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

Okay. Okay. So I think we can start. Good afternoon, everybody, and welcome to our webinar about sustainability. Just to introduce myself, my name is Paulo Domante. I'm based in Italy, Milan office. I'm the Regional Vice President for Southeast Europe. And I would like to thank all our guests here to have accepted our invite today. Particularly, I want to thank the team who organized this for us today from [ Expedias, Valentina Air Valley Tony challenge ] for sponsoring these events and you invite preparing all the slides and content. Last but not least, we have to I would say, special gas today or when it's up to sustainability. One is Nick Weiss, who will introduce himself a little later and is joining from Switzerland, from Zurich and [indiscernible] joining from Seattle from our corporate head office. They are too important and professional, knowledgeable people when it's up to environmental sustainability. Environmental sustainability is not new to our industry. And this is basically something we have with great focus in all our business. It's a global challenge. It's not just us. And from what we have seen by Register in this call, we have a confirmation that many people in different countries, they are interesting nearly what expedited has to say about this subject. There is much going on when it's up to environmental sustainability with basically daily new information, new stuff coming into playing a role. [Technical Difficulty] may be a regulatory environment now gas reduction strategy. Should be into play. Here, I think we have all the same went up to environmental sustainability. And by participating or belonging to different industries and we are our customers may have different in the with the rights very far the everyone.

[Technical difficulty] and looking for measurement being anywhere from 10% to 24% of the global in are attributed to the logistics capability. So forecasting to increase that by 42%% so that would be a huge jump up to 2050, but also trying to have measures in the words you contain that and the missions 4x higher than a company's own operations because kind of some key facts that we wanted to kind of touch on briefly first. So Nick, if you want to go ahead and jump in to the next portion.

Yes, that's great. And I think that 4x higher was something that was a lot of companies realized in the last couple of years. And you can see here where that is balanced. So I'm going to start at the bottom. You see the sea and inland waterways, so that ocean transportation predominantly accounts for 72%, 72.8% of the freight movement but only 20% of the carbon emissions. If you go up once to the road, it's 90.2% of the freight that's moved and 69%. So sort of the 80-20 switch is on that regard. If you go from rail, if you go up to the air and if you look at the air, you could say, okay, it's 0.2%, but accounting to 4.8%. So there's really quite a large share that's captured in that. And this is a report that was done by MIT a couple of years ago. So it's nice round numbers, but the reality in car emissions is not right in numbers. So will depend very much on lanes on the type of aircraft, the type of vessels used. But if you look at the cargo ship, let's call it, the base level, one ton mile. The freight train is 1.6x the cargo ship the truck is 10x the cargo ship. And again, where we started in the [Technical Difficulty]

Have with the lack of standards and trying to find way forward. So the green wash, it is definitely not a good area, but it's sort of enforced out there because of the amount of of things that are going on movement that's needed and the different ways of things being done. So we're going to try and explain that and discuss that a little bit more as we go through the do that if you have any questions and anything to add in, please add them in, and we'll make sure we have a look at those.

But maybe just start to something that did Cam, as mentioned earlier around sustainable logistics. And this is, again, something that can be defined in multiple ways. For the purpose of our discussion today, we're going to talk about those ITs, which contribute to the reduction scope 3 missions [Technical Difficulty] I'd say I won't go into great detail about 1, 2 or 3 or any more of the categories that are in Scope 3. This is a huge area. Again, Scope 3 transportation that you see on the screen can be up to 4x or even more sometimes parts of your -- versus your internal emissions. A very significant part. It's a very [indiscernible] and the sort of movement on that. CAM tell us what we're going to do today.

Topics today are going to focus on kind of 4 key areas, measuring and reporting GHG, GHG reduction strategies, GHG regulations, as well as what we should do now or what steps we can take we major changeably used GHG as well as carbon [indiscernible] footprint may come up CO2 [Technical Difficulty] we're talking about all green gases and anything that's affecting the environment. So we straight in a little bit in porting cash?

