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

Good morning, everyone, and thank you for joining us for today's Waves of Change webinar. We're going to be talking about navigating market shifts with confidence. And of course, we're talking about the U.S. Ocean Market today in our webinar, so we appreciate you joining us. I'm sure you're all looking for updates on things to expect and things that are changing in the market as that seems to be the one constant these days, right, because supply chain is always looking at what is on the horizon and what is changing. So my name is Samantha Hurst. I'm the host today for our webinar. And we will go through just a few items of housekeeping, before I turn it over to our speakers. So if you joined us before, you will know that typically, these webinars consist of about 45 minutes of content and then we will go into a Q&A session at the end. We do have a lot of content to share with you today, so we ask that if you have questions as we go through the presentation, you do drop them into the Q&A box specifically, not the Chatbox, Q&A so that we can keep track of those. And as you can tell, we probably have -- we have several speakers, you'll see here in a moment, and they will be helping to answer any of those questions they can in the background as we go through the content. One of the questions we get very quickly on these webinars is how do I receive the slides. So at the end, typically within an hour to 2 hours after we wrap up, I will be e-mailing you all with a quick survey, and we promise it's just a few questions, it doesn't take very long to fill out but they're incredibly valuable to help us know what kind of content and the value of the content that you're getting from these webinars, any feedback that you have to make these more important for what you do in your daily lives with work. So how do I get information on future webinars. There's also a QR Code right here on the right-hand side of the screen. You can scan that and that will also provide you information to our upcoming events that are coming up in the future. Okay. So now I have the pleasure of introducing our speakers today. We do have wealth of knowledge, as usual, on these Ocean webinars. So we have with us Scott Kelly. He's our Vice President of Ocean Services for the Americas. We have Mike Barba, he's our Director of Ocean Business Development. And then we have their Trade Lane managers with us, Blaine Steger, Wayne Ingram and Stephanie Mantz. So really appreciate them all joining us as we do appreciate you joining to hear the content they're going to provide. So I will pass it on to the speakers.

Samantha, you have to allow my video to come back on saying the host is -- there we go.

There you go, Mike, sorry about that. I'll give you that permission.

Thank you, and thank you, everyone, for joining us this morning. We have a lot of material to cover. Before we get going, I have to -- from a legal perspective, I have to just advise everybody that this is information that we're sharing with you that's domiciled in the public domain. It is not proprietary. We do have a disclaimer, it will be enclosed when you get a copy of the presentation here later on after you take the survey. We go through a lot of material. We go through a lot of data. We sift through a lot of information. And again, not proprietary, and we draw conclusions. We hope you'll draw the same conclusions we'll share as much data as possible with you. As Samantha said, please feel free to put your questions in the Q&A box. And if we don't get to them during the webinar, we will get to those questions in writing and email you back the answer to your questions. So we're not ignoring you, we're just trying to manage our time as best we can. We're going to talk today about levers that create behavior in the marketplace. And these levers -- and any of you that have attended our webinars on the Ocean Market before, we continue to talk about these 5 levers. And they drive behavior from the asset-based carriers in the marketplace and drive behavior in the market from a operative, from a deployment perspective capacity. But the levers are very simple. It's supply, which is capacity; demand, which is the amount of throughput that goes through the system on a week in, week out basis; operating expense, so biggest operating expense is labor, fuel infrastructure. There's some regulatory issues that are on the horizon that are concerning at the moment. We'll talk a little bit about them. Those 3 levers drive financial performance. And from a financial performance perspective, we can tell very quickly carriers behave much differently when they're making money versus when they're not making money. It drives a tremendous difference in behavior. And then finally, and the biggest thing that has -- Samantha hit on a little bit in the introduction is, is the waves of change, right, outside factors continue to really create havoc in the marketplace for lack of a better description. Capacity growth this year, and we'll talk a lot about this, is predicted to be well above 10%. And demand, on the other hand, is predicted to be below 5%. So everyone would think, well, based on that, there should be downward pressure on rates and there should be plenty of space. And there's not. And it's largely due to the geopolitical unrest that's in the marketplace. And you have a big outside factor that's going to come into play here in the next 2 months, which is the Longshoremen contract, the ILA contract on the U.S. East Coast and Gulf ports and Scott Kelly will take us through a little discussion about that. And we'll give you some recommendation system what we think you could do to prepare in case that does happen, like we won't give you any comment or opinion on what we think about, you decide. It's just a question of trying to understand how we can best protect your supply chain. It does always come back to supply and demand. And this is very simple. It's a supply and demand cycle. And in the beginning of this year, okay, as demand increased, okay. And capacity was artificially manipulated, right? Rates began to go on the uptick, and that's probably through quarter 1 and quarter 2 of this year. If you look back to the fourth quarter of last year, you could tell very quickly, right? It was in reverse, rates were falling, capacity was easy to come by. Geopolitical unrest, particularly in the Red Sea, was not as much of a factor as it is today. It is a huge factor today. But typically what happens in the supply demand is like when -- and we've seen this holds true no matter what we do in this market. It just moves much quicker than it's ever moved before. It used to take a lot longer to get from the top of the cycle where rates fall to the bottom of the cycle where there's shortage of supplier capacity and there's increase in demand and rates go up. It's economic theory. So, with that, okay, you look at the roller coaster that the global marketplace, global Ocean marketplace has been on for -- this almost goes back -- it goes back 11 years now. We have data back -- data points back to 11 years. And you can see it very quickly, okay, there's not anywhere in that graph, okay, where it's been balanced. It's just been a roller coaster of supply and demand being totally out of balance. 2024, as I mentioned in the beginning, capacity is going to be at 10.6% versus demand, which is going to be somewhere in the neighborhood of 3% to maybe 5%. I don't pretend to predict the future, but we'll look at some graph on that. I'm going to turn it over at this point to Blaine Steger, and he's going to take you through some of the data points we have from the capacity from the supply side just to kind of give you an outlook as to what's going to happen there. So Blaine, do you want to take it from here?

