidance for the rest of the year has gone up and that's backed on the basis of signing long-term contracts at a much higher level than this time in 2022, okay? So that definitely is what we saw and is the scenario for long-term setups. Now if anybody signed a long-term rate in Asia to South Africa, for example, at the beginning of January versus what we see now as the spot rate, spot rates have considerably fallen down, and that's simply because there's not much shipping capacities there and therefore rates are falling down, right? So you set up yourself for capacity. This disruption even happens. Now you want to stick to your rate or I mean the normal behavior is if you sign for a long-term rate, you should continue to commit to that. But if the rates dramatically fall from that level, then the customer behavior is to take advantage of the lower rates as well. So again, it leaves the whole shipping world when it comes to customer as well as carriers as well as NVOs highly confused because market is constantly changing on us, right? So there's all kind of issues now in terms of long-term contracts versus people breaking the contracts versus spot pricing available versus if you take spot pricing now, then you break your long-term contract. And then if the congestion returns or the shipping returns in China, then you're again looking at very high levels back up again. So the bottom line is they're highly unpredictable, highly volatile, and it's very hard to keep your hands around this area. So that's why we come back to saying securing capacity is the best strategy right now rather than chasing the price volatility because it one way or the other is hurting. Customers -- carriers also review their portfolio of customers, so they had this issue in '21 where they ended up overcommitting to the market. And this year, again, as the contracting season came up, everybody wanted to have the ideal capacity booked in their sort of planning. And so when they looked at what came to the carriers as a collective was way higher than what they could plan their ship on long-term or committed capacity. Because the ship has to be on 2 bases. One is committed capacity, the other one is freehand cargo, which they don't -- they can't plan the whole ship on one strategy end of the day. So they had much more and then therefore they had the problem of now saying, all right, we can't meet every customer's requirement that is coming to us. So we'll have to choose who to give it to and how to balance as best as we can. So this was a problem everybody had. And what ended up happening was they started reducing or not giving as much capacity as they gave last year because they wanted to balance out in not overcommitting themselves. So the other issues on rates will continue to be volatile. Space equipment, again unable to be guaranteed because we are living in this world where it's constant disruption. Any fixed rates by the carrier will be subject to PSS or GRI and free times will be reduced. So -- because obviously there's pressure on equipment flows. So nobody wants to give long free times for the equipment to just stay idle. And bunker costs are increasing because of the oil pricing. So what -- how do we balance out price versus space? These are some of the solutions we offer in general to our customers and depending on the type of cargo. So if you have regular weekly volumes, you have a regular flow through the year, we recommended 50% long-term arrangement and 50% FAK on confirmed allocation basis. Reason is simple, like I told you, you will -- we might have windows where the rates will drop from this very high level of long-term rates that is set up. So the long-term rates continue to be very high, even though the spot market has, let's say, dropped from Asia, China to various parts of the world, including South Africa, it's dropped. But if you go to the carrier and say, hey, what about changing my long-term rates? The answer is no because they know that the surge is coming back and they don't want to change that long-term rate, right? So that is why we recommend as a strategy to be in 2 baskets in terms of pricing management but on a confirmed allocation basis. So this is something we can offer -- or we were offering. We'll have to see. Because we are now in April and -- actually in May and almost 5 months into it. So a lot of this arrangement may have been taken up. We recommend that we have conversations whoever wants to go on this thesis and see what can be done now. Project time moves, which is like you have on a project basis. It's a onetime move or happens every other few months, et cetera, we recommend goes smart to secure space. And if your timing is good, for example, if you're trying to ship project cargo right now in [indiscernible], the spot rate is very nice compared to the long-term rates. So that's why we recommend spot for project types. In any way, project types will require -- it cannot have a long-term rate because it doesn't have the frequency of a regular volume. In regular weekly volumes, again, 100% FAK is subject to space. There's no choice maybe for us with the carriers or our customers do. Seasonal volumes, we always ask our customers to look at their seasonality and their cargo flow trends. And if it coincides with the peak season of the industry, then we would recommend 100% long-term rate because space planning is the key in that. And you will need space that it's really peak season, right? So that's your best sort of option if you can secure it. Seasonal volumes, if you happen to ship opposite of peak seasons, then, again, take advantage of the spot FAK pricing because it will most likely be lower than the high long-term rate setup for this year. So this is not a strategy for every year. This is a strategy, keeping in mind that the primary issue here was that the long-term rates were very, very high and close to FAK rates in many lanes, okay? So that's why the strategy is already recommended. In any other scenario, we encourage you and discuss with us, and then we will figure out what is the most optimum solution in terms of the combination [indiscernible]. Our estimate for forecast for market conditions is very disruptive for next 6 months. This is based on what we showed you in the data and everything that we looked at. And lastly, this is a topic which is probably not as discussed and not on the agenda, but it is coming up. And you will hear more and more about it as we move towards the end of this year, is the IMO 2023. So there is -- this is now the -- you heard about the switch from the high sulfur to low sulfur fuel and the fact that fuel prices went up at that point of time in 2019, '20, that transition was happening. Now this is the next level. So IMO regulation now has further introduced greenhouse gas emission standards for international shipping. The whole idea is that by 2030 reduction of 40% of carbon emissions versus 2008 as a base year. And 2050, 70% of carbon emission reduction versus 2008 as a base year. So what does this mean? The carriers have to upgrade their vessels. Carriers have to buy vessels which are in clean technology -- clean emission technology. And right now, where it stands is that 55% of global current fleet is not compliant to '23. 55%, right? So what this means is that there will be an increasing obligation for the carriers to convert this 55% of global current fleet in compliance with the regulation and in the target emissions, which means either these vessels will be -- a lot of the vessels may be scrapped if they are not worth refittings or changing the emission standards on it or they will be going to repair yards or yards to get upgraded into 2023. This will start from 2023 onwards. And the other thing that will happen is that in order to keep up to the emission standards, the other way to reduce the emissions is to go slow on the speed. So the speed can come down and this what it can mean is increase of transit time, limiting capacity, et cetera, it is -- if they reduce the speed, it means they require more number of vessels in a particular route or a particular lane so that -- to maintain the schedule, so to say. So these are coming up in '23. Again, we don't want to spend a lot of time here, but we just want you to understand that these are industry issues, which shipping lines have already beginning to speak about and this is very high on their agenda because it has to do with global pollution and shipping being one of the major impacts to it. So that's it from our side. We have some questions now, we can take [indiscernible]. Yes, we can -- [indiscernible] we will share this presentation.

