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

Okay. I think it's about time we get started. So hello, everyone. My name is Justin, and I will be the host for today's Port of Vancouver Gateway Update Webinar. Thank you all for joining us today. And now I'll cover a few ground rules. Everyone is automatically on mute and your cameras are off. This means if you have any questions, you can type them into the Q&A box at the bottom of your screen. Please avoid typing questions into the chat box as we may miss those. We will address questions either during the webinar or at the end of the webinar during our question period, depending on the question. Now please feel free to enter your questions at any point. As well, please stick around to the very end, not only for the question period, we will also have QR codes that you will be able to scan and sign up for our communications. Soon after the webinar, all of you that are attending this webinar will receive a follow-up e-mail that includes a survey. Filling out this survey will give you access to a copy of the slides today. Also note that another e-mail will come your way sometime next week. And there will be a copy of the recording of this webinar in that e-mail. With that, I will hand it off to Denise to introduce herself and our speakers from the Port of Vancouver.

Okay. Thank you, Justin. So I'm Denise Rogers, I'm the Director for Ocean Cargo Services for Expeditors Canada. Thank you for joining the Port of Vancouver webinar. Rosanna and Jane have some important information to share in a moment. Before we get started, we understand, given the current labor situation in Vancouver and Prince Rupert, there will be some questions raised regarding the status of that. We will ensure that there is time made available at the end of the presentation for Q&A on the presentation as well as anything surrounding information on the current labor situation. And just a reminder as well that the Port of Vancouver is not a party to the negotiations that are going on between the ILWU and BCMA. So please, as Justin mentioned, put your questions in the Q&A box, and we will take a look at those at the end of the presentation. And thank you again. And I'd like to pass this over to Jane and Rosanna.

Hello everyone, thank you for joining the webinar today. Thank you, Denise and Expeditors, for inviting us to give an update on the Port of Vancouver Gateway. I and my colleague, Jane, are joining from the Port of Vancouver today. Let me introduce a little bit about myself. My name is Rosanna Lau. I am a customer engagement manager from the Port of Vancouver. And I take care of our reach to customer -- shippers customers and logistics service provider. My role is to facilitate trade goods at Port of Vancouver and to promote the port. I will let Jane introduce herself.

Hello, and thank you for having us. My name is Jane Banham. I am a manager of customer engagement here at the Port of Vancouver. I will be assisting Rosanna with some of the presentation and the questions. And also, too, you may have received -- if you're in some of the distribution strings with regards to operational updates and the very popular strike situation, you may have received some e-mails from me about that. So I'm happy to provide a little bit of an update at the end of the presentation. So thank you for having us. And Rosanna, back to you.

Yes. Thank you, Jane. Most of us on this call is aware after ILWU Canada rejected a tentative agreement reached on July 13 and has resumed strike action yesterday. We noticed this is an important topic. And Jane is going to give you an update when we start the Q&A. So let's get started. To enable us to learn more about how well you know about the Port of Vancouver, we will have two polls to get to answer a simple question in the beginning and end of my presentation. And the first question we would like to ask you is how familiar are you with the Port of Vancouver Gateway infrastructure projects on a scale of 1 to 5 with 5 being very familiar? We'd like to take a few seconds to get the responses. [Voting]

