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

Let's go ahead and get started. So thank you all for joining this webinar, the near-shoring managing capital equipment moves cost effectively and efficiently. So before we get started, I just wanted to go over a couple of housekeeping things with you guys. So this is going to be about a 50-minute webinar with about 10 minutes at the end to go over Q&A. This webinar will be recorded after I go over these tasks. I'm going to start recording the webinar. While our wonderful hosts are presenting, feel free to throw in any questions that you have in the Q&A chat box. And as I mentioned before, we will have some time at the end to go over your questions. Upon -- or after this webinar, there will be a feedback survey that is set to you guys and upon completion of that feedback survey, you will have access to download this slide deck. We appreciate any feedback that you guys have and also gives you an opportunity to let us know what events you would like to see in the future. So without further ado, I'm going to start recording and then I'm going to hand it over.

Good morning. My name is Colleen Simons. I'm the Director, Project & Energy Services for the Americas. We appreciate you guys coming today. I want to introduce the other speakers, that will be Ryan Spjut, he's the Regional Manager for Network Solutions at Expeditors; and Sandra Tello, she is our Regional Manager for Mexico and the Southern Border with Project & Energy Services. So our agenda is just to give an overview of Expeditors and the big topic is near-shoring. So I think that's a huge buzzword right now, and we felt it was really important to take the opportunity to present what we're seeing and give some insight into specifically a look back and a plan forward. What are some things that everyone should be taking into consideration when thinking about near-shoring or planning for near-shoring, what the infrastructure is, specifically in Mexico. And then how the best way to look at a logistics partner. And then the follow-up will just be any questions that anybody has. We would love the feedback and if there's something that we need to take away to do some research for you, we're happy to do that as well. So I'm -- like I said, my name is Colleen Simons. I have been in the industry for a bit over 30 years. I've been with Expeditors almost 25. I've had a lot of experience from [ Aria ] Ocean, import, domestic, heavily oil and gas and then over the last 10 years in Project Cargo. So I appreciate everyone's interest in this topic, and we'll move on. So I think when you look at the path 20 years, we've seen supply chain involve. And really so much in the past 5 years, supply chain was kind of an unknown word. And now it's become this buzzword because of the pandemic and really having to look at how do we move goods globally and how do we manufacture because of all these changes in our supply chain and the volatility in the supply chain. And so how that impacts all of us and giving us opportunity to kind of look at how do we want to design our approach to the supply chain for our customers, consumers, and this has kind of been forced upon us because of acts of God and fuel and [ Brexodus ]. And most recently, we've got challenges in this Suez Canal and we've got challenges in the Panama Canal. And so we're constantly having to evolve the way that we look at supply chain. So this is where things become even more disruptive and so we've got to figure out what's the best option. And so that's really where near-shoring has become a really important topic because of all these changes in our world. And so when we're looking at where the best place to do near-shoring as our organization being global, we are able to adapt and change and support our customers. But internally for you, we also want to be supportive on -- to be able to provide solutions and options when you're changing your structure. And so when you look at how and where you want to move your businesses and expand, you're generally looking at like proximity, the times that you can respond to customers' needs, understanding the culture of where you're going to be moving goods to, understanding their practices and how do you collaborate, being able to look at the time zones and how do you get information past as quickly as you need to be able to make quick decisions. Sometimes we have things as much as language barriers and how we communicate a little bit differently. And then the productivity. So you've got all these areas that you have to look at, and some as simple as just the travel cost. You may have to be some place and to travel all the way across the world is not only time-consuming, but also extremely expensive. So you have so many different variables as an organization that you're looking at and going through. We want to be able to support and help you understand, for example, Mexico. Mexico is close to Canada, Latin America and the United States. And so we feel like giving more information about what's happening in Mexico overall is a great way to be able to support our customers and help you understand the infrastructure. So I think we talked a little bit about just the why and the benefits. So cost savings, obviously, is such an important part, not only in labor, but also the logistics spend. And so it's not just about getting raw materials in, but it's the final product out. Getting access to skills, there are certain parts of the world that have exceptional skills in one area, but maybe not in another. So knowing your requirements and your needs really getting to the bottom of what are those skills that you need to be able to get this final output that you want. And then speed to market. The quicker you can get something out and to your customer, there's a revenue opportunity. So, that is, I think, the end game to get improved overall supply chain and then control over intellectual property and being able to make sure we're getting that information and are good to customers and consumers as quickly as possible. So I want to turn it over to Ryan, and Ryan can introduce himself.

