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

Good morning, everyone I want to welcome everyone on behalf of Expeditors to our Ocean webinar today. Just a little introduction about myself. My name is Paolo Domante. I'm the Regional Vice President for Southeast Europe in Expeditors. So my area of responsibility covers Italy, where I'm based. I'm Italian based in England. And I look after, besides Italy, Hungary, Romania, all the Balkans countries, and Greece, right? So that's why we call Southeast. And I see many customers, many names coming from this region, from those countries. I'm very happy to welcome you today in our webinar again. For the ones who are not familiar with our webinars, basically, what we do in the next hour is going to be not promoting and presenting Expeditors' product, but just speaking about market trends, product trends, and what we see happening out there in the market. We use the experience of our colleagues and professionals working on Expeditors to do that. So today, the topic is Ocean Freight, right? I see many of you I personally know, they deal with Ocean product and the Ocean is a very important product of Expeditors. It's a very important product for transportation out there in the trade in the marketplace. And we all know it has been a little, to say the least, troubled in the last couple of years. So going more in details about the agenda of the day. This is basically what you're going to hear from us. We selected some topics, which we believe could be important and relevant to your business. We will speak a little about carrier performance, how they are doing from a financial standpoint. I think an important subject you want to hear is about rates and market trend in this regard. And of course, also capacity and demand, how this evolves and what we can expect, right. One of the subjects around ocean service is schedule of reliability. Many of you, some of you, they could experience disruption, right, with the on-time performance of the carrier. And we're going to talk in general about market capacity, what we have seen happening in the last year, but more important, we are going to focus on the year to come and on the future, which is although very difficult to predict, but we will try to do our best. In order to do that, let me introduce Barry Baron. Barry is our Vice President for Ocean and Order Management and Rail Services in Europe. So he is one of the most entitled person of Expeditors to talk to you about our Ocean product. So Barry, thanks to have accepted our invite, and I hand over to you, looking forward to hearing from you and your presentation.

