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

All right. Thanks again for joining. We just have a couple of housekeeping things before we get started, and then I'll pass it on to Shannon and William. So to start, this webinar is going to be about we're going to present for about 50 minutes with a 10-minute Q&A at the end. If you have any questions throughout the presentation, feel free to drop it in the Q&A box, and Shannon and William will address those. If for whatever reason you're not -- we're not able to get to your question, I would be sure to get your contact information down and they will reach out to you individually. And there will be a feedback survey that is sent out. We would love to hear what you thought about the webinar and if there's anything that you would like to see in the future that's presented. And upon the completion, you will receive an e-mail with the slide deck. And without further ado, I will pass this along to Shannon. Shannon, you're on mute.

Thank you so much. So Cherokee, if you can just go to the next slide, we'll do some introductions. So first, thanks for taking the time to allow us to do this webinar with you. My name is Shannon Gonzales, and I am currently based in our Houston office. And I support our project and energy teams globally. I have been with Expeditors just over 18 years. I began my career, I don't like to admit but close to 30 years ago, working for a small niche project forwarder that specialized in Russia in the CIS region. I then worked for a larger project order managing numerous EPC infrastructure projects and also supported a variety of customers, which is moving complex oversize shipments. I have been in the project industry my entire career. So I often hear, it's talked about that you either love or hate being in the project industry. So I'm one of those crazy ones that love it and for the long term. And with that, I'll turn it to William to introduce.

Thanks, Shannon, and thank you all for joining today our webinar. We're excited to host this for you guys. My name is William Netzinger. I'm the Regional Development Manager for our Project and Energy Services team for the Americas. I too am based in the Houston office, we travel throughout the region, supporting our sales and account management teams on development of new opportunities, whether it's with existing customers or prospective customers. I've been with Expeditors for 11.5 years, it'll be 12 years in June. Been in the industry for a little bit longer. I don't mind admitting it. I've earned every one of my gray hairs. So I've been in the industry in February, it will be 35 years. So I can't believe it's been that long. I started my career actually working in the warehouse for an airline, worked my way through operations and business development into an executive management role with a small niche provider just prior to joining Expeditors. So I started at the bottom, worked my way to the top and decided somewhere in the middle is where I wanted to be. With being based in Houston, most of my career was focused around, like Shannon said, project cargo as well as oil and gas, anything overweight, over-dimensional and just requiring special handling. So again, we're excited to host you guys today. I'll give just a high-level overview of what we're going to discuss. Obviously, we went through the introductions. Shannon is going to take us through some current market updates with regards to multipurpose vessels as well as Ro-Ro vessels and just the market in general with regards to projects. We're going to talk about some of the investments that various industries are starting to make in near-shoring and bringing manufacturing back to the U.S. as well as to the Americas. We're going to talk about just a little bit about ourselves and our global structure, and then we're going to highlight a couple of some of our experience with regards to capital equipment moves. And then as Cherokee had mentioned, we'll jump into a Q&A session. So if you have questions, you can drop them in the chat box, and we'll do what we can to answer all of them at the end of the webinar. So with that, I'll turn it over to Shannon to get us started.

