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

Good morning, everyone, and welcome to the Planning your Supply Chain for 2024 webinar. We're going to get started with our content here. My name is Nicole Gallanis. I'm going to be the host for the webinar today, but I will be handing it off to our presenters, and I'll introduce them in just a moment. [Operator Instructions]. You will receive a copy of the material presented today upon completion of a survey that I will send out via e-mail following the webinar. So look out for that. And once you complete the survey, you'll be directed to the content that we present in the webinar. So without further ado, I'm going to go ahead and introduce our speakers. We have Kara Mahoney, Vice President of Account Management for the Americas; and Adam Kord, Director of our Global Ocean product. So I'll go ahead and pass it over to them so they can get started. Thank you.

Hi, everybody. Thank you, Nicole. Thank you. We are really excited, Adam and I, are very excited to be with all of you. We can't believe that we're actually turning the page on 2023 and positioning ourselves for 2024. And Adam and I are going to be tag teaming this content and how you'll see it work is I'm going to cover some of the general supply chain topics. And Adam is going to provide some insight through the lens of our global ocean product. One of the things we noticed when we're looking at the list of those who are attending this conversation, the common denominator among so many of you is that you're big ocean users. So we wanted to have Adam on to give some really unique perspective that hopefully add some value for your specific ocean business and beyond into other transportation nodes as well. So let's just kind of dig in here. So here we are. in 2023 and going into the year, I think we all anticipated that it had all the makings to be a really stable year. And that's certainly what it seemed like going into the year. There are already some indicators that, that was what we should expect. And in a lot of ways, that is the year that we saw. Of course, we've all seen some pricing stability after a few years of so much volatility in the pricing perspective in the market. We also saw inventory levels finally get to a stable point after, again, the pandemic of consumers purchasing so much product. So in these 2 really important ways, there was stability in 2023. And I think a lot of us could take a sigh of relief in that perspective. But if you dig a little bit further, we also see that there are things that are likely continuing to come our way. And so in so many ways, as we talk through some of these topics, we know that 2024 has to be a year that we deliberately plan for, and we collaborate about. And when we think about disruption that we've had over the last several years in our area, of the world, meaning supply chain and logistics, disruption is certainly something that we've experienced. And one of the reasons why we know that planning is so important is this study that McKinsey just recently put out. And what this study and survey asked, McKinsey went out to Fortune 500 companies based in the U.S., and they asked their executives. They said rank what items you think will be most harmful or disruptive to your organization. And a whopping 70% of the executives that were surveyed said that they expect supply chain disruptions to continue to be a challenge over the next 2 years. If you go out even a little bit further 2 to 5 years, those same executives still anticipate supply chain disruptions to be just a part of what we do and how we have to operate. So Executives kind of know this. We certainly know this being in the front lines of dealing with this disruption. And so it puts the onus on us to really deliberately think about collaborate and plan for the items that we can control going into next year. So we really want to challenge ourselves here at Expeditors. Adam and I have spent some time talking about this. And we want to kind of offer it up as having the theme of 2024 or being the year to reset and to refocus, having a little bit of space between the years of the pandemic and then us being able to really strategically look out into the future and what things we want to work on and plan for, for our companies going into next year. So as we talk through the rest of this content, we really wanted to lay out some themes. And because there's so much that we could dig into in the area of planning for next year because if we're in logistics, and we're in supply chain, there is always an ample supply of things that we could and should be working on. But we wanted to break it down into a few key areas. And so the content that Adam and I will be talking through will be based on these 4 key themes. So Sustainability, Risk and Resiliency, Stability, and finally, Technology. So you'll hear several items under these buckets, but this is how we're trying to organize the content as we go through this. First, we're going to start with sustainability. And certainly, if we're, again, a supply chain or logistics, this isn't a new topic to us and for us. However, what is new is kind of the importance in the area of focus that these things are taking part. We wanted to really emphasize why supply chain and logistics is in the forefront of this area of focus. And I was surprised to see that 23% of the world's energy-related CO2 emissions is in the transportation sector. So I guess if you think about that, that's a massive number. Within that 23%, the items that actually contribute to that 23% are on the left side of the screen here. Of course, long-haul transport is 45% of those CO2 emissions. So if you ask why is supply chain and logistics in the forefront, well, of course, this tells us because this is an absolute area where there are some levers that companies can and should and are expected to do to control their greenhouse gas emissions. Again, this isn't a new topic in supply chain, but what we really want to kind of push your emphasis on is that this is no longer kind of a thing into the future and something that we need to think about down the road. In a lot of ways, this is here for us in our area of focus right now. And so as I pull up some items here, this is certainly not meant to alarm or scare anyone because it does look a little bit overwhelming. But what this is meant to illustrate is that there are taxes requirements reporting expectations that are happening in different areas of the world right now. And so this is not, again, something that we can keep pushing down the road. This is something that we expect that would be very prominent in not only right now, but in the immediate future. For those of us doing business in places like Spain and in Europe, we know and we've heard of these expectations, but I really wanted to emphasize that even here in the U.S., California had a couple of bills that were passed. That are now requiring greenhouse gas emission reporting to be done for any companies that are doing business in the state of California. And doing business in the state has a maybe a broader definition than you may expect. And so this is something we certainly would ask that you have on your plate. The reporting requirements start for this particular bill in 2026. So we have a little bit of time, but this is a complex enough topic that we know we really need to get our arms around what can and should be done. So knowing that it's complex, it can be a bit overwhelming. It's a little bit nebulous as to how to get our arms around what we need to do. Expeditors has put together a suggestion for you of how we can kind of go through the sustainable logistics journey together. And again, our attempt here is just to break this down into more digestible bites. So we're not overwhelmed with the requirement. So our first recommended step is to simply get your arms around measuring. And that means having a source of insight as to what your company's CO2 emissions are specifically in the transportation sector. Looking at what data you're receiving from your service providers and again, just getting your arms around and assessing the inventory of what you need to really know what your CO2 emissions are. The next stage that we would recommend is to look at those regulations that I just showed. And overlay those regulations with the scope of where you're doing business. And understanding where might I have risk. Where might I have that expectation to have that reporting available to government agencies or regulatory agencies that are requiring this. It also is a step that we would recommend that you engage your service providers and you start looking or at least somewhat waiting what service providers are doing in the space of providing sustainable solutions for you. This would be a really good natural step after you have your data. The third step that we would look at, and I have to say, if I were to stress where most companies are. I think most companies are in stage 1 or 2. So please don't feel like you are behind, but it is time for us to take some action here. Step three, in this process is really to look at ways to actually lower your greenhouse gases and to optimize your business. So this is looking at solutions like mode shifts, looking at ways to optimize your routing, packaging, and your cartons. And then asking again, your service providers on what options they have available for alternative fuels. This is, again, a very natural step that you can take once you measure and evaluate your potential expectations. In the final stage, and although I say final, this is really something that has to go throughout your journey in planning for this area is collaboration. We know Expeditors can't do this on our own. We need our service providers, certainly. We would expect our customers to also ask and need us in their journey as well. So collaboration is such a key part as we think about planning into next year, which service providers you would like to align with really asking for key ways that they can help your company reach the destination or the commitments that you've made around greenhouse gas emissions. So we hope that this journey is helpful. Again, it's just meant to kind of break down these steps and to make it a bit more digestible. But Adam, I want to turn it to you because I know sustainability is ever present in the mind of the ocean carriers as well. Is there anything that you would suggest to the folks on the call that they should be considering or know about in the area of sustainability with our ocean carriers.