Thanks, Mike. And as mentioned, around 11% capacity growth this year. So who's bringing that online? And where is it being deployed. By far, MSC growing their order book the most during this period, spending for that pandemic revenue and increasing their fleet count, they will control just shy of 20% of the global market share of vessel capacity at the end of this year. And that's probably 5 to 7 points ahead of #2, which would be Maersk. Over the next few years, CMA will grow into that third spot. And then considerable growth coming across what alpha-liner would turn mid-tier carriers, so Evergreen, Hyundai, ZIM, who continue to stand forward their positive revenue from hot Asia markets into additional growth in the fleet. The other thing we see happening and what will contribute to additional growth over the next several years is there is a lack of scrapping going on in the market. That's for 2 reasons. One, as the market ebbs and flows faster, there is a greater need for carriers to have access to capacity. And so charter companies as well as carriers are holding on to vessels longer. It allows them to amortize the cost across their books longer. And then there's also a lack of capacity. So there's only so many places where they can take a ship to cut it up and sell the scrap steel. And so there is some limitation on how much of that can be done. Over the past 6 months of this year, almost 1.7 million TEUs of capacity have come online, just shy of 60,000 TEU been deleted. It is a big shift and swing in 95% differential of how much is coming on to going off, we're not for current disruption, things like the Red Sea causing a lot of capacity to be dropped into Asia to Europe trades, Middle East and Mediterranean trades, there would be a significant overage within the market. From an inactive fleet perspective, the carriers have hold almost all of the capacity off the sidelines, charter rates within the market are back on the rise, which would indicate a lack of available ships. And what we do show is idle from the publications we're able to get access to. It's largely the capacity that's in repair. So it's vessels that are being repainted, they're having new propellers put on them, engine upgrades or just having something broken fixed. The other big effect on capacity this year has been blank sailings. And some of that is scheduled activity as carriers redeploy assets within the fleet to where they maximize usage and revenue. The other part of that is congestion that gets caused by large increases in demand and backlogs like we've seen in places such as Singapore this year impact their ability to be on time. And so you see a lot of structural gaps. As demand has risen across a number of trades this year, we'll talk a little bit more about that, carriers have cascaded that capacity to chase the ROI, right? And they're putting that commodity where it makes the most money. And so there is a lot more blank sailing activity happening in trades based on that ship being able to make more revenue somewhere else. From a demand perspective, we only get financial reporting, it's about 3 months lag time based on the way everybody produces numbers. Through April of this year, the trend was about 7.5%. May, June and July have absolutely exploded. And July of this year closed about 11% ahead of last year for U.S. container imports according to the carts. And that's up 17% over the same month a year ago. So considerable demand coming in an early peak season for May, June and July and causing significant disruption in the transpacific and India subcon markets. And then where is that demand coming from? It's a little bit of every industry and a little bit of all origins. I'm going to turn it over to my counterpart, Wayne Ingram, Trade Lane Manager to talk about what's driving all of that growth in the marketplace.