We could do that. I don't -- why this can give me the negative the challenge side of it, and he's going to tell you about the opportunities in a minute, but let's start with some of the challenges. I think we've mentioned it a few times, the need for standards. On the logistics and transport side, the evolving standard, and it will very soon be a standard and ISO standard that the GLC methodology and you'll hear often the greenhouse gas protocol. We all know global supply chains. Often people have multiple providers. So there's multiple sources. There's also a discussion about what do you measure. Do you measure the emissions when it's in, let's say, a vehicle. So when it's been put into the tank or do you measure emissions across the life cycle. Generally, I do recommend focus on life cycle, what's often called well-to-wheel or which is that life cycle emissions. There is a big push on the industry now to move from secondary data or let's call it, estimates to primary data, more actual that is going to have a very big impact make some discussion as an very rightly said that you see a little bit top-tier for system. [Technical Difficulty] It's a big system dioxide. It gets all the news when we talk about CO2 the reality is the next one I'm sure it's not easy to see out there, but methane is more damage into the environment even on a smaller scale, but looking at opportunities we have. [Technical Difficulty] got the digitation pieces where company obviously not honoring but the modeling that's on digital spend. And of course, sorry, to explain and that's of your doing and one thing is that to [Technical Difficulty] but not everybody is aligning or working together. So we have some opportunities to make regulations that have come into place, how we'll be working to get the future.

[Technical Difficulty] Let's talk about CHC reduction strategies and things that can be done at the present.

Great. So there is also a lot of discussions around there. And I'd say, if we take the first one, the avoidance and this reduction there's a little of cost [Technical Difficulty] I don't get caught out which ones we -- but there are 2 very good activities to evolve in a carbon strategy.

We also see opportunities that exist within setting as well as offsetting. So in setting is really what the company is putting tax and carbon from their value stream. So in other words, what that would be is sustainable aviation fuel, sustainable marine fuel using your biofuels and trucks and the like. Again, so you're using it where it actually is occurring. So in your own same value chain. Whereas offsetting is what is very common and we're seeing and you're hearing about in the news in relation to the carbon offset that would be simply by either planting trees, protecting for us or putting things that are not directly related to your supply chain in an area where you are removing carbon and carbon opportunities. So that -- so I have there, Nick. To add my pal.

No, I think you bring up a very emotive discussion on offset in the inset. And I'm going to talk a little bit specifically on the SAF in a second because it's a very important area but if I can ask, if you look at this, do it purposely from left to right. So there's no doubt in order to meet an end target of carbon neutrality and carbon negative, whatever people want to define, there will be a need to offset. What people say is start left the right to look to avoid, look to reduce then look to inset and finally, with what's left over offset. And I think there's been a lot of negativity out there that offset in is bad. And I think it's when it's done as a first action. When it's done as a last action, we know it's going to be necessary. There will be a need to do some offset at the end. So don't look at it and say, I can only do one. Don't look at and say, I should start right and move to left what can I avoid? What can I reduce and then work towards inset and offset in so I think as the strategy goes, the left right is a preferred and recommended. Now I'm going to talk a little bit about SAF. I'm not going to go into too much about clarities of it. What I will just say again is there is a goal, this is from my [indiscernible] where they want to get the SAF number to. So this is the amount of SAP they expect to produce. You can see there in 2025, there'll be it 8 billion liters all the way to 449. Now again, what I'll say, just looking at the header, the demand for sustainable fuels has grown significantly. And as you see there, it will need much, much more to reach targets that. [Technical Difficulty] First, I have to track. And if you look at that, just a couple of callouts [Technical Difficulty] and that the rest you can see there that to thing for. [Technical Difficulty] just to the state that fuel source at the airport would have some SAF but again, right now, the maximum of plane can fly was 50% even though [Technical Difficulty] more there's the limit to the amount that can so that sort of 63 airports is put in some SAP out there to please, if I can ask one thing, don't go out and say, I want all my cargo to fly a plane that has SAP. [Technical Difficulty] It's not really controlled in that way, to the number of [Technical Difficulty] There is a lot of people pushing on [indiscernible] generally to try and incur that more is produced and I show you the SAP picture that SAP is a sustainable aviation fuel as you see. There's also a like product on the Marine side, maritime side, that's the SMS. And it has similar attributes. It has similar benefits from there. But again, the plan that your goods are flying on very often will not have that staff that you purchased, you could purchase it and it would be used somewhere else. So that's something to watch out for something to keep an eye on. And certainly, if you have any questions, read up a little bit on it, a couple of those QR codes there or please reach out, and we'll be happy to discuss it further. [Technical Difficulty]