Thank you, Paolo, and thank you to all the customers and colleagues that have joined today. We appreciate the opportunity to share our views on the market. They are our views. It doesn't mean that these things will happen, but we believe that it's good insight to the market. I also want to thank Valentina and the rest of the crew for organizing and orchestrating this webinar as well, because there's a lot of work that's gone behind it. With that said, I've done a lot of different roles within the company, as you can see in my bio here. The picture is a little bit more flattering. I've aged a few years since then. But with that, a lot of things in our industry over the past 5 or 6 years in particular have changed a great deal, and certainly the last 2 years has been a very, very challenging and very, very volatile market. So with that said, I will go ahead and get started. Now one point to make, if people have questions, please go ahead and type them in the chat box throughout the webinar, and the team will stop me politely and read the questions out so we can address them, because I'm sure there's plenty of questions. Here we go. All right. So the first thing I wanted to share was the financial performance of the carriers. And we don't want to shy away from this because I think everybody knows what's going on and the returns have been tremendous. It's important to look at the historical trends, and you can see what's happened over the previous 13 years with the carriers' financial performance. And what that leads to is two particular points I want to touch on today. And the first one is, because there's been little to no return on their investments, in turn, the carriers and the ports and the terminals have all not been allowed, because of financial reasons, to reinvest into the products and services they offer. And so what happened, of course, in 2016, you can see here that, that's when Hanjin went bankrupt. And while it was 6 years ago, it put rates, especially on the major east-west trade lanes, it really plummeted rates. And in turn, it actually took what was about 20 to 25 global carriers and knock that down to about 8 or 10. So later on in the presentation, we'll talk about the percentage of market share that the top 10 carriers have globally. And it's really important to understand that. And so with that, when the pandemic hit, I like to use the term that it was a catalyst for what we're now seeing today. And when I say catalyst, I'm referring to all the underlying issues that have been going on within the market, and because of the lack of investment, this brought them all together, and I hate to say it was a perfect storm, but effectively, everyone understood what happened over the past 2 years. So now we're in a position where we're trying to recover from a lot of different components. The economy itself that we're facing today is certainly making it even more challenging. So with that said, I'll go ahead and move on to the next slide. And so what we have here is, I think most people would be familiar with Xeneta, this is public information. This was just printed up in June, so it is relatively recent. And what it is talking about, they have a global rate index that they share. And you can see here that it's jumped again by 10% in June. And the index is now at an all-time high for four consecutive months. So despite all the challenges within the macroeconomic environment, rates are still going up compared to where they have been in the past, and they've been going up month-over-month, which seems a bit counterintuitive to the fact that many economies are slowing and we're seeing a weakness in some demand, right? And you can also see here that a year-on-year benchmark has appreciated by nearly 170% and it's up over 70% since the end of 2021. So these numbers are pretty big and it is hard data. So it kind of talks about what's going on. And then the last point on this slide is, Patrik Berglund, who is the CEO of Xeneta, made a statement about falling spot rates and that they may increasingly temp shippers away from traditional contracts. So there's a lot of discussion to be had around that, whether or not it makes sense to actually go from long-term named account rates versus working with the spot market itself. And there's pluses and minuses within all that, and we can certainly explore that in a bit more detail as we go along. So I'll take a pause for just a second. Okay. So move on to the next slide. So the next slide, and you have to take this information and try not to focus on the specific numbers of what the SCFI is showing. It's really more to show the trend, because when you look at the right-hand graph, in blue, what you'll see is that since sort of Q1 of 2020, the actual SCFI has continuously been growing, or expanding, if you will. And so while it hit kind of a peak of what they're showing is nearly 300%, that means growth. So even though it's declining as we get into the second half of 2022, it's still growing. So it's above the 0 line. So just to kind of put data in perspective, you can see that the market rates continue to grow year-over-year. How long will that go on? Hard to say. But we just wanted to show the hard data about what is going on here as well. Within this, we're just showing a little bit more specifics about Europe. So what you can see here is that Europe import and export points, how they're growing, and then that's year-over-year, and then we can see month over month. So again, this is information provided by Xeneta, and it just tells the story, the data, okay? It's important we also talk about bunker, because that's one of those components of the ocean freight rates that is constantly changing. And with the unfortunate situation going on with the Ukraine-Russia war, everyone's seen it, whether it's personally when they go to the petrol station, or just fuel for your homes and electricity, the price of bunker has gone up tremendously. And the left-hand side is 0.5%, which, of course, at the beginning of 2020, that's when the IMO regulations required that the HSFO 380 or the Bunkerworld 380, which is 3.8% sulfur, had to be reduced down to 0.5%. Some carriers put in scrubbers, but most of them did not. And then you also have the 0.1%, which although doesn't affect the Med as much as the Continental Europe, what you see is that in many waters today, within the shore lines or international boundaries, if you will, the carriers are now required to burn 0.1%. So on the right-hand side what you see is the cost of that, okay, just to give you a trend. We don't see this changing too much in the short term. Hopefully, in the long term, the price of bunker will come back down as the geopolitical environment changes and hopefully, things between Russia and Ukraine settle down. Okay. So here's the capacity and market share that I mentioned earlier when I showed the financial performance. And what you can see here is, in 2016, the market share of the top 10 carriers was about 62%, 63%. And then of course, we have the massive consolidation that occurred over that period. And unfortunately, today, what you see is that those 10 carriers control 85% of the market. I mean you talk about Asia and Europe, for example, and we'll show a slide on that a little bit later, the actual control by basically 8 carriers is over 90%. So there is a fair amount of choice, but it is concentrated within the three alliances, right? So I see we have some questions.

Yes, Barry, we have one question. So from the presentation, I'm getting the impression, rates are continuing to increase. However, all indices are showing markets continuing to fall since March. Is this correct? Are Expeditors suggesting rates will remain high into 2023? This is a question from Simon.

Yes. So I think that's a very good question because I have to be careful how I answer because I can't predict the future. But yes, there is some conflicting information out there. So we believe in the sort of medium term that the rates will soften from where they are today. And a lot of the reason why the rates are at historical highs is because of some points we'll talk about with regards to capacity congestion within the market. And also the carrier's ability today to manage their capacity as well in order to keep supply and demand more in balance. So the charts that I showed earlier showed year-over-year increases and some month over month. These are on a global level. When we talk about some market specifics, you'll see obviously that the Far East West bounding to the Med and Northwest Continent, for example, those rates have softened, although they're still substantially higher than they were from historic levels. Okay. All right. Any other questions so far?

No.