So we have the answer right away. And the answer shows that most of the participants are not too familiar with the Port of Vancouver Gateway infrastructure projects. You joined the right webinar. We are going to give you more information today to enhance your understanding of our port. So let's get started. The Port of Vancouver is Canada's largest port. It can handle the most diversified range of cargo in North America. It is the third largest on the continent by tonnes of cargo. As a port authority, we are an agency of the federal government. We are mandated under the Canada Marine Act to enable trade through the Port of Vancouver, ensuring goods are moved safely while protecting the environment and considering local communities. Our vision is to be the world's most sustainable port. We are financially self-sufficient. We don't operate on taxpayers' money. 60% of our revenue comes from land rent and 30% comes from fees that we collect from the port users. We use the money collected to invest in the development of the port. How do we enable Canada's trade? We lease federal lands to terminals and serve as the permitting authority for terminal expansions and other projects on the port land. We build infrastructure, including at the water edges, as well as the road and rail projects throughout the region to support border, supply chain and trade capacity. We also advance optimization of the port and its supply chain, leveraging technology to drive insights and unlock more capacity and efficiency throughout the system. Next one, please. So this is showing the port jurisdiction. Port of Vancouver operates in a complex environment. Our jurisdiction is made up of 350 kilometers of shoreline, bordering on 16 different municipalities. There's one treaty First Nation, 29 marine terminals. We handle a very diversified portfolio of cargoes, including bulk, big bulk, containers, autos and cruises. The marine terminals are served by three Class I railways, including CN, CPKC and BNSF. Your shipments are moved via the four terminals, as we have indicated in here, Centerm and Vanterm in the Burrard Inlet, Deltaport in the Roberts Bank and the DP World Fraser Surrey in the Fraser River. These 4 container terminals can deliver up to 5.4 million TEU handling capacity in a year. Next one, please. Port of Vancouver is diverse. All these commodities shown in here share the same gateway. We handle autos, coal, grain, potash, forest, big bulk, container and cruises. This year, the cargo volume up to May looks strong with 12% increase overall, which is mainly driven by the growth in autos, with 22% growth in grains with a remarkable 126% growth. For autos, semiconductor shortage and parts manufacturing in China has stabilized that boost their production of cars and increased our imports. For grains, 2022 crop year is the third highest on record. We had a strong 2023 quarter 1 versus last year 2022 quarter 1 that moved a drought-stricken yield. Canada is a strong grain-producing and exporting country and after Russia, being the largest in the world. For coal and potash, the volume is quite stable, more or less the same as last year. For foreign big bulk, there was a drop of 23%. That is because of the drop in the demand and supply and also some of the discretionary volume moved via containers. So that shows a drop in here. For container segment, it was a weak first half as expected due to decrease in consumer demands, change in spending services and travel and also slow absorption of the overstock inventories. That gave a 14% drop so far this year. For cruises, it's going to be a big comeback this year. We anticipate making a record year in terms of passenger volume achieving 1.3 million. So next one, please. Let's look at how container did. The blue line showing here is the 2021 volume. We had a record year of 3.68 million TEU handled in 2021. There are many ups and downs throughout the year. The big dip is in July, when we had the B.C. wildfires causing rail outage. And towards the end of the year, the flood and landslide caused also rail outage that's making a dip. Carrying into the next year, in the beginning of 2022, January and February, we started at a low data point. And throughout the year, there are many externalities, for example, the lockdown in China causing a manufacturing supply chain problems. And towards the end of the year, there are intermodal congestion in Toronto and Montreal also make another dip on the tail. But 2022, we have achieved 3.56 million, which is only 3% down from the record year in 2021. This year, in quarter 1, as you can see from January to March, we are having a low starting point at around 227,000 to 250,000 a month. But in Q2, we are seeing a pickup of around 24% from March to April with 281,000 handled. And this volume stayed from April to June. So we believe this year, there are still a lot of the economic headwinds, especially with the strike impact in July that may also bring the volume down for a few months. Next slide, please. A close look at the export volume with laden and empty breakdown. This is an interesting slide that we would like to share with you. With dynamic change as you can see, pre pandemic, we used to have a laden matchback ratio, having 65% to 70% laden to 35% to 30% empties. We ship a lot of goods out of Canada. During the pandemic from mid-2021, this ratio flipped, where having 2/3 of exports were empty. We turned to shipping a lot of air back to Asia. This situation is due to the skyrocketed high ocean freight during the pandemic. Carrier preferred to reposition their equipment back to Asia as soon as possible in order to start another long-haul cycle to maximize their profit. So we have this reverse phenomenon. But since the start of this year, this situation changed. And we are having the laden above empties. But recently, there's another cross as you can see at the end of this curve. We need a little bit more time to observe and evaluate the reasons behind. Next one, please. Now we are going to look at a few supply chain performances. We'll start with the rail dwell. The black line here is where we want to be regarding rail dwell. That is having it under 3 days. In June, the rail dwell time is 4 days, which has largely improved from 6 days in May, because of the increase in the production of rail and becoming more stabilized. However, it is expected to go up again in July due to the strike because terminal operations has been suspended for a period of time. And we want to point out that it has been unbalanced dwell in some containers seeking much