Yes. Thanks, Kara. So I just ironically returned from a 2-week lengthy trip. Where I was in Dubai, and then I was traveling throughout India, and then finished off in Europe. And amongst that trip, I met with many, many existing customers and many potential and then, of course, carriers. But in those customer meetings, the first topic that always came up, of course, was rates, right? That's inevitable. But number two, directly behind that was sustainability. So many, many discussions regarding sustainability. And it really starts with, as you kind of laid it out in this logistics journey is measuring and assessing, many of the companies we met with showed they had certain guidelines. Large corporations and smaller corporations as well if they were going to be zero emissions by 2040. right? Can you work with us as a partner, how do we get there? And it starts with measuring and evaluating, right? Engaging not only ocean providers, but air providers, looking at your warehouses, looking at your entire footprint and start little by little, measuring year-by-year to get to those goals because it can be daunted. And then the second piece, we're starting to see as there's a little shaky ground with global economies and depending on the business sector. A lot more worries about stability of P&L, sustainability, and that rate discussion is starting to converge as well. One of the big things that we talked about when I was in Europe was with the rollout of the European Union Emissions Trading System, which is the first of its kind globally, and it's going to be rather large throughout the globe. Basically, what it is, is for those of you who don't know, the European Union is going to operate on a cap and trade. And what they're going to do is, it's going to be measured throughout 2024, and then there's for each ton of eligible greenhouse gas admissions. The transportation companies are going to have to buy an admission. So there's going to be a cost on every container that's moving in or out of Europe, and the carriers are now starting to roll out their tariffs. And it's going to add about $50 a container, but this is a new charge. And it's going to go to a good cost, it's going to be collected throughout 2024, ultimately paid to the European Union in 2025. But the goal is, and it's going to be moving up as the years move on in 2024. It will be based off 40% of emissions. And by 2026, it's going to be based off 100% of all emissions. And this is the first program of its kind, and it's starting to gain steam in other areas of the world such as Asia, and I'm sure something is going to come here in our backyard in the U.S. as well.