All right. We'll go on to the next slide then. Okay. Here we go. So capacity and market share. So now what we have is a little bit better or deeper view of what's going on. So on the left-hand side, you see the Far East to Europe capacity by alliance. And basically, 98% of the capacity between Asia and Europe, including the Med, is controlled by the 3 alliances. The rest is just, they're tiny. And so with that, they have a fair amount of command over the market itself. But what you can see in the lower left-hand corner, when you look at the Far East to Europe and the alliances, is there's actually been an increase in actual supply over the period. Granted, it is small compared to last year, but it's still running at 40,000 TEUs on a weekly basis, right? And then for those customers that have business with North America, we show here what's going on in that market as well. So it's a little bit more balanced, although again, those 8 carriers control 85% of that market. And you can see they've actually pumped 17% additional capacity into the market. And one of the things that I'd like to talk about, and I think it's important to understand, is back in 2016, when there was an issue in the U.S. market, particularly on the transpacific, into the West Coast, it didn't really affect anybody here in Europe. Today, that's changed completely. Because of the control by the various alliances and carriers, when there's issues in the U.S., in Los Angeles, for example, it affects us here in general. It's just that simple, right? So with that said, the questions are, why is this happening? And one of the things to understand with regards to why this is happening is that there's little to no additional capacity out there. So when there are shifts in the market, what happens is that the capacity has to come from somewhere, right? So either the carriers go out and buy more capacity, if there is available in the market. And today, there is almost none, or they have to shift it from one trade lane to another. So in the case of Europe, of course, we've got very large vessels substantially larger than what the transpacific or transatlantic markets can take. I think this next couple of weeks, we'll see some of the big carriers launching 23,000 TEU and 24,000 TEU vessels. The largest vessels that the U.S. can take right now, which are just on the West Coast, are about 17,000 TEU. So any cascading that would occur or movement of capacity would be down in those sort of 5,000 TEU to 10,000 TEU range. And those, for example, are quite popular on the transatlantic trade lanes. So we'll talk a little bit later about what's going on in that particular market. But what it all gets down to, of course, is this is the congestion that's affecting the market. So when we look at the next slide.

Barry, before you go into that, actually, there is a question, which is probably related to what you're going to say. [indiscernible], how do you see the investment being executed due to the financial stability of the liners? Are these funds going to be invested in port operation too, as I personally see the bottleneck in infrastructure going forward. Any time line on that available, which introduces your next slide?

That's great. Perfect. Perfect question. Do we pay them to ask that? Okay. So this, although this is ONE, the carrier, has -- and this was published this last -- I think 2 weeks ago or so. And it kind of talks about what's going on. I'm not going to read all these different components here. But functionally, you have the bottleneck and what are the root causes and a lot of it has to do with regards to the infrastructure. Now when I talk about infrastructure and the carriers, I think most people would be aware, but if you're not, that's fine, that the International Longshoremen's Workers Union, or ILWU, that's the union that represents the West Coast of America port workers. So their contract expired at the end of June, and there was a great fear that with that expiration, based on historical trends, that there would be a slowdown on the U.S. West Coast with regards to managing vessels. And so back in around, I want to say, late February, early March, a lot of the big box retailers in the U.S., as well as automotive customers and other categories, decided to move their volumes, instead of going over the West Coast to the Midwest or East Coast, they decided to move it all water to either Houston or over to the U.S. East Coast. So it would either go through the Panama Canal or through the Suez Canal and head West that way. And of course, what happened is that the U.S. East Coast ports, their volumes surged, and in turn, they couldn't handle all that volume coming in. And in the meantime, in Europe, the exports kept growing as well in the transatlantic. So now we've seen a lot of challenges on the U.S. East Coast ports, where there's, on average, about a 10-day backlog for berthing in the terminals. And that's affected -- that's worked its way back to Europe. We're now especially in the Northwest continent, but certainly it's not exclusive, and the Med has us as well, where the terminals are struggling because there's so many containers moving in and out of Europe and they can't go out basically west to the U.S. So these bottlenecks in the investment, unfortunately, port infrastructure, those are 1-, 2-, 3-year type of plans. So it takes a lot of time in order to get the construction and all the stuff that goes on around it. And then you have some challenges. For example, in the Port of Charleston, they opened up a new terminal called the Leatherman Terminal last year. And this is a highly automated terminal, which everyone was very proud of from the Port of Charleston, but they ran into labor problems because the East Coast Longshoremen's Union was very much against opening up a port that had more automation than they wanted. And I'm not here to talk about unions and the benefits that come behind them. It's more to talk about some of the challenges. So a massive investment was made in Charleston to open up a new port and terminal and it can't be used. It's that simple, right? So we know today, for example, we've had strikes across Europe, Spain, France, Germany, and these type of strikes affect and create these bottlenecks that we're talking about. In fact, about a month ago, maybe 6 weeks ago, things got so bad in Hamburg that the rail, there was a 70-kilometer backlog of trains or railcars trying to get into the Port of Hamburg. They actually had to stop accepting rail, right? So the congestion is, without question, one of the biggest problems that we're facing today, and that won't go away anytime soon, even if demand subsides, right? It still takes an awful long time to get through this. Any other questions? No? So that gets us to the global -- and we'll narrow it down, but first, we'll talk on the global level about the carrier schedule reliability. And I want to point out a couple of different things. So for example, you can see that back in 2016, it was kind of a high point, 85% on-time performance. And even that, on average, is probably closer to 80%. And then you can see in the subsequent years that on-time performance, right, continues to deteriorate on a global level. And on average, what you can see today, of course, is that the global on-time performance is, what, 35%. And on average, the carriers are about a week late on a global scale. And this really puts a lot of pressure on customer supply chains. How do you plan when the schedule reliability is so poor? And you can plan on it if you knew every week that the vessel is going to be a week late. The problem is that it's not every vessel every week. It's like one of these charts where people have a heart attack, so it moves up and down and up and down, right? So it makes it extremely difficult. So with that said, if we'll look at the Asia-Med, for example. And what you can see here is that the current on-time performance is around 35%. So it's actually improved since the beginning of the year with an average of 6 days delay, right? So we take that as positive, although it's hard to believe that a positive result is 35% on-time with an average of a week's delay. And then the next one is Asia to North Europe. Really not much better. It's actually in sort of 20%, 25% on-time with an average of about a little more than a week's delay as well. And then we have the transatlantic, which is also running quite poor at 20%, 25%. So while the global coverage might be about 35%, as we dig into the different trade lanes, we can see the deterioration more specific. And whilst I don't have a particular slide on different strings, when you start to look at that data, it gets pretty depressing, frankly. Do we have another question?