One, I get the regulations piece. So moving towards regulation in place, we got the green deal in the EU so of that, the plan is obviously hit net emissions by 2050. Again, they're still working on some of the legislation in relation to that. We are moving forward and again, they're trying to reduce emissions by 2030 to 50% to 55%. So that's over all businesses. So the green deal is affecting all of that. And again, when we have things that are affecting what are -- and regulations start to see the opportunities for taxation. So on the next click, we'll see is a bit what that action looks like. We're starting to see the plastic case comes through, again [Technical Difficulty] Precrisis is different and make sure any questions you ask allow you to get answers that you can action and for that, I would mention that there's quite a few things dedicated to logistics questions or dedicated to getting nuances will help you take logistics steps, things like smart freight center, it's a nonprofit organization, that's a lot of good work around for example, procurement guidelines for airfreight or for ocean freight. And what sort of questions do I ask I think that's really a critical stage as we go forward to the evaluation, especially for the amount of noise that's around all of us and look at these things. When we want to optimize it, we talked a little bit about Modeshift. We talked about some of the supply chain optimization, briefly mentioned packaging, and we certainly talked about the referred to and we talked about spec because by sustainable fuels and other modes more [Technical Difficulty] I'm trying to find out what they're doing do we exchange information through platforms, again, like Nick mentioned in this sustainable procurement process, we can collaborate directly with companies if we have opportunities in the localities internationally. [Technical Difficulty] When you look in to collaborate, also learn from those things that you might have done internally when you're looking at setting transportation targets and goals. Use also methods of collaboration that you can both internally in your company but also externally. And again, at the end, what we're trying to go after is transportation is such a significant part of emissions. That increase, as Cam said, is partially because some of the other industries are finding ways to decrease, whether that's cities that are doing things to address their emissions, countries or other industries outside of transportation. In order for transportation to turn around that significant increase, we all need to work towards that. And the fact that it's the third largest source has everyone's attention, we think. And the fact that often shipping emissions can be 4x higher than the company's own operations impact. [Technical Difficulty]

So on a collaborative it's really interesting to see the sustainability conversation have been far different that I've been involved in that any of the business conversations previously. To come from an option background with the next is nearly 20 areas. So I'm used to talking about how we can work against competition [indiscernible] option it's a significant shift in that collaborative rule.

And maybe on that, [Technical Difficulty] the we talk here is a weekly journey, but how they're going to really implement that in the organization can be quite a difficult task. I don't know in discussions you're having, are you seeing a lot of change for the sort of people being brought into these roles or the way that internally companies are changing in order to develop this and implement it?

Yes, it's almost greater focus. So again, we're seeing, at least from a business perspective, in a lot of our bid opportunities as well as doing carbon forecasting in those bids. We're seeing people asking for information on how we can work with carriers, again, not try to remove the value from the carrier, but we're trying to work with carriers in order to come up with alternative solutions and better methods for movement of cargo. So we're seeing a lot of things and company's focus is huge on it as a present. So obviously, we're all preparing for that regulatory environment is coming.

No, I think that's a great point on there. I'm just going to go back to one other slide because sometimes people might have been thinking when we were presenting this yes, but the way I'm set up internally, I won't be able to change my air freight to ocean or I won't be able to shift that or I can't just stop that tomorrow. And we understand that very often these directions or these mode shift in this regard, it's not a light on light off situation that you decide one day to the next. It does take a lot of cooperation, a lot of changes in the processes within companies in order to impact that. Generally, it comes back again to the reporting increase in the visibility. If I can say that a few years ago, when there was quite a lot of airfreight in the industry companies often just brought different visibility about the cost of that air freight to try and impact the ability to change modes in that regard. And actually, if you look at the carbon, carbon is often something that we've been able to look at or has been part of equations in the past. It's just that it wasn't as much of a focus. Just make sure those discussions you're doing internally involve the carbon footprint. Look at what the impact of different activities are. So again, historically, we might have said, well, if I move it this way, my service have always going to be x. My capacity is going to be y. So I'd just say that now you include carbon and say, that's my carbon would put a really trying to just build parameter you had based on cost service to include that carbon footprint. Again, Cam, don't know if you have any like to jump to go through?

One of the interesting things with air freight alone is the fact that companies that have a aggressive net reduction targets of about [indiscernible] figure [indiscernible] with the shelf of their products. They're going now to extend the shopping order to move the ocean different mode because that they can't end the and take all [Technical Difficulty] the design for how products are [Technical Difficulty like there's quite next relevant to customers change your approach to demand change to supply more of the way the [Technical Difficulty] But I think overall, I will lot of it in the way that, that approach has come. The second half of that question actually was I kind of made my hair stand up because it said the 2 question was the word is in permit prices and that word made my hair stand up a little bit because [indiscernible] right. We are in crisis. We are in permanent disruption it is not the new norm or the future norm, it's just the norm.