Yes. So would you recommend, you mentioned reaching out and how the carriers are reaching out to you and customers are reaching out to you? Would you recommend that for this group of folks is the first step that is reaching out...

The first step, and for those of you who are working with Expeditors, we've gotten really good at working collectively with our customers to measure. And I think that's the start because like any process improvement and this really is. This is a very detailed process improvement. We need to start collectively with that baseline. And look at things. I know you mentioned before. There are certain programs with carbon offsets. Many, many customers, we're talking to them about consolidation, load shift moving from air to ocean to intermodal, but it starts with that. Yes. So please engage not only all of your service providers, but even internally, those who might be selling those internal metrics for you.

Absolutely. Yes, that's a good first call out. Internal might be the first outreach to know. In some cases, companies have made commitments and sometimes logistics and supply chain, ironically may be the last to know. So outreach internally might be a great first step if you haven't heard. Okay. So sustainability, again, I think we've covered that. And hopefully, we've laid out some nuggets of feedback and suggestions to just take some initial steps to start to get our arms around this. The next topic we chose to kind of structure some conversation and this slide looks familiar because I showed it in the beginning. And that is some possible areas of risk. And of course, we know there is sadly so much going on around the world, specific to war and unrest. And certainly, that is a piece of the risk that we have to calculate, but we also wanted to break some things down, and we're going to come back to Adam in just a moment to talk about some risk potentially with some capacity and rates, et cetera. But we wanted to talk about some other key areas of risk that we really would ask that you have on your radar. And oftentimes, in these planning sessions, we don't talk much about trade compliance and some regulatory things that we need to have on our radar. So I'm going to share some information that we suggest that you put on your radar again about forced labor. So we're going to come back to that. We're going to talk a bit about network assessments and maps and how that may help you tease out some areas of potential risk and how that can be used as a tool for you. And then we're going to look at risk through the lens of aiming towards resilience, meaning the more we identify risks and we work to de-risk areas of our business, we are then fortifying our ability to respond in times of inevitable disruption. And we're going to suggest that you create risk profiles in some key areas to help you work through those challenges and create some what-if scenarios. But first, we're going to look at force labor. And if -- again, I looked at the list of who's attending most of us are in the transportation sector, but there's many in the compliance world, and this is not new. If you're in the compliance world of your business, this is not new to you, but it should be something that's on all of our radars because it's a really important topic. I was really surprised to hear when our compliance team shared with me, there's about 26 million people around the world who are living under forced labor conditions. And what's happened, of course, is that the political landscape in the United States has really focused on China. And this is a uniting area of our company, probably one of the only. Where both sides of the aisle can agree that we need to have focus on monitoring and regulating what's happening in the goods coming out of China, raw materials and finished goods. I was also surprised to know that the first mention of force labor was actually in a Tariff Act of 1930. But it's largely been ignored because there were giant loopholes that were in that legislation back in 1930. But then in 2016 was the first major legislation that was passed and of course, since then there's been many statutes, including the U.S. MCA, and we point that out because so many of you are utilizing trade from Mexico and Canada, and this is a really important and very specific area that is called out. So our team met with U.S. customs and border protection, and their message to us was clear, and that is they are going to be enforcing the forced labor statutes. And what this means for us is a trade is that we need to take specific steps to be ready for these questions and of course, to make sure that we are not sourcing any material either raw or finished goods that would be from any area of question here. We want to point out, our team wanted to point out that there is software available in the marketplace, but it's not a silver bullet. They wanted me to make sure I added that point. There has to be people to actually understand the information that the software produces. And it's just time to get ready, because there not only is a financial challenge here, but there's a reputational situation that you want to prevent. You don't want to be associated -- your brand with having any importation practices from any goods that would be in question here. So this slide, we're going to provide to you as a takeaway, but it really are some specific steps that we would suggest in order for you to be ready for responding to this if and when it comes up. And first of all, it includes just understanding your area of risk. So again, please ask the questions internally within your organizations. Please reach out to your partners at Expeditors. We are happy to engage with you in this conversation. But we think it's really important that when you have it on your radar to just isolate yourself in terms of away from anything that would be at risk in this area. In case, we wanted to call out to our compliance folks. They certainly were very passionate about making sure that Adam and I chatted about this during our conversation for planning for next year. The next area, and then we're going to get Adam's take on some of this, is using a tool that Expeditors commonly uses when we are doing a risk assessment of our business. We use this practice of using network designs. And we thought this was especially important because over the last several years, there has been extended lead times baked into your lead time expectations because there was so much disruption, the backlog in the ports, the supply chain challenges in general, different groups within your organizations would add days into your lead time expectations. And while some of those conditions still exist, it really is time to take a look at a more recent set of your data and make sure that the lead time variations that you have expected within your organization is actually true and accurate. And then do an assessment of risk of either getting in inventory too early. Or being just a little bit too late, making sure we're doing our best to hit the sweet spot of having a standard of lead time expectations that are reasonable. And that was something that our Supply Chain Solutions team specifically asked for us to call out that you go through this exercise because we're seeing many, many companies have too many days baked into their transit time and their lead time expectation. It's time to recalibrate that. The other areas that we would suggest that you look at using this methodology is looking at any holes in your visibility, if there is any node or any segment of your supply chain that you just don't quite know how it's performing, that would be a red flag. That would be a question that we would suggest that you engage and ask and understand what, if any, risk might that present to you? Looking, of course, at dwell times, looking at redundant touch points, seeing where and when there is damage that takes place, understanding what risk that may bring to your organization by not addressing that. Of course, looking at costs that are out of line with your expectation, and then looking at compliance to your KPIs and really questioning your KPIs in general. Making sure that they're still serving you, they're still bringing the value that you would expect within your organization. But we love using this tactic of breaking down your business, kind of doing this analysis, having a collaborative conversations with your service providers, and again, teasing out some of these areas listed here that might present some risk to you. So that would be a tool that, again, we are happy to provide to you if that is any value to you. Adam, I know you just met with your carriers, I know you're meeting with lots of customers, but what's on your mind as it relates to risk and talking to customers about risk going into next year?