Yes, Barry. Question is, carriers keep investing in new big vessels. It will, for sure, impact as well terminal productivity. My question is, how do you see the impact with climate change and IMO 2023?

Okay. So IMO 2023, if we touch on that for just a second, is the equivalent of people needing to obviously put less pollutions. There's a difference between IMO 2020 and IMO 2023. One of them was about the pollutants within the water, IMO 2020, and the other, IMO 2023 is about what goes into the air. So now we're trying to address that as an industry in general. And so that comes down to: a, the type of fuel you burn; b, the speed at which you travel. So those two components are important with regards to what's going to happen. So for example, scrubbers can only do so much for IMO 2023. It really gets down to the type of fuel and actually slower steaming that will occur. Now it's not going to happen all at once in the beginning of 2023. It's going to take probably throughout the year before we start to see the real effects of it. But to put it in simple terms, the carriers will have to probably add another 10% or basically one vessel in most cases per stream in order to deal with the slower steaming in order to put out less pollutants and in turn meet the environmental standards that are being set. Some carriers are doing some very interesting things with regards to biofuel, methane fuel and, of course, LNG too. So I think that trend will continue as the carriers, the money that they've made, they've reinvested into cleaner energy and, in turn, cleaner vessels. So I think that's a very positive thing. How quickly will it occur? Hard to say. But it is a very positive component from what we can see. So I hope I answered the question. Is there another question there?

Yes. Stefano is asking. Sorry to go back to the congestion bottleneck problem. Becoming too important in our Italian ports too, but also opening more opportunity to smaller ports. What is the carriers' and forwarders' approach to these options?

All right. So this shows a little bit more granular detail, first of all, for people to see. And you can see what's going on, on specific trade lanes more generally. But to get to your question, the issue with regards to smaller ports and larger vessels actually don't go very well together. It's a bit like when Airbus launched their A380, only certain airports could take it because of the size of the thing. And the trend is, with the carriers there been for many years, and when you look at their forward books, that they want bigger vessels, because the average cost per slot goes down. In turn, it takes longer for the ports and the terminals to unload and reload vessels and actually becomes more complex, too. It's a giant puzzle that they have to figure out. Now with regards to smaller ports, secondary and tertiary ports out there, first of all, what size vessels can they handle? And secondly, quite interestingly, are the carriers, or is a new company willing to come in and invest in 8, 10, 15 or 20 new vessels to run a couple of strings, for example, whether it's on the Asia-Europe or the transatlantic into these secondary ports? Most of you probably aren't familiar with a company called ICL, it's called Independent Container Line, and they specialize in transatlantic service. They call Antwerp, Southampton, and Cork, Ireland, and they go to Philadelphia and to a place called Wilmington, North Carolina. They go to Chester, Pennsylvania, which is Philadelphia, and Wilmington, North Carolina. So they basically do 3 stops at origin, 3 stops at destination. They're a great carrier. They have about 8 vessels that run the trade, and they're an average of about 2,000 TEU vessels. So they're not very big, and they go into -- aside from Antwerp and Southampton, Cork is a very small port. Chester, Pennsylvania, and Wilmington, North Carolina, are both very small ports. And guess what? Their on-time performance on the transatlantic, which is currently, as an industry running, you can see here, the transatlantic is showing 25% on-time. Their on-time performance is 95%. So without question, there is a need in the market, if someone has the ability to invest in the equipment, meaning the vessels, right, and the terminals. So from Asia to the Med, for example, most of the carriers are running 10 or 11 vessel strings on these because of all the different ports they turn to. So if we could get the carriers to go to smaller vessels, speed them up, if you will, using clean fuel, and into secondary ports, that would be great. But frankly, I don't see that investment happening with the carriers today. So I wish I had a better answer.