All right. Thank you. So as William stated, we just want to take a few minutes. We want to talk about few things going into the market -- going on in the market as it pertains to multipurpose vessels and also Ro-Ro carriers. Both of these sectors are important players when we're talking about moving oversized capital equipment opportunities. So looking at one of the multipurpose vessel indexes, the average daily time charter rate for common heavy lift vessel fell just under 11% month-on-month starting in January of this year. Traditional break bulk demand has fallen off. It's putting pressure on time chartering rates. Also with China's new COVID surge could also be holding back some steel cargoes and hampering port operations. However, most market stakeholders expect the demand for the multipurpose cargo space to increase rapidly later this year. It's still unclear when exactly all the expected oil and gas and renewable projects will finally be shipped, but some industrial and project-related cargoes have already been booked into the third and fourth quarter, supporting the consensus that demand will increase in the second half of this year. So for the short term, the average daily charter rates for the multipurpose and heavy lift vessel fleet will continue to slowly decrease from the pandemic market highs, but short-term downward pressure will likely be offset by the longer-term demand from the renewable and energy cargoes that are expected to come on board. So as in the container shipping sector that we've seen, breakbulk shippers have been like the container traffic forced to accept a combination of higher transport logistics costs and unpredictable service over the past 2 years. Some of the difference that we're going to see in the MPV space is that the return to prepandemic status quo appears highly unlikely. I think we're going to have to keep a close eye on it throughout 2023. I'm willing if you want to go to the Ro-Ro. So in the Ro-Ro space, we've seen total U.S. imports of high and heavy and breakbulk cargoes were up about 15% from January to July of 2022. So Ro-Ro demand has increased in all areas except at used vehicles. There is growing investment in mining and mining equipment and booming vehicle exports from China are driving the surge in the Ro-Ro freight rates. There's -- while cargo volumes are strong, they are encountering labor issues and inefficiencies that are affecting schedules in Europe, South America and Asia. Congestion and labor shortages have had ships waiting as long as 30 days in some ports are really disrupting their schedules. We've also seen having to book further ahead to secure spot capacity, so it is often difficult for them to accommodate the noncontracted cargoes. Despite the solid outlook for the Ro-Ro carriers, there's a looming capacity shortage. There are some estimates indicating that a shortfall of at least 100 ships by 2024. So the global Ro-Ro carrier fleet totals about 700 -- currently, totals about 760 ships with 77 vessels on order. Of those, about 70 are only due to deliver in 2024. So really causing there to be some concerns with capacity versus demand. On a positive note, one of the carriers that had suspended bookings for spot out of gate requests has started accepting them recently. So some positive signs there. Ro-Ro has historically been very beneficial way to transport capital equipment with reliable schedules and minimal freight handling with loading to a [indiscernible]. However, with the current challenges and the high demand, we will be cash to potentially needing to utilize alternative methods or prepare shippers to have a much advanced notice of dates as possible to secure the market and the Ro-Ro carriers. So this year, we really just got to keep a close eye and monitor how the rates are trending and also how space is available in these two sectors. And with that, I'll turn it over to William. It looks like William might have froze or lost connection. Are you seeing the same thing, Cherokee?

William come back. We'll give it a second. All right.

If needed, I can try to pull up the presentation. Sorry for this disruption, we are having the weather issues if you're joining outside of Houston.

Okay. Shannon, I can pull up the presentation if you'd like me to.

Okay. That will be great. Okay. So I will jump in for William until he's able to join. So over the course of 2022, the various industries made many announcements around new factories and upgrades. As our current administration continues to incentivize the use of alternative energy, more and more announcements are being made to date. Here are the most significant automotive announcements that have been made.

Quite a few.

Yes, absolutely quite a few. So Ford, looking at electric battery plants for vehicles. GM, I mean, there's announcement going off left and right with capital -- with advancements in the industry sectors around in automotive. Obviously, looking at the likes of Rivian, Hyundai, Panasonic all having a lot of articles and updates with the boom of the economy over the last year, so putting those investments, billions of dollars investments in EVs and batteries. Another sector that is making a lot of investment is in chips and the technology. So there's big chip factories that are either expansions are happening in the Arizona. So a lot of opportunity in this space as well. You've got Intel as well as Samsung, Texas Instruments, Micron and IBM, all making huge investments. When we look at other industries are looking to make significant investments in bringing back their manufacturing to U.S. our near-shoring of other neighboring countries. Some of the largest companies are in health care, retail, aviation and aerospace industries are looking to where they can look at a process or a relocation. Going to the next slide. All right. So just a little bit shifting into looking at all the investment, everything that's happening in the capital equipment space. We have seen a huge amount of increase. And so we just wanted to talk about a little bit about our group and some experience around this space and how our team has set up to really support some of these large infrastructure-type moves. So as mentioned in the update from the webinar will be providing a high-level overview about our group. So if we look at our -- if you look at kind of the two areas that we focus in, or a division within Expeditors that provides tailor-made integrated logistics and turnkey project transport services globally. We have expertise in specialized cargo movements and heavy and over-dimensional cargoes with solutions, both in chartering and barging. We have a task force of subject matter experts that are embedded in Expeditors offices around the globe to support these opportunities. And kind of the two areas that we focus on are project logistics, where we have multiple origins of cargo destined to one job site with the completion date with -- around the time frames needed and typically are in the upwards of 5,000 revenue tons or more. The second area that we focus on is the over-dimensional cargoes, which we call specialized cargo movement. Our teams provide oversight for a single point-to-point movements of materials that are more complex than routine supply chain shipments. Our global teams have experience with this type of equipment listed as well as various types of manufacturing and capital equipment with a wide array of industries. Capital equipment and manufacturing equipment is currently a very fast-growing industry within our group, just like we talked about with everything that's coming on board and all of the investments is happening. We're seeing that trickle down to us to support in those opportunities. And then if we go to the next slide, we'll talk a little bit about our organization. So we have a group of -- we're a small lean team. We have a group of 80 specialists that are positioned in 22 countries around the globe and combine our local knowledge and expertise with our vast network, which provides the most effective routing planning and strict adherence to schedules to meet all of our customers' logistics needs. Our personnel operate out of specific branches within our global network, but our team is designed to be regional to allow us to be where the cargo needs us to be and provide boots on ground at ports and various job sites. We believe as a logistics partner, we should be managing in real time on location, not behind the desk. So facilitating safety or toolbox meetings with all parties involved on site, making sure that we document our customer requirements and expectations of our service providers and giving those updates to the project key stakeholders and continuing to elevate our operations and monitoring safety around all of the work sites and ports and operations that occur. Welcome back, William.