Well, similar to what we just talked about with sustainability, it all boomerangs back to planning in being ready. And the first things that are top of mind in my discussions right now is labor. So labor is a big one. So we just work through for the contract on the U.S. West Coast. The negotiations went on for the longest we've ever seen for more than a year. Luckily, we came through [indiscernible] with limited disruptions. But now the Labor Union on the U.S. East Coast and Gulf, the ILA, their contract expires in September. And the President of the ILA, Harold Daggett. He came out with some fiery comments. Just as the ILWU on the West Coast, they extended their agreement. They work without a contract. He's recently came out over the past couple of weeks and said, we will not -- we don't have a signed agreement by the end of September. We will launch strike and it could be contentious. So we're going to watch that extremely close as the ILA was to walk off the job, it would put the East Coast and the Gulf on gridlock. So we're talking to a lot of our customers today, although it's many months out with preparation. We also know, as we've seen over the past years, as these things work themselves out, there's potential for slowdowns there's potential for certain secs to walk off or certain terminals to have more disruptions than others. So labor, absolutely top of mind. We're having many, many discussions about alternatives, routing cargo different directions and just being prepared. The second one in risk is something else we've been planning a lot for is when it comes to regulatory. You were just talking about regulations with regards to labor. Another big one out there that we're watching that hasn't been talked about a lot. Potentially, your Expeditors' representatives have been talking to the customer base. But there was a recent law that was decided by the European Commission to not be extended. It's the Consortia Block Exemption Regulation for Europe. And what this allows is right now, carriers within Asia, within the U.S., and within Europe, they have limited antitrust immunity, which allows, of course, carriers can't work together at set rates. They can't share financials. But what through the antitrust protection that allows them to operate in alliances to share vessels and a rotation to share terminals that they might own to share equipment, things of that nature. So based on this new regulation that is not going to be extended in April, what does this mean? The carriers will no longer have blanket immunity. Now they can apply to the European Commission to get antitrust protection. And when I met with carriers last week in Europe, they're fairly confident that the regulators will give them approval. But it's hanging on the back of their mind that maybe they won't. So then we're talking to our customers, what would happen then if the carriers no longer had antitrust protection. Well, that means that the alliances as we know it, would fall apart. The carriers could no longer share vessels, could no longer share equipment. So that would be a sizable change to our industry, and it would cause -- the carriers would have to pick and choose the trades they would work at. So it would reduce options that are out there. And the reason why I get this up, this is a European, the first to really dive into it. But there is also a Bipartisan Bill that was announced in the U.S. that still hasn't come to a vote. Which is also trying to eliminate antitrust protection. So we're going to watch that regulatory one very close. The third item that kind of comes top of mind is, weather. So we've gotten really good in supply chain on being on the balls of our feet and being able to move around. But weather is one of those unknowns and things happen. I am the ocean person, but I know talking to my friends in air and being involved with that, air space is wide open last month from Asia into North America from Asia into Europe. And then what we are at right now? Well, space is [indiscernible] because there was a volcano that erupted over Russia, which really threw off a bunch of the routings going into Europe. What happened 2 weeks ago, there was a massive snowstorm which -- in Anchorage, which -- where everybody fuels or many planes fuel, which people weren't expecting it to be as bad as it was, which caused Flex to back up and now everybody is working through that backlog. So just as I haven't seen it for a while, there were thousands of tons of backlogs in Hong Kong and Shanghai. Why? Because weather. We're also watching that close, the Panama Canal. There's been a lot of talk in Panama, they had the least amount of rain they've had since October 1950, so 73 years. It was the rainy season. We thought it was going to come back and didn't. So what's happened? They've slowly been limiting the amount of ships that can go through the canal. Well, what is this doing? Well, right now, space has been prevalent and we're going to talk about that a little bit more and probably some upcoming topics but they're starting to slowly limit the amount of vessels that can move through the canal. Now typically up to this point, container vessels always had the priority. They make a lot of money going through that. They make reservations 10 days out. But we started to see the number of vessels reduced, reduced, and reduce. It came down from 35 vessels a day. Right now in November, it's 25 containerships a day. And at this existing pace, right around Chinese New Year time when everybody is bringing goods in, that number will have to go all the way down to 18 vessels. So we're going to watch this close. But then it also goes other parts of the world, we started to just see rate increases now in Egypt. Through the Suez Canal. So these are things that we have to be flexible, make sure we're planning, make sure we have other options because they can greatly impact our supply chains.