You mentioned ICL, and there is a question, how are ICL's rates compared to the large carriers in the Atlantic routes?

They're high. I mean the rates are market rates, and getting access to their capacity is extremely difficult because they have small vessels. So for example, if we need additional capacity from them today, it's between a 6- and 12-week delay before they can start. They can fit us in, if you will, that's assuming that they want to bump some other customers. We do use them a fair amount on this trade lane, but with only 2,000 TEUs, that's not a lot of capacity. And so when we talk about the container marketing capacity, this slide, as provided by Drewry's, is a really good simple slide. And what it shows you, the green or greenish blue bars are the number of scheduled sailings that the carriers have. The red one is number of blank sailings. So for example, when we look at Asia to Med, there's 44 sailings for that month, of which six will be canceled. So that's almost a 15% cancelation rate on Asia to Med. And for the Asia to Northwest Continent, you can see it's 80 and 9, so it's a little more than 10%. On the transatlantic, it's, of course, about the same. You can see from Med to North America, it's 10% blank sailings. And then on the Northwest continent, that's about 5%. So what you see there is that the secondary one with the container, it shows growth in actual capacity. So on the transatlantic, you can see from North Europe, there was a 7% decline in capacity, right? And on the Med, there was a 3% increase. And then you can see the change in rates during this period as well. So I think this is a good slide that kind of gives you an overall picture of what's going on in the market, right? And then the next slide, which I think is important to understand, is, I mentioned earlier the craziness of the schedules and the reliability and capacity. So what you can see here is Med, for example, to North America East Coast, on the left-hand side, from weeks 24 through 35, the planned capacity. And frankly, it looks like someone's had a heart attack, right? The changes on a weekly basis of available capacity. And this is pretty much the same trend throughout the next few slides that I'm going to show people. And then it shows year-over-year changes as well. And unfortunately, what's driving that is the congestion again, because vessels are getting stuck in different ports, and they either decide to skip a port or they wait in line. And so this is having a slingshot effect on when they return for their outbound. Is there another question, by chance? No. Okay. Next slide. This is Asia to Med and Med to Asia. Again, same thing you can see. It's even more drastic from Asia to Med. These are big swings, 30,000 TEUs to 50,000 TEUs on a weekly basis change, right? That's a big swing in capacity and it does affect people's planning. And the next one is to Northwest Continent, very, very similar graph here. All right. I'll move on to the next one then. Hold on, let's see if this works. There we go. So this slide kind of gives a rough overview over the last 12 months about what's going on. So major disruptions in the ocean market, how predictable they were and how does it impact the carriers, right? So I mentioned the ILWU contract, right? Fortunately, today, while the contract has expired, both ILWU and the PMA, which is the carrier owners that negotiate with Longshoremen, both sides have agreed to not have any either lockouts or lockdowns. So that's good. So things keep moving, which helps everybody a great deal. The IMO 2023 we touched on and the importance of it, and unfortunately, there will be more slow steaming, which will absorb an awful lot of capacity, right? Inflation we know is affecting everybody today, and that's going to have its effect on demand as well. And one of the things that I wanted to touch on, too, with regards to congestion, that I didn't touch on earlier, is that the estimated congestion in the ports today is taking approximately 10% to 12% of the global capacity. And when you look at what's going on, on the major East West trade lanes, it's closer to 15% of the capacity is basically vessels waiting to get into different ports. Last week, Hamburg was up to 21 days of waiting time for new berths, which is terrible. Rotterdam is in a mess, as is Antwerp as well. So Northwest continents are really getting hit hard, and the Med is also getting hit hard as well. So if you have a roughly 15% of your capacity being absorbed by congestion, the question is, what's causing the congestion, right? And a lot of it has to do with the inflation here. So a lot of the retailers, in particular, in the U.S. with the big box demands, and here in Europe as well, their warehouses are full. And in turn, they can't take any containers. So one of the problems that we're seeing at the terminals here in Europe is that they're getting full of import containers that are not being pulled out and emptied, right? So that's an additional 5%, possibly even 10% of the capacity is being absorbed with that type of congestion. So until things start to ease up, and hopefully, if demand starts to pick up, we'll see products start to move through customers, warehouses and distribution centers and then we can bring more cargo in and return it to containers. And then last week, the U.S. Congress passed the OSRA, which is the Ocean Shipping Reform Act. And again, why is that important for Europe, right? How does what happens in the U.S. affect us here? And frankly, as I said, again, those 8 to 10 carriers control 85% to 95% of the capacity. And if the U.S. government is putting pressure on them, we're going to feel it here in Europe, right? And then, of course, fuel prices, which I won't touch on any further. Okay. So one of the tools -- so this is one advert.