So I personally think when we went into this and actually it was the Italian, I'll call it, if I can, the Italian situation. If you remember, in March 2020, there was a lot [Technical Difficult] of pictures around about the impact of on the ozone layer of less flights and what it was doing to the sky. And in some pictures you saw what was happening in Venice because there was no tourism. So there are less boats on the canals and you could actually see to the bottom of the canal. So you could see fish in there. And people said, sustainability will take a backs. It will not keep up with let's call it, COVID crisis. Well, we've actually seen quite the opposite that actually sustainability solidified itself during that time and became a permanent decision-making processing companies, a permanent necessity to get people in place to start to address it to get the right tools to include that in decision-making. We sometimes talk about digital transformation. Digital transformation needs to include sustainability angle. So I don't know if you have anything you want to add on that, Cam, but definitely, -- there is no doubt, I think, that Perma crisis include sustainability and everything that's being done. I don't know if you want to add anything.

No, it absolutely does. So on the pharma prices is where we are living now. But again, it's trying to come up with productive solutions and ways out. So we're trying to avoid that form a crisis and actually move it towards a [indiscernible] solution.

That's great. And another question in, is expeditors offering SAPFlight/SAP solutions. And again, I would never describe it as a SAP flight. I would definitely, as you rightly said, the SAP solutions. We do that. We're not currently bulk buy in SAP. We don't lead the way partially because from an accounting standpoint, there's no single accounting method. The way we offer it is if a customer comes and says, I want to look at a SAP option. We partner that with an airliner fuel producer, the same on the ocean side with an ocean provider or an ocean fuel producer, and we'll offer that, I'll call it, triangular, a tri-party agreement to buy an amount of SAP. I think one of the changes in the last couple of years, SAP used to be sort of hairs price of SAP per liter. I think the trend is moving a little bit more towards the ocean, the SMF side and saying this is the amount you have to pay for a ton of carbon reduced. Then generally, what we'll do is we look and say, "Okay, what do you want to do? I want to reduce, let's say, a lane or I wanted to reduce a certain amount of shipments by 20%, 50%, 80%, whatever you determine and then saying how much carbon is on that, how much would have to be reduced and say this is the cost for that. So yes, that's definitely something we do. But again, versus a bulk purchase that we're buying it one-to-one. I think also for me, personally, I think that's the right thing because, again, you saw how much is purchased into the future even though so little is used. So it's definitely -- yes, it's look at and it's certainly something to do, but I think the tri-party approach gives stability and method to the way of doing that. So great question. And I definitely think we'll see more on SAP, again, especially on SAP to get to the IATA goals or SMF to help on overall goals. On the ocean side, there needs to be a lot of movement on there. anything on your side to add to that, Cam?

No. But we're heading close to time, and I noticed that there was a question that came in from Iris in relation to reporting and what export is capable of offering. Although we did not -- our goal is not to turn this into an expedited advertisement I cannot provide with what we're providing as well as what you can provide from logistic providers. They are capable of providing line level reporting based on what that carbon footprint is. We use different systems, but there are some harmonized or unified tools that exist within the logistics realm and expeditors we used to [ ecotransit or Ecotrans ] IT depending on who you're speaking with [Technical Difficulty] and as looking at it so we do you want to go that question. [Technical Difficulty

We want to keep doing them, but we want them to add value to you. So please let us have any feedback as you move forward. If you have any thoughts on there, if you have any Also, if you have feedback that you say, no, in that was greenwash and you were saying there. So we're very happy to have all sorts of feedback. It will only make us more likely to go where we want to go to. So thank you very much. Cam, any last second words?

No, it's been a plan -- good morning with you guys. So and Nick, well done, I appreciate everything you brought up. So I think now wants to close up quickly. I don't know if Al has something to add in to us.

Yes. everybody. Thank you, Nick, and Cam of course, for your time for your presentation. And thank you all, all the audience here for attending our webinar today. Once we will close this webinar, you will be redirected to very quick survey just a couple of questions because we want to collect from you, your suggestions for these events, your comments on these events and maybe you're suggesting for our future events as well. And through the filing the survey, you can also -- and this is to ask the last question that we have ask your copy for the presentation. We will send it to you a PDF copy of the presentation upon your filing and requested to the survey if. You cannot join in the survey right now as soon as we close it, you will receive a follow-up we made tomorrow, which will include the surveying as well for a [indiscernible] [Technical Difficulty] chatbox for everybody to keep updated about our future events miss anyone. I look over to welcome you again. If there are no additional questions. Thank you and [indiscernible] ahead myself as well.

Thanks, [indiscernible] Thanks, everyone. Have a great day. Thanks an afternoon.