All right. Thanks, Colleen. Hello, everyone. Yes, just as a quick introduction to me. I've been in the industry and with Expeditors for about 19 years. And I spent time in operations, spent time in account management. And then most recently for about the last 5 years or so, I've been working with our Corporate Network Solutions Group as a Regional Manager. And our Network Solutions group does a lot of these kinds of studies. Our main purpose is to take customers' supply chain data and create some analysis around that to help them find opportunities, help them improve, streamline, all those kinds of things. So generally, we create trade-offs or create 2 different scenarios where customers can see the trade-offs between different configurations of their supply chain. And we've done a number of near-shoring studies, and we've done a number of near-shoring studies related to Mexico as well. And so for that reason, I was invited, and I'm happy to be here and share a few things. So our Network Solutions -- if you can go back real quick, Chucky. So our Network Solutions Group has been around for about 20 years. We've got a large team of customer-facing individuals like myself. We also have a team of analysts who do a lot of the heavy lifting with the analysis. You can see the number of studies we've conducted, the number of customers we have engaged with. And then we like to categorize our work into these different buckets that you can see at the bottom, supply chain diagnostics, getting an understanding of the overall health of a supply chain. We look at network design, which has to do with the locations of the nodes in the supply chain as opposed to the transport optimization that looks more at the transport that happens between those nodes. So when we talk about the near-shoring, it tends to fall under that network design and where do I put these nodes? Where do I have warehouses? Where do I have suppliers and the trade-offs associated to that? And then we also do some carbon impact studies as well. So that's an overview of the Network Solutions group and the work that I do. And it would take a long time to go through some -- through everything that we get involved in related to this. And so what I really wanted to do was just focus on 3 main takeaways that we see when it comes to these studies and some tips that help you get started in your own organizations when it comes to doing these kinds of studies and this kind of analysis. So the first one is a network diagram, so everybody is familiar with network diagrams and some of the tips that I like to talk about when it comes to network diagrams. The first one is really just to keep it simple, and to remember that a network diagrams purpose is to inform. A lot of times, we can get carried away by trying to put everything, all of the information into the network diagrams, usually that ends up being overkilling, you can suffocate conversations and the network diagram itself can suffocate. So when it comes to these, just keep them simple. They'll be most informative that way and be really helpful for leading the discussions that you're looking for. The other part of that as well is to remember that you can always do multiple network diagrams and you can even do a network diagram of the same lane or one is by ocean and one is by air, for instance. So don't be afraid to use multiple network diagrams to facilitate the conversations you're having. And then the last thing, when it comes to network diagrams is to keep them handy. So it's very easy for us to create network diagrams and put the work into them and then set them on the shelf. And so what we find is that there's a lot of benefit when you pull out the network diagram together with the other stakeholders and talk through the changes to the network diagram that are under discussion. And you can adjust the way that it looks and get some value, some benefit out of that visualization tool. So the last -- the main takeaway there, Chucky, if you do one more, create a network diagram and keep it simple. So make sure that you don't skip this step, right? So that's number one. Number two is the power of the data visualization tools themselves. So if you click one more. Generally, I'm going to guess that most of us keep all of our data in Excel or at least the most tangible version of it that we work with is in Excel. And that's pretty much where everybody starts. But as you know, there's a lot of value in creating some visualizations and turning these rows and columns into some information that's actually digestible and useful for the rest of the group. So if you click one more, please. So you can get value out of maps, you can get value out of bar charts, line charts, all of these kinds of things. And what's helpful about this mostly is that it'll bring out trends that you may not or that you probably would not uncover just by looking at the data itself in the rows and columns. So these can be very compelling. And so that -- the other thing I would just mention about data visualization is to take some time to find tools beyond just the native data visualization functions that's found in Excel itself. So Microsoft has an offering. There's some other providers that have offerings for data visualization that are very accessible, easy enough to learn and can really bring some value as you're trying to make these decisions. All right. Turn rows and columns into insights by visualizing data. All right. And then the last thing to talk about is the overall consideration. So as I mentioned in my role, I create these lot often their [ costed ] models that help customers see things from 2 different sides and so that they can weigh both sides. And the thing that I always have to keep in mind is that the model that I build only