Yes. Well, so a lot of things we have to factor in, in terms of just getting on our radar, the things that may come up that we need to account for. And I guess it's another year of anticipate the unanticipatable things?

Well, that's the thing. Weather is weather, but there's other ones that we can, right? We talked about labor. We can have a tight plan together just in case. Weather, we just need to continue to be flexible and have options.

Absolutely. Yes, some good nuggets there, for sure. It's kind of more of the same. So that leads us, and we are going to talk more about where we stand in some of the ocean carriers, and Adam's going to give some good perspective here. But stability -- and we chose this topic. This is not a topic that is, frankly, in some of these sessions like this you're always going to hear technology, you're always going to hear resilience. You're going to hear these buzzwords. But we really want to talk about the value of stability in your relationships and understanding what's going on kind of on the macro level within our industry. So it can factor into your planning for next year. And this is a period of time in the freight industry that we're really weathering the storm. Of course, we're coming out of a few years, as you all very much know, that have been unprecedented. And what's happened is that there has been, of course, a decrease in demand. And also, as Adam and I will talk about, a shift in capacity. And so what this has created is really a depressed freight industry and depressed freight market right now. And so global forwarders, there's a consolidation happening in the marketplace right now. And it's certainly not our role to name names. But it is something that we want to put on everyone's radar that there's a lot happening in the space of global forwarders. And those numbers are really dwindling. Some that are stated that they're on the market to be sold. Very unfortunately, others that have had some pretty deep layoffs. Profitability has certainly been a challenge. And so looking at global forwarders through the lens of stability and looking for partners that have strong balance sheets and can really continue to invest in your business and service you through all of these ebbs and flows of change. Similarly, and maybe, Adam, I'll turn it to you to talk about this area in the ocean carriers as well, the same idea is happening there.