Barry, I have a question. This came -- probably, it's not visible, but it's an interesting question. Today, almost all carriers are offering forwarding services, carrier salvage, customs, shipping, inland, et cetera, right? How do we judge the future of NVOCC in the shipping market? Why should customers use forwarder services and not cooperate directly with carriers?

Okay. So I'm not supposed to do a sales promotion here. But I would say, in general, that it's a challenge. I mean, we certainly, we as forwarders and specifically as Expeditors, the market will do what it does. We're not big enough to change the market. And despite my views on my competition, there's a lot of good competition out there as well. Otherwise, they would not exist. I think that sort of parlays itself out to what are the carriers trying to do. We do know that a couple of carriers, without question, have bought some of our competition, they're trying to get more into end-to-end. That just, I think, in my mind, it raises the bar for everybody. I think from a customer's perspective, it should increase our services, meaning our performance of services. Now for the carriers with regards to their on-time performance and their pricing, that's something that we can only leave them to decide. But I think all the other services that go around and one of the biggest things, and this is a promotion for NVOs and freight forwarders, is that we're carrier neutral. Our job is to look at what best services the customers need. So if it happens to be the Ocean Alliance on that particular trade lane and 2M Alliance at a different trade lane, right, that's what we should do, right? And in a lot of cases, in today's market, as challenging as it is, some of the opportunities we bring to customers is, even if it's the same trade lane, do you want all your eggs, if you will, in one proverbial basket, with one carrier and one alliance, right? And I don't respectfully believe any of the ocean carriers are going to offer another carrier on a different alliance as an option to you, because that's not what they're in business for. So our view is that we bring a lot more value to the table. Certainly, I believe our customer service, at least Expeditors, customer service is what we focus on, and that's where we bring value to the table. So with that said, I'll stop the advertisement, done. But it's a great question. And, hey, the carriers are going to do what they're going to do, and we just have to compete. Is there another question?

Yes, it's still related to the disruption, Barry. Containers are stuck at general and less special ports for different reasons. Most of the times caused by the port inefficiency and not by the receiver. We have to pay demurrage anyway. That's highly unfair, isn't it? Why forwarders are unable to change this injustice?

When you're talking about what goes on within ports and how they operate, as I said earlier, we have to work within the market, and we're a very big player when it comes to NVOCCs, and we're certainly in the top 5 globally. Despite our size and even the carriers too, the ports and terminals, they operate under their own plans. And it is extremely frustrating at times when you see some of the behavior. And I think that's why this comment about the OSRA in the U.S., the Ocean Shipping Reform Act, that they're now asking the Federal Maritime Commission to get involved with more. We don't have that in Europe. We don't have a commission that looks at all the different ocean carriers and ports and practices. So it's a little bit more challenging to do. But at the end of the day, we know that some of these ports, trying to get the behavior change, frankly, it will literally take an act of congress or parliament within your country to make that happen. A lot of these are, I hate to say, monopolies, but at the end of the day, you only have so many ports you can go into and those are controlled by those local port authorities and the principles behind them. So it is a very frustrating situation and I appreciate that. There also are some alternatives, but they all cost money, right? Do you want to take your freight into a different port to avoid that, but then you have either trucking or rail costs that you didn't plan for. If you want to have domestic feeder services that maybe you use into a secondary port in order to avoid the primary port, those are some of the things that can be looked at. Do you want to have your freight going to another country port and then have your cargo transloaded in and trucked. We do a lot of that. For example, our office in Athens does a huge amount of volume with cargo coming into Piraeus, where they're able to take containers, transload them into trucks, and then move them on up into further north and east within Europe. And while it's not necessarily a less expensive option, it's a more fluid option, because when you look, for example -- sorry, I'm going to get slightly nerdy here. When you look, for example, at the transit time from, say, Shanghai or from Singapore into Piraeus, it's anywhere from 14 to 19 days, right? And that's a weekly service. And then if you have the ability to then take name, which our teams in Athens do, and transload into full truckloads and then moving on up, you're going to cut quite a few days, and you're going to get rid of some of the congestion issues that you have within some of these other ports. Piraeus is not perfect. There's still some challenges there, but it isn't necessarily as bad as some of the other ports in Europe today. So we can be flexible for a customer and offer alternatives that wouldn't necessarily be thought of, and conversely the same thing on the exports too, right? Because Piraeus is the main port for one of the big alliances. So their on-time performance is actually closer to about 45%, 50% versus the 25% we're seeing today. Any other questions? No?