accounts for the activity that's input into it. I think if anything gets left out, then that obviously is not going to show up in the model. So even when these models are finally created and we have the results, it's important to be aware of all the considerations and to know the limits of what the model can actually support. So you can see this list here has a number of considerations that we like to bring up even after creating a comprehensive model. So you have any kind -- anything related, for instance, to near-shoring, you might have to consider importer and exporter record establishment requirements. There's always the questions about port proximity, customs processes, tax policies. There's bonded and FTZ site restrictions, management expertise, so questions about whether the place that you're trying to nearshore can handle the business that you're bringing, operational process development, training, DC operating costs, labor availability, free trade agreement impacts and the logistics cost impact. So some of these are quantifiable and can be worked into a data model like the ones that I build, others are less quantifiable and you would want to rely on your own expertise or the expertise of those around you to weigh in on whether something like a customs process is going to be more difficult. So all of that to say, make sure that you're involving all of the stakeholders that would have some input on these decisions, they're big decisions and make sure that you weigh in on all of the considerations that could come up. So those are just the 3 things that I wanted to make sure I touched on, as you're beginning some of these studies or trying to gain insights on near-shoring decisions. The idea of using network diagrams, make sure that you use data visualization tools to gain access to the insights there and make sure that you consider everything that you can that goes involved and involve the people that know. That's what I have. So with that, I'll turn it back over to Sandra.

Hi. Good morning, everyone. Thank you for joining this morning. [Foreign Language]. I've been with the industry for the past 15 years, I've been within Expeditors for 5 years already. My current role is Regional Manager for Project & Energy Services covering Mexico and Southern border. And talking about experience being within the [indiscernible] and the project logistics management field for import, export transportation, always focused on solutions development for complex supply chain and oversize and heavy cargo, including sales, customer service, account management as well as operations and [indiscernible]. So, let's talk about a little bit about Mexico and Mexico's economy. There are many reasons that make Mexico an ideal option for near-shoring and capital equipment investment. It provides many benefits for investors such as of preferential access to export legal [ uncertainty ] for investment, highly skilled and productive and specialized workforce, strategic relocation, macroeconomic stability. In Mexico, it's an open economy that guarantees access to international markets through a network of free trade agreements. Mexico's trade is highly integrated into global value chains and has an ideal location to service the globe in terms of capacity and routing options. Next, we are presenting an informative video to learn more of the Mexican [indiscernible]. [Presentation]

All right. So thanks to the series of agreements and treaties that Mexico has for international trade and its special customer programs, the establishing companies benefits regarding the efficiency in export and import processes, as well as economic savings in terms of duties and taxes. And this is very important when you are looking for new site for your corporation. On screen, you're watching a summary of some of these free trade agreements and special programs, you are eager to learn more about them. Please feel free to contact us in our trade compliance team, who will reach you out for advisory. Then we would like to show you a little bit of the industrial corridors in Mexico. These industrial corridors refer to their geographical areas, did we have a concentration of manufacturing, industrial and logistics activities. Mexico has numerous industrial corridors that have been developed in various localities across the country. These corridors play a critical role in [ shaping ] the North American manufacturing and industry sector's failure. Throughout Mexico, there are specialized [indiscernible] known as their industrial [indiscernible], this industrial corridor is from Natural language for North America trading commerce with an easy access to seaports, airports and land gateways. Therefore, they have a tremendous impact on connecting the supply chains across the borders, making it easier for a manufacturer to rely on the movement of products and suppliers between Canada and the United States, and, of course, Mexico. If you go to the next, please. Moving on, I will check about the industry hubs distributed throughout Mexico. Several industry closures have been established in specific regions all over the country, providing specialized workforce to supply the internal and external market with a special focus in the U.S. As you can see, Mexico had a Board priority of industries, companies that have established themselves in [indiscernible] country. The Northern region, which comprehends also the U.S. Southern border has been established as the medical devices, aerospace and automotive hubs and the central region of Mexico, you will find an interesting industry diversity for automotive, aerospace, domestic appliances, mining, agri industry, textiles [indiscernible]. All right. So now I would like to talk about the Mexican infrastructure. Overall, Mexico