Yes, you're absolutely right, Kara. And I just met with several carriers last week in Europe, and we had many discussions, and stability is top of mind, and stability goes hand-in-hand with financial health. And although the ocean carriers are sitting on a little bit of a treasure trust because they're in a very different position than the airlines. The airlines that I see here on the slide how they lost profits over, and they averaged billions of dollars when people weren't flying. The ocean carriers, we know the rate story. Supply and demand are challenged. Rates at record levels. The carriers made great profits. They had operating margins higher than large pharmaceutical companies or glowing tech companies, operating margins of upwards of 60%, and know as we see the supply and demand story has changed. You're seeing those operating margins plummet. And as Q2 and now Q3 results come out, many carriers are posting negative operating margins. And what is this going to do? It's going to drive behavior. You're going to see more and more shareholders get involved. We've talked a lot about the carriers attempting to control supply and demand, removing service strings, idling vessels. We saw the same pattern back in 2016, way too much capacity, sinking financials. Hanjin ultimately went bankrupt and what did that do? That drove mass consolidation, we went from 16 global carriers to where we stand now at 8. Very difficult when you have 8 global carriers to have that much more consolidation. It's not going to be there. But what we're really paying a lot of attention to is when shareholders get involved and they start pushing and saying, "Hey, I understand that a 50% and 60% margin is not reality, but we're not going to go back to continuing to lose money. So what does that mean, right? The carriers on a rapid pace of doing goofy things, buying [ furrowers ], buying planes, buying terminals, yes, that's stopping. So we're going to watch this really close because we always talk about -- we need to have options. We need to have options. We need to have options. The last thing we want is for carriers to continue to go bad things happen and limit those options. So it's going to be a space we're going to have to watch extremely close. And this increase in operating cost is real. Meeting with a large carrier last week in Europe, they came out and they were showing us that their operating costs were up 28%, and their average sell rates were below 2019. They're like this is a formula that's not going to work. Now, yes, they made a lot of money and they bought a lot of boats and ships and things that they can't fill, but it's going to drive behavior, and it's going to cause some instability in the industry. Yes, as you opened up, rates have stabilized. Why have rates stabilized? Because capacity are stabilized. And when you look at all of the great amount of capacity that's coming into the market, from our perspective, from our customers' perspective, we should be like, yes, globally, it's going to be easy to get on a vessel. There's an extra 7.7 million container positions that are coming into the market, more than we've ever seen before over the next 3 years. although there's going to be a bunch of capacity, there's that financial piece out there and find out what happens, those blank sailings to service disruptions, we're going to watch that close.

Yes.

And similar on the air side, right? The air markets have opened up quite a bit, much better than we've seen them for many years. Yes, there's been the blip with the volcano and the snowstorm. But wide-body passenger or we'd like to call it belly freight is expected to be at 50% over the next quarter. So hopefully, that leads to a Chinese New Year that's abundant with capacity and things are a little bit easier. So lot of variables that are moving.

For sure. And I'm so glad that we chose this topic. It's like I mentioned, it's an unconventional theme to talk about for planning, but it is a very important topic for us to share. And it's ever present in our minds, certainly, as you said, Adam, as we're working with our service providers. And what this kind of leads to is a conversation about balance and stability in relationships. And again, this isn't often chosen as a topic to discuss for planning, but Adam and I were chatting and certainly, I think if any of us were talking with our Expeditors' colleagues, and you would ask them for their honest opinion about what differentiates companies in how they operate and the results that they get. I think most of us would say that our customers committed to balanced relationships almost always outperform those that are solely focused on other things. Now we do believe that when we're looking at stability, and a stable supply chain is one that's based on execution, on efficiency, and cost performance. But we don't want to forget about how important knowledge and relationships are in terms of planning. And relationships, I guess, just like in our personal lives, has to be deliberate, and it has to be based on collaboration and communication. And so we call this out as an area that we really think is an idea that we can work on together. And in our experience, those customers and companies that plan for this really get the benefit. Of knowing who they can depend on having balanced approaches, having a very solid strategy going into possible disruptions, et cetera. So we wanted to call it out as an area of focus in terms of your planning for next year. And then, go ahead, Adam.

Kara, you're absolutely right. I mean relationships are paramount, not only to the planning we talked about, and as far as, we think we know a lot. We get a lot of that knowledge from our -- the terminals that we interact with, our airlines, our truckers, our carriers, and they are key components in COGS and our wheel of planning. And those relationships, we put a lot into it. We are not a company that changes ocean providers or airlines year-to-year. I mean, as an example, in 2021, when there was a market absent of capacity, we were able to get more capacity and more capacity. And that's because we have those relationships, and we've been working with the same carriers and when the markets were soft, we didn't turn their back on out and they gave us those extra slots. The same thing is happening now. many carriers because there's so much open capacity are coming to us and saying, hey, Expeditors, give us a larger share of your wallet. Give us more. We'll reduce your rate by $50 by $100 or what have you. However, the one thing we know is, no, we're not going to turn our back on those other 4 partners that were there that really helped us in 2021. When the market was tight, and that's part of being a good partner. That's part of weighting on each other and having those relationships or paramount of success.