No, Barry.

Good. So then disruption reporting, okay, as I said, this is actually an Expeditors' tool, and I'm not going to get into too much detail other than the red dots represent our customer suppliers in different parts of the world, right? This is in actual shipments. This is suppliers, in this particular case. And we developed this when the coronavirus first hit. A lot of our customers were wondering what the status of their shipments were before they had even shipped, meaning how the factories are operating. And so one of our services was through order management. We get a lot of very rich data. And with that, we're able to determine what the status of their shipments are and where they're going. And so today, for example, when the Ever Given got stuck in the Suez Canal, within 48 hours, we were able to report to all of our customers their containers, give them a visual representation of what was going on. And then later on, when the Port of Yantian shut down last year because of COVID, the next day we had a complete list for our customers of all the containers that they had everywhere in the world and what the status was on them. So we have this, we call it, disruption reporting. It's a very specific tool that we use in order to provide customers deeper visibility of what's going on. But it could be for any sort of issues that happen around the world. Okay, any more questions? No? All right. So then we have making waves, key issues to consider. And I think it's really important that we touch on this. The carriers, despite the challenges with the on-time performance, at the end of the day, they have vessels moving week in, week out that are supposed to be, if you will, scheduled. And so the vessels don't -- they don't change in size. They don't get bigger during peak season and when there's more being shipped. So annual forecast reliability is critical. If a customer says, I have 1,000 containers a year, the expectation is 1,000 containers a year. Secondly, those of course, are divided by 50 because the vessel sizes don't change. So the carriers are looking for weekly commitment that they know that they're going to get. So I like to use the term, make yourself an attractive customer, right? So we've always had this particular view with carriers over the last 30 years that we want to be the #1 customer of a carrier because we're doing the things that they're looking for. And we send out surveys to the carriers, and we asked them, long before the pandemic hit, what do you value most from a customer? So what you're getting here is what the carriers are looking for, right? And then, of course, minimize demurrage and detention requirements. And as I mentioned earlier during the webinar, the congestion, a lot of it today is tied to the fact that there's full containers sitting at the terminals, clogging them up, and/or there's a lot of detention because containers are sitting on chassis, if you will, in yard, waiting to be unloaded. So in the worst-case scenario, the carriers will say something like this, I give you 50 containers a week and you're only giving me back 25. After a while, I'm going to cut you back to 25. So that's an extreme, but just to help customers understand the mentality of the carriers, I say something very simple, how do carriers make their money? And the simple answer is by moving containers. So if we get reduced demurrage, reduced detention, then there's a better opportunity to have more favorable rates, because you become a favorable customer to the carrier. Terms and conditions, this could be things like payment terms, penalties, things like that, that the carriers and certainly Expeditors as well, we look at it as well. And then the last part, capacity management program. And this kind of gets back to the question about carriers, if you will, deciding to play in our sandbox. During this past 6, 8 months, one of the things we've been recommending to customers is that they look at only having about 25% of their capacity as a named account rate. So that's fixed. And then you deliver weekly on those requirements. So your volumes, if you do 1,000 containers a year, that's 20 a week. But rather than having 20 a week knowing that your actual demand moves like this, we look at what your low average is, and it might be 8 to 10 containers a week, then you know week in, week out, you're going to hit. And then the rest of it, we either have on a monthly or quarterly basis depending on the trade lanes that we're talking about. And for those customers today that took up this particular program, they're getting the benefits of the current softening in the market. They're getting access to capacity, they're meeting their weekly commitments, though it takes a couple of nice boxes for the carriers, right, minimizing demurrage and detention. And so they're benefiting from that, saving, in some cases, a couple of thousand dollars a container versus the long-term rates. So these are the things that the carriers are looking for. And this hasn't changed much. It's just become more acute in the last couple of years because of all the issues we're facing. Any questions?