longer than the others. There may be boxes buried in the yard and incurred longer dwell days before it was dispensed. But there are also containers immediately loaded to rail cars if the schedule and their cargo destination matched. Looking at the Gateway import rail on-dock footage. You can see the curve is trending down but becoming flat at the end of the curve. Along with the imported -- along with the improved rail dwell performance in June, you can see both CN and CPKC's on-dock footage is going down. And it was flat at the end due to the strike as there's no cargo being moved. Next slide, please. Moving to the vessel performances. This slide shows how many ships are being assigned to berth directly and how many ships are being assigned to anchor. Comparing recent month, June this year versus last year June, you can see a big difference. The blue color become dominating this year because there is improvement in the port fluidity. More ships being assigned to the berth directly instead of a year ago, close to 50% has to go to anchor. Recently, only 7% needs to go to the anchor. And looking at the dwell days and anchor, we also see a good improvement. Last year, the average was 7.8 days staying at anchor. This year, it improved down to 2.6 days. But in July, it's going to be a different story because of the strike. Next slide, please. This is showing the 15 services calling the Port of Vancouver operated by 14 carriers. The on-time performance is within 8 hours of the start of the berthing window. As a port authority, we think the vessel adherence to establish berth window helps enhance gateway fluidity, facilitate even flow of cargo, food or terminal and avoid vessel bunching. It is important that we have this performance stay high. During the pandemic, the vessel on-time performance was below 30% for quite a long period of time. But this year, we are seeing good improvement that from January to May, the performance -- from January to June, the performance has improved to over 50%. It is showing that the ship schedule is gradually restoring their reliability. Next slide, please. Truck performance metrics, despite the volatility in the container sector in the past 3 years, truck turn time has remained very consistent in the range of 37 to 45 minutes. And even though it was short, after the strike from the 13th to the 17th, we are monitoring truck turn time. And it stayed at around 45 minutes. So it is quite healthy. But it could be a different picture later, but we will continue to monitor that. Here, I would like to make a -- do a little promotion. If you find these metrics about rail, vessel and truck useful, you are invited to go to our website, portvancouver.com. Under the dashboard, we are publishing these information timely so that will help you to manage your supply chain logistics. Next slide, please. So up to now, we have looked at the current cargo volume and performances. We're in forecasting for the future. We are forecasting more growth ahead. This slide shows the total aggregated volume in terms of millions of tonnes. In the middle of the chart is 2023. It is a forecast number because we are still in the mid of the year. But looking on the right-hand side, you are seeing a longer bar that represent a higher million tonnes cargo will be moved. For the container segment, we are forecasting a 3% to 5% growth every year. The biggest growth in 2024 will be in the liquid bulk segment with the completion of Trans Mountain Pipeline, which carries crude and refined products from Edmonton to the coast of B.C. But it will not compete for rail capacity resources with other segment of the cargoes as it will be transported by dedicated pipelines. In order to handle the trade move, the port is working collaboratively with the government and industry to deliver infrastructure to enable capacity. We'll go to the next slide. Here comes the important infrastructure update that we would like to show today. In growing the Gateway, the Vancouver Fraser Port Authority's core strategy in growing the Gateway lies around three areas. First part of the equation is in-terminal, to enable terminal capacity to support future trade demand; the second part of the equation, off-terminal, to build transportation infrastructure to ensure fluidity connecting to the terminal; last part of the equation, digital infrastructure, to develop supply chain visibility tools to unlock more capacity from the hardware infrastructure. We are going to look at each of these areas one-by-one in the next slides. We will keep this video link in our presentation material when we send over to you, so you can take a short time to -- it's only 45 seconds long and view it later after the webinar. First part of the equation, building terminal capacity. Centerm expansion was just completed in April this year. The expansion project includes expanding the terminal footprint to the west and east, contracting and expanding the container yard and the rail yard and building the truck gates. This expansion increased handling capacity of Centerm by 60% with handling capacity of 0.9 million TEU to 1.5 million TEU annually. It will be in full capacity from September this year. So this is the in-terminal expansion that we had. After the Centerm expansion, the nearest terminal expansion project that we are looking at will be the Roberts Bank Terminal 2. As you may have heard in April, the government has approved the Roberts Bank Terminal 2 project after 10 years of rigorous environmental assessment process. It is a future marine container terminal at the Port of Vancouver with 3 berths handling capacity of 2.4 million TEU, adding the total handling capacity of Port of Vancouver by over 40%. We welcome this decision and believe it is a great news for Canada. The project will be funded by the port authority and private investment, not tax dollars, like other projects that the port authority-led marine container terminal projects. While this decision represents a significant milestone for the project, there are still several key steps we need to complete before construction can begin. That includes obtaining regulatory approval and permits from the Fisheries and Oceans Canada; continue to collaborate with the indigenous group and to undertake procurement process to build the facility; and lastly, to find a partner to run the terminal. This terminal is expected to be operational in early 2030s by 2 phases. We are looking forward to the construction and this terminal come to operations. Next slide, please. Second part of our equation is to build off-terminal