Yes. I'm glad you called out that time in 2021 when capacity was not to be had. And through our relationships and our commitment to them that actually really yielded great results for us and our customers because we were able to secure that capacity. So again, we know it's unconventional, but we really think it's important that we call it out because we do see it as a differentiator in how customers and companies operate. The final area because no supply chain planning session can be complete without talking about technology, it seems. We want to talk about this. And of course, the energy remains high on this topic, especially around AI. And we mentioned here some other technologies that are ever present in the area of supply chain. And I guess our color to you is that, of course, we as an industry and us as individual companies will have to make decisions on which supply chain technology we want or need. We want to kind of a suggestion is that when you hear about others experience on really high price tag software, promising a lot, specifically around visibility and those kinds of things. Just to call out that it's been our experience that we're cautious in that area, only because we've seen our customers struggle in this area in many cases, there is an absolute need for better technology to provide insight on visibility. But our suggestion is that you really focus on not only visibility, but on options that give you the ability to manage exceptions because visibility is one thing, but automation of exceptions, and teasing those things to the surface. So you and your team have very specific oversight as to what you need to know and everything else is kind of noise, you don't need to know it. We really would suggest that you focus on those kinds of technologies. I'm going to give you an example of one we really see as having -- taking root and getting some of our customers really enjoying the options it's bringing to them. But first, just to call out on AI. Of course, we all hear about AI. We don't know if we should be excited or scared. I think as a world, we've heard both. But there's no doubt that many companies are adopting AI technologies to improve data quality, to make decisions, to anticipate changes in flow patterns, and to really drive out cost, I think, is something Expeditors included we're utilizing that kind of technology in some of our operations. But I guess the point is, just like Expeditors, our suggestion is just to get started and to start evaluating what options are out there and what technologies you really think would drive value for your company. And there's a lot of hype, there's a lot of noise, but there are some really good things out there to consider that would bring value, we think, to your company. And one that we really want to maybe underscore and maybe many of you have heard this idea of digital twins. And what the digital twin is enabling companies to do is to recreate their physical supply chain in a digital world. So all of the scenarios that Adam went through, for example, of all the weather conditions, all the things that we can't possibly anticipate, and on the fly, we can't create an environment to look at all of our options. We are actually in this parallel world where you do have a digital supply chain set up that you can play out these scenarios. So if you are a heavy airfreight user and there is a volcano and a snowstorm in Alaska at the same time and you need to look at rerouting your products. You can, on the fly, look at what options you have, number one, and what the cost impact of those options are without having to spend many, many days and weeks to recreate that. It is constantly -- they're ready for you. This is taking hold. I think many of us have probably heard a lot about this. And it comes down to scenario planning and knowing what you'll do when these inevitable disruptions occur. So just to call out of one specific technology that I think we, as a company, are seeing again, take root. Adam, what do you see? When you're talking -- I know you're talking to a lot of customers, a lot of service providers, both on the ocean side, but just general service providers to Expeditors. Is there any technology that kind of excites you about going into next year and beyond?

Yes, there's a bunch. I mean, you just covered the digital twin, but I love where we're going with big data and the ability for customers to assess risk 10 years ago, 15 years ago, 20 years ago in my career, we would. We still do it today. We all get in a room when we talk about things, and we just figured out. And it's a lot of ideas. It's a lot of hypothesis and it's a lot of what is now we're able to get them that room, we're able to have digital twins, we're able to play with the data and make more populated decisions. So that's always exciting. That's something we didn't have before. When I look at the state other things that excite me. This is just push for things to get more and more efficient. And I'm really curious to see what happens in the space of AI right? AI is going to be an accelerator of ways to share data, to make data more efficient in the world of logistics, what we do, there's a lot of handoffs, there's a lot of rekeying of data, AI and I'm really excited to see what happens in next 5 to 10 years to see how efficient the overall process can get. The third piece I'm watching really close, and I was just talking to a large European carrier about this is with sensor-based tracking. Expeditors, our space with cargo signal and our ability to track cargo 24/7 and engage. We've had that in place for a while. But the ocean carriers are starting to put tags on equipment. I was meeting with [indiscernible] last week. And by the end of next year, they're going to have a sensor on every container. And now the marketplace is catching up, which is going to allow them not only for us to have better visibility to what's moving but the ability for them to track their assets, which we're hoping then posits reductions in things like detention, demurrage, loss, things of that nature. So yes, the things that are top of mind. There's one so much easier to assess risk right now. And then number two, just things getting more efficient and the ability to track is really going to change how we do business. It's going to be a very, very different space in the coming years.

Yes. Yes, a lot for us to keep on our radar and more collaboratively amongst our groups internally, of course, and then with all the folks on the phone as well. So this concludes the material that Adam and I have. And I know we have a couple of minutes for questions, certainly, but we just want to underscore our commitment to you, please, we're really eager to work on planning with you into next year, and we're happy to participate in any of the tools and the processes that we talk through today. So Nicole, or Adam.