Yes, one question, Barry, around rate validity. We do oversee an improvement in providing a longer validity. From a customer perspective, can you offer 2, 3 months validity if we grant a certain volume?

We're open to all sorts of discussions about that. And the answer in simple terms is, yes, we can offer that to customers. And of course, it's based on meeting the commitments and these other components here as well, but certainly something that we should be talking about, okay?

Okay. There are no other questions.

Right. So then I'll go to our final slide. So waves of change and uncertainty. So I've highlighted a couple of points here. Unplanned disruptions have become the norm. So in the slide earlier, we talked about the different disruptions. And then there's a lot of different components going on. Infrastructure constraints that was touched on, and that will continue, frankly, to be a challenge in the future. That's not going to go away. Supply and demand imbalance. What we saw when the pandemic first hit was the carriers pull a pretty large amount of capacity out of the market. And the question is, why did they do that? And the simple answer was rates at that point in time were quite low. What their concern was, they weren't trying to raise the rates, they were just trying to keep the rates from collapsing. So that's why they pulled all that capacity out, right? So normally, the behavior of the carriers is to keep rates from falling when they pull capacity out. So today, the rates are obviously substantially higher than they have been historically. I believe over time they will come back down, although not to the levels, at least I don't see in the next few years, to levels that they were 2 or 3 years ago. And then there will be continued rate and service volatility depending on the trade lanes. Tariff and politics have a lot to do. The former President of the U.S. was very good at stirring things up and create some real challenges in the markets. And that could happen anywhere. Unfortunately, what's going on with the Russia-Ukraine war, that's having some impact as well. Then on the right-hand side, again, a more flexible supply chain, which allows for unplanned disruptions, again, talking about looking at alternative ports where you can do transloads, final mile deliveries. Same thing on the export side. And then I talk here about, we have a -- okay, now it's Expeditors' advertisement, Supply Chain Solutions and what we call the living model. We have a team of people here in Europe that are experts, they see in, if you will, high-definition or 4K. They take your data and model it for you to help you see what your supply chain looks like and then give you different variations of what it could look like, including things where there's disruption and how we might be able to help you. So our Supply Chain Solutions group is a team that we're ready there to help. And then I highlighted things like order management, carrier allocation for those customers that are BCOs, where we can help you get commitments from the carriers for some of your volume. And then the Final Mile Delivery Management, that's a web-based tool that we have for helping manage the final mile into your distribution centers or manufacturing sites or warehouses. And then the last point, balance your strategy to meet your goals, spreading risks with multiple routings and alliances. That's where I believe NVOs come into play and can bring a lot more value to the table. So with that, there's about 5 minutes left, and I just want to see what additional questions there are. I know I've said an awful lot, so hopefully everybody would get it.

I have a comment here. I think your presentation was very well done. Personally, I enjoyed, and you gave us a picture of what's going on in the market with objective data. I mean, I have nothing to discuss. It's not subjective when we look at the financial results, when we look at the transit times, when we look at all those data you delivered today. And also, there are some messages coming from what we see in the end market and what we could expect for the future. But at the end of the day, the message here, Barry, and I know you agree is that we look at the market, we are like a broker in the middle, right? And we observe the trends and we operate close to the customer in order to give the best solution for that one, price-wise, capacity-wise, transit time wise, right? So I understand some of the news you have delivered today are not -- some of them are not good news, right. But our role is to make sure we're going to be aligned to serve with fresh rates, whatever is possible. So this was the comment I want to give, yes, to conclude on your presentation, and hand over to [ Joanna ] for the conclusion.

Thank you. So good morning, everyone. My name is [ Joanna ], and I'm sales manager for Milan, Turin, and Bologna, and working in Expeditors since 15 years. Previously, I was also in Ocean, but I think that I'm not there in this department in this moment, but in sales one. So thank you all for joining our Making Waves Ocean Webinar. We hope, obviously, that you found it useful. Valentina will send you an email with the link to the survey, so please fill this thing with any comments you may have, questions, and, of course, also suggestions for the topics for the future webinars. So we would like to know which are the topics that we are most interested in, in order to organize the webinars that are useful for you. And after the survey, you will receive a copy of today's presentation. We also suggest you to subscribe to Expeditors' Horizon Brief. Those letters will keep you informed about the most important changes or disruption in the market. Also, you can go to our Expeditors' Events website where you can find the Events, webinars that we are organizing in the next future. So those will be posted on the linking, or you can obviously go directly to your contacts in our branches. And thank you again for the participation, and we may all remain at your disposal for any questions or comments you may have. Thank you again, and have a nice day.

Thank you. Bye-bye.