Thank you. Sorry about that. I had a little power surge. So one thing you can count on in Texas, wait 5 minutes, the weather will change. So yes, as Shannon mentioned, we obviously talked about our overall focus on the two buckets as well as the global presence that we have. Based on that information, we're able to provide as much or as little as needed from a logistics support perspective. For projects from a single lift shipment to a large capital project, our team stands by ready to assist from the initial planning phases all the way through to execution. Our personnel will be on hand to oversee all stages of the project as little or as much as needed from the initial meetings to delivery through the destination. As we look at the slide here, we talk about how we support preliminary services. So we make recommendations around specific transportation modes. We talked about Ro-Ro and what's going on with the [indiscernible] vessel fleets. We look at each opportunity as unique and identify specific routes that we can use that are unique to the cargo. So we'll do that. We also assist with route surveys in the front end and look at risk analysis with the customers. The preparation services include making recommendations for packing or utilizing containers or various other types of transportation and then also potentially looking at staging areas and warehouses and consolidation points along the way. Looking at the free shipping services, we're looking at expediting and tracking inland transportation. If it's a particular destination or origin that requires inspection, packing, creating containerization. We're also doing staging and labeling as well as document reviews. A lot of times what happens in the project world is we don't get the documentation right, that's going to put some type of a holdup on the other side at destination. So that thorough document we view to make sure everything is in order in advance of the shipping. We look at traditional logistics services. So our teams are very well versed in traditional airfreight and ocean freight and over-the-road transportation. So we're utilizing containerships with utilizing special equipment or utilizing multipurpose vessels or Ro-Ros. So our team is experienced in coordinating those types of transportation moves along with general airfreight, oversized airfreight. There's specific carriers that are servicing markets that we're very well versed with. We look at charters or part charters, providing those types of services as needed. We would look at over-the-road transportation, obviously, from a full truckload or LTL-type service. We've got the expertise in that. When we look at over the road, we're looking at the specialty type trailers that are needed to provide support for larger equipment. And then rail and barging services, which are not -- they stand out of the traditional freight forwarding services generally. A lot of companies don't -- that are focused on normal supply chain don't look at that. But for the project world and capital equipment specifically, there are times when there's cargo that's just too large or too heavy to go over the road. So we have to look at utilizing rail or barge options. We mentioned boots on the ground. We've got personnel that are overseeing the poor operations. We believe that making sure that we've got somebody on-site. We feel that boots on the ground presence keeps everybody on their toes with regards to the overall operation. Train and rigging. So we're providing support services there identifying the right party to perform the services. And then when we look at destination services. As we mentioned, the overall presence of our organization, the project team is a very tightknit group. We manage things the same way, whether it's an origin in Asia or here or destination. So same mindset, same processes with regards to managing and providing oversight for project type moves. And there's also additional services that we as a company provide with -- such as EDI connectivity, track and trace as well as analytics, order management and then also GPS tracking with cargo signal. So we're going to close out the seminar now by Shannon and I speaking to some of the most recent capital equipment moves that we've done for the various industries that we support. So with that, I'll turn it over to Shannon.

All right. Thank you. Sorry, because of the power shortage, we had done some rearrangements on the slide. So -- and I apologize for this little bit of disruption. So William, do you want to go ahead and kick it off, and we'll go back and forth on sharing some examples and bear with us, we apologize for the technical challenge.