capacity, enhancing the rail and the road network to support the port facilities. This slide gives you an overview of the projects that we are working on with the municipalities and industry with the common objective to enhance the road and rail network connecting to the terminal. These projects are funded by the government with the National Trade Corridor Fund, the port and the municipalities. So we can go to the next slide that I will share two examples of these projects. First one is the South Shore Access Project. The construction was completed in May this year. It is about building the overpasses, as you can see here, leaving more space for the new rail track to be laid underneath so as to enhance both the rail and truck connection to the ports of Centerm and Vanterm. Burnaby Rail Corridor Project, similar to the South Shore Access Project, is to build an overpass and to have CN later additional rail track underneath. This is to avoid the conflicts of the road and rail in access to the port. And this project is anticipated to begin by end of this year. We can go to the next slide. Last part of the equation is to grow capacity by leveraging technology. There are two digital platforms that we are working on to enable visibility and provide insights and foresights. The Active Vessel Traffic Management Program is about enhancing the process and working on the water. The Supply Chain Visibility Program is about having cargo activities focused on the land side that I'm going to talk about in the next slide. So we can go to the next one. This is the Active Vessel Traffic Management system. It is to foster an integrated supply chain through enabling technology and process improvement. You can imagine, over 3,000 ships coming to the Port of Vancouver in a year, there is increasing challenges and capacity in managing the efficient flow of vessel going in and out of the port. Especially the Port of Vancouver is a diversified port, and we are seeing trade growth in the future with more vessel, larger vessel and more complex vessel coming in. This platform brings their pilot, the Coast Guard's terminal port ships together in the same platform to refer to information when they carry out the operation and helps to enhance the marine safety and reduce impact to the environment. We have introduced a code of conduct for ships at anchorage. And we are having a positive feedback with 750 ships acknowledge their code so far. So we can go to the next slide. The Supply Chain Visibility Program, this is a program for -- to facilitate the cargo activities on the land side. The program aims to build a digital backbone for supply chain in the West Coast ports, including Vancouver and Prince Rupert so as to enable insights and foresights by providing data visibility and applying data analytics. The Vancouver Fraser Port Authority, Transport Canada, Prince Rupert Port Authority, the railway and terminal are collaborating under West Coast Supply Chain Visibility Program to develop an insight-driven gateway. It is a multi-year program and has multiple phases. Visibility-informed choices, the program is to assist investors and decision-makers to make more informed choices in managing supply chain and to support the future trade growth. For example, if the system is able to provide visibility of container inventory in yard and cargoes on the way coming to the port plugging in their rail schedule and capacity, the cargo owners will be able to make better decisions in planning for logistics of their cargo, especially during exceptional situations where the port might encounter some sort of congestions. It is still in the pilot stage. But the system will provide dashboard for people to work on with the data. We can go to the next slide. Supply chain task force. We would like to highlight that the government is having attention in the importance of the supply chain, especially after the pandemic. Last year January, the supply chain task force is formed. The port, Transport Canada and other agencies will consult the industry association and experts to make both short-term and long-term recommendation to enhance the efficiency, fluidity and resiliency of the port. Next slide, please. In this last slide of my presentation, I would like to share about our work in environmental protection. We are committed to phasing out all the port-related emissions by 2050 in support of the Canada government's goal to achieve net-zero emission by 2050. To achieve that, we lead a number of programs to reduce port emissions. That includes building a port-wide emissions inventory. And we have also installed shore power at Canada Place cruise terminal and two container terminals to enable ships docked to switch to greener fuels. We also partnered with the Ports of Seattle and Tacoma and the Northwest Seaport Alliance on their Northwest Ports Clean Air Strategy to reduce air emission, which will cause air pollution and climate changes. EcoAction, it is a great program that is encouraging greener practices in the shipping industry. The program provides incentives for ships that use cleaner fuel and technologies to reduce emission and for quieter ships that reduce noise impact when they are navigating in our water. ECHO Program, it is a ship slowdown program to support the recovery of whales. We launched three voluntary underwater noise reduction initiatives and having a lot of support from the industry. 92% of the containership participated and overall, 85% of ships participated. We understand it is very difficult to achieve 100% because safety and operational feasibility is the top priority that the ship has to consider. Lastly, the HEP building habitat. We want a Habitat Enhancement Program, HEP, as part of a broader supply -- part of a broader strategy around gateway growth. It is an offset program. Food program, we create an enhanced fish and wildlife habitat sites to offset effects from their port infrastructure development. So this is the end of my presentation. We will continue to build a gateway to support your businesses. Next slide, please. So before we start the Q&A session, let's have our second poll question. We would like to invite you to take a few seconds to answer the question. Do you now feel more knowledgeable on the Port of Vancouver plan in growing the Gateway? Please give your answers. [Voting]

I'm so happy to see that 98% of the people joining our webinar today feel that they now come to be more knowledgeable about the Port of Vancouver. So thank you, everyone. Thank you for taking the time. Justin, I will hand over to you.