has 377,000 kilometers of roadways, almost 21,000 of railways all across the country. Also 102 seaports, 76 airports and 40 cross-border points. The major airports are located in Mexico City, Guadalajara and Monterrey, and the major cross-border port is [indiscernible], the major seaports and airports. This is the reason why Mexico has logistical proficiency across country, connectivity and capability to receive a ship out [indiscernible] foods in all type of transportation modes. Regarding the settlement of new productive sites, it is important to consider each region's conditions or basic services, mainly power and border availability. Some of the companies that have recently decided to invest in Mexico are implementing new site construction plan to develop the renewable power sources in order to self-supply electric power for their productive presences. As such, re-shoring and near-shoring trends is attracting more manufacturers to the U.S. and Mexico for the region, reinforcing and interconnected network of manufacturing facilities. The unique cross-border environment is characterized by a fluid dynamic exchange of goods, services and people. The U.S., Mexico border, it's more than a physical device. Instead, it's a nexus of collaboration, innovation and economic prosperity, led by a continued conversion in mutual standing of business, which are vital for achieving the shared Northern [indiscernible]. Here, you can visualize in more detail, the geolocation of the major seaports, airports and cross-border points in Mexico and the U.S. The main seaports are used for inbound, outbound Europe and U.S., East Coast shipments are Altamira and Veracruz. For Asia shipments are [indiscernible]. Keep in mind that all type of goods can be trucked from the East side as well as the west side of Mexico, all across the country. As in any other countries, there is risk probability for cargo transportation within Mexico. However, it is important to highlight the risk [indiscernible] are precisely identified and concentrated at a specific hotspot. And there are security measures available to reduce the direct exposure. The risk percentage is directly linked to the type of goods as is shown on the left-hand side of the chart, right. And as I just mentioned, for improving security and decreasing risk, we highlight logistics to take into consideration implementing cargo insurance for your shipments and you could also add a tracker device such as [indiscernible] in order to have real-time location updates and immediate security alerts and full electronic escorts. Tracking and supervision of your shipments is the idea. All right. So Mexico has all the logistics capabilities to ship in and out oversize and heavy hold cargo. So you can trust Expeditors in our expert Project & Energy Services team for capital equipment moves. All 16 offices located across Mexico and the U.S. Southern border offer full forwarding services air, ocean, road and distribution, customs brokerage, order management for dangerous good handling as well, cargo insurance and U.S. Mexico transborder services. Our Project Cargo experience in the U.S. and Mexico encompasses having worked with EPCs, power generation companies, renewable energy companies, oil and gas, mechanical, industrial equipment, capital equipment and so many others. Thank you for your attention. Now I'll leave you with our PES Americas Director, Colleen Simons.

So I just want to take the opportunity just to showcase a few of the project experiences that Expeditors has had. Also right now, I'm actually in Mexico, and it's really exciting to see all of the construction, new business, the creativity for the cross-border. And it's definitely evident that customers are taking advantage of new business opportunities, specifically here in Monterrey. So I wanted to just kind of go through just a handful of experiences that we've handled just to give you some visuals. So we get involved in anything from refineries to manufacturing to solar. So there's a lot of expansive opportunities for moving oversize goods. And so a good example is we've got desalter and accessories that moved from China to [indiscernible] that was involved with chartering, door-to-door service. And when we're moving these types of equipments, there's a lot of planning and preparation that happen many, many months in advance, specifically for these types of goods, we've got to make sure we're working with the right service providers. So when we're working in different countries, we have to ensure we're working with reputable companies who have exceptional equipment that understand how we expect to handle goods and that we can have access to the port to be able to monitor and manage all of that work. Next one. Another example is the chemical plant. So again, large equipment, multiple shipments over 2-year time period moving from China, India into Monterrey, Mexico. We are, again, working with project management that is moving over a long period of time engaging with our customers to understand your expectations as well as your customers' expectations of where the goods are finally being delivered to. And then documentation is such an incredibly important part of moving goods. So understanding what are the document requires prior to the first piece of cargo moving, making sure that you have all of the documentation requirements, any licenses that are required, working with the customs broker to review the documentation and then being able to get the goods safely on board, a barge of vessel [indiscernible] ground transport and so on. So I want to just show a video just to kind of give you an idea of how we move goods and the planning and I think showing a visual always makes things a little bit more interesting. [Presentation]