I was starting -- so we do have some questions, and we do have a few minutes left here. [Operator Instructions]. We had a question that came back were starting out about the sustainability section and we had a question, does if expeditors has the ability to calculate carbon impact? And even would that include not only air and ocean, but down to the drayage, absolutely. That's something we do all the time. We're good at it. We partner with other services. So please if you want that baseline, which we talked about, which is typically the starting point for improvements, please engage your Expeditors' representatives, and we will absolutely help you out with that. So we do. We had another question that came in when we were talking about risks, about the potential impacts on the ILA labor disruption. And if we had any if we have any alternatives. So yes, ironically, I'm working with the global team here and our marketing team, and we're putting together a new strategic engagement for our customer base. So here within the next quarter, you're going to see some materials come out and your account manager, your sales representative will be reaching out to you to talk through scenarios. And similar to what we rolled out with the West Coast, yes, there are. And those typically start with, one, alternative routings, right? If you're originating from India, there's ways that you can move cargo through to the U.S. West Coast, depending on your DC locations, we can do that. We typically talk to our customers about that planning. And as we assess risks and different milestones, which are going to happen throughout that negotiation cycle, the ability to pull orders forward? And what does that look like potential distribution hub changes? And then lastly, we hope it doesn't get to that, but then emergency budgets for alternative transportation routes. But yes, absolutely, we're working on this. We're a couple of months out. But in Q1, you're going to see a lot of engagement from Expeditors on ILA continue to [indiscernible]. See what else we got here. Yes, we had a question about recommendations of KPIs. We had a couple of questions that came in about, hey, what type of KPIs would you suggest to look at in 2024? One thing of our business is everybody's supply chain, although they're very similar and everything is a little bit different. I know that we're still based on conversations that we're having. There's a lot of folks that are looking back to tighter terms. So there's going to be a bigger emphasis on transit times and hitting meter transit times as many folks as they're looking at their cash cycles are trying to improve on-time performance. So transit times are big. We're going to see KPIs about sailing on time and having space and equipment. We know on -- especially on the ocean side, there has been a heck of a lot of blank sailings, service disruptions. And many carriers aren't sailing every week. Many of the carriers have pivoted certain lanes to every other week sailings. So we've been talking to our customers and other people are measuring that space is available at the time of booking. But this is going to vary a lot back out.

Yes, Adam, if I could add, we find that KPIs are one of those things that companies set decades ago when they just stick to it. And maybe to the point that you made, Adam, that everything is a little different. A suggestion that we would have is changing a KPI, if it no longer serves you or it's no longer interesting or something that you're finding yourself digging into is that we reevaluate that together. So for example, I was involved with the customer recently that was having damage. And we noticed the reason why we added dwell on one of the areas of risk is that it was happening in a higher likelihood when a product would well longer. And so we then change the KPI to then focus on dwell time and of course, always looking at damage rates, et cetera. But just being a little bit more fluid with KPIs and not just using your standard door-to-door transit or port to door, whatever it happens to be, use your KPIs as a means to actually engage and collaborate with your service providers and not just stick to the ones that you said long ago. And anything else, Adam?

No. There are some other ones in which we'll do that we can make sure we'll take a list of -- there's quite a few questions, and we'll distribute them to the account manager just to make sure....

Absolutely.

One just popping up last minute, does Expeditors send notifications on whether that may impact our bookings. Yes, absolutely. We do an operational impact that goes out when there's large-scale events. We've also done things. We have a port monitor that's updated, which shows live delays that are happening. So whoever asked that question yes, please engage your Expeditors' representative, and we can give you those tools to help you with that.

And when we may refer to your Expeditors -- I'm sorry, Nicole, when we refer to your Expeditors' employee or Expeditors' representative, if any doubt, I think you have our contact information and we welcome any questions or request to either myself or Adam. We are happy to work with you through any question or challenge. And I guess, I just want to conclude with a big thank you to take the hour with us and really focus on next year. We're really grateful for this opportunity. And we hope that we continue to collaborate into the future, and we're crossing fingers for stability, for balance, all those things that we talked about. And you can certainly count on us to partner with you through whatever challenges come our way. So Nicole, I can -- I'll turn it over to you for any concluding items.

Yes. Thank you, Kara, and Adam for the great material today, the great information for answering all the questions that came through for anyone that we didn't get to, we will follow up with you directly after the webinar today. And I did throw the subscribe to our communication link in the chat. So to Adam's point earlier, we do see notifications out about operational impact for weather conditions that turn up or any unexpected closures that occur, any of operations that are in ports that may impact you. And then also that link will allow you to subscribe to receive notifications for upcoming webinars. We do have a Customs FDA webinar in December. Information about that will be sent out shortly. And then we have some really exciting webinars coming up in 2024 as well. So again, thank you for your continued participation in these webinars in these events, and thank you again to Adam and Kara for the great information and sharing your knowledge with us. We appreciate it.

Thank you. Bye-bye.

Thank you, Nicole.