We're just allowing attendees to talk if anybody else has questions.

Sure. So I guess we don't have any questions. In case you still like to speak, we're always available to talk about your customized strategies or issues you are facing. Hopefully you see that these are updates that we try to bring to you, keep you updated on our global trends, forecasts and how this global shipping is happening and how it affects South Africa as well. So we continue to be there as a resource for you and to keep in touch with all of us. Okay. There is a question. Thanks, Navin.

Sure. So I think in terms of the scheduling, it depends on the trade route as well because right now it's a case that certain trades are impacted more aggressively with the vessels bypassing like the Europe trade versus Asia. So we expect that there will be an improvement, but certain trades will be impacted far worse than others with vessels bypassing Cape Town. And as we go towards the end of the year, it becomes the windy season again in Cape Town, where there will be more weather-related impacts in Cape Town. So we have placed ourselves for more delays in Cape town in Q3, Q4.

One of the things that get asked by us is -- to us is that what is Expeditors doing given the situation? What do we do to sort of help customers? So I just -- we'll probably answer that even though none asked, is that our focus really has been, for the last few years since the situation is going on, has really been to be number one, because we buy capacity from the carriers to be able to service you, our first strategy is that we want to be the best NVO customer to the carrier, okay? That -- simply, that will get us what we want and what our customers want from us, right? That's a very simple logic. How do we become the best NVO customer to the carrier is we ask from the senior management over the years and the answers are very simple, that they expect us to give us -- give to them a certain volume of business, which thankfully as a global organization we do. And they expect us to stick to the commitment that we have given to them. So if we say we want to do 100 containers, well, they expect that we will do 100 containers or more, right? The -- now in the last couple of years, what has happened is the management is around to say what is the weekly commitment that it translates into? So if you give an annual commitment, what does it translate into a weekly one? And what is our ability to continue to manage a weekly volume flow versus saying we have 10, 10, 10, and then what we want 15 the last of the one, right? So the carriers get challenged with that because they don't have -- they can't do that for every customer at the end of the day. So for them, the best customer is a customer who gives 25 containers a week for 4 weeks, for example, right? So we try to be that NVO for them where we give them what is in the window, what is committed on an annual basis divided by 52 weeks. And we -- in delivering that kind of a performance, then we also if we need a little more, we get a little more at the end of the day on a fair basis, where we are meeting what they want to do on their side, right, to be priority. So this is what we've done. We simply continue to deliver on our commitments to the carriers by volume, by securing capacity, by securing as much allocation as we can. So on your behalf, we did go to the carriers and try to get more allocations this year because we simply had more demand coming to us. We were able to secure in different trade lanes, not all trade lanes, a little bit more. In certain cases, we had to agree to cut down because of the fact that carriers were limited. But overall, we've -- I think, in terms of our annual capacity purchase exercise, we managed to get the same capacity at least, whereas the market norm was that everybody got or a lot of them got cut down in terms of capacity as NVOs, okay, not as BCOs. So this is -- continues to be our attempt and we do have capacity. We do have -- we do commit that out because in order to commit to the carriers, we have to commit -- get commitments from the customers. So our way to service the carriers is really -- is to have customers give us regular volumes and keep the flow going on. And hopefully, we provide the least disruptive environment in a highly disrupted environment. It's an oxymoron, but that's what our attempt is. And the other strategy for us always, since the beginning of the company, is we try to do business with all the carriers and not put too much of our volume flows into 2 or 3 major carriers. And again, over the years, we've been very balanced in terms of providing volume supports to all carriers who have capacity in a particular trade lane. So that again helps us split the risk, offer options to our customers across different services and not get stuck into 1 or 2 services only at the end of the day. So that's really our attempt in the way we try to help our customers. Okay. All right. So again, if no more questions, then thank you for your time today. And thank you -- and we look forward to be in touch with you in case you have any issues and we can help you. Thank you, everyone. Take care. Bye.

Thanks, Shailesh. Thanks, Navin.

Thank you. Bye.