Thanks, Blaine. And so kind of, as you can see, you guys can see here, it has to be broken down into raw materials, consumer goods, machinery parks, chemicals, automotive, capital equipment, temperature control, fashion goods. As you can see, almost all sectors of demand industry and the commodities being shipped are pretty much up with the exception of special handling goods down just a little bit. So all these additional goods are obviously driving what's happening in the market. And if you look at it year-to-date and then what we saw in April, where you can see those trends tend to go up as well in the month of April as well. So as you can see, the demand is up and all commodities across the -- that we're shipping right now are up. So all right. So demand. So where is this demand coming from? Where is it going to? So in this particular slide here, it kind of breaks it down for you. So all right, from North America, you can see that both imports and exports are up. So both goods coming in and out of the Americas -- of North America is -- are elevated at this time. And for most all regions, as you see from Asia, all imports and exports out of Asia are also up. India, Subcon Middle East, as you can see those are up as well. So pretty much all the trades are up with the exception of Africa on the exports out of Africa. But this just kind of shows you the trends of the growth by regions and how much they have grown as a whole, both on the import and export side. Now we talk about growth by trade, right? So now we look at the trades here, you can see it broken down by individual trade. So you can see North America to Africa is down. But for all of North America export trades pretty much they're up. Same thing if you look at the Europe trade as well. As you can see, all the trades year-to-date are up year-over-year. And then the same thing for if you look at Asia with the exception of Africa, it is up year over -- I mean year-to-date actually, it's up over year-to-date as well. So the other one I want you to take a look at, if you look at the India subcon and Middle East, which was impacted heavily due to the Red Sea situation. As you can see, that trade is up significantly as well. year-to-date. So those are huge impacts into the market right now, which is why we're seeing a lot of disruptors that we're seeing because of all the increased demand out of these particular markets.

Thanks, Wayne.

No problem. Thank you, Mike. And now I'll turn it back over to Mike.

So you can tell based on what Wayne and Blaine took us through, right, from a supply and demand perspective, demand is on the uptick. Supply, although it's a tremendous amount of supply coming into the market is being soaked up for a lot of different reasons in a lot of different areas. And it is driving, okay, rates, it's driving rates on the -- and the uptick, it's driving to the upside. So if you remember from the first slide, what's the third lever. The third lever is operating costs, right? What's the largest operating cost for an asset-based carrier for a steamship line, fuel. And right now, fuel is not, okay, accelerating or decelerating to the point where it's going to create a lot of havoc in the marketplace. It's -- I'm going to say it's relatively stable. It's running anywhere between about $580 to $600 a ton. And that's for a VLSFO. VLSFO stands for very low sulfur fuel oil. So from a cost perspective, it's not driving, okay, operating costs up. So what's happening as capacity is being utilized because of geopolitical situations, rates are on the upswing, demand is beginning to come up or come forward what's beginning to happen? The financial performance -- and I talked a little bit about it at the beginning of the presentation, right, what happened here? For the better portion of 2023, they went from a positive operating perspective, right, or a positive EBITDA perspective, margin per quarter, down below the line, okay? First quarter of 2024, however, the latest financial reporting we have from them, they're back above the line, okay? And second quarter results although I don't like to predict the future, but I'm fairly confident that second quarter results will be above the line as well for the liner companies. So they are now, again, beginning to make money on the revenue -- on the operating side. I'm going to turn it over -- there's consequences, okay, to these disruptors in the marketplace as capacity moves around as the Red Sea situation, the turmoil continues. And so I'm going to turn it over to Stephanie, and she's going to take you through some of the consequences or some of the disruptors that happened because of this.

Yes. So if you look at the global schedule reliability graphic on your left. If you can see right now, 2024 in the yellow line, we're somewhere in the middle between 50% to 60%, which is obviously very low considering back in pre-pandemic 2019, 2020. If you look at the dark red and the red line at the top, the average global schedule reliability was somewhere between 65% and all the way up to 85% or so. And then you had the pandemic which obviously, when there was a huge rush and a lot of the carriers trying to figure out where they're going to put capacity, where they're going to put their vessels to meet that demand. The schedule reliability was very low. And then we ended up 2023 last year, somewhere in the middle. So as you can see, 50% has become pretty much the norm right now, which is not so good. And on the right-hand side, the global average delay for late vessels is somewhere about 5 days. And so it's probably also why you saw Maersk and Hapag-Lloyd come out with the new Gemini Alliance promising that they'd meet 90% or better as far as scheduled reliability goes. So part of the disruptions, like Mike mentioned, is the Red Sea being blocked and the new capacity coming online and just the carriers shifting around where they're putting the newer vessels.

Yes. And that kind of falls into the same category. Blaine hit on it before, right? They are managing their capacity to drive the best return on invested capital. So they're moving that around just like they would move a -- it's a commodity. So wherever it makes the most money for them, that's where they will deploy the capacity. It's really kind of fascinating to watch -- but sorry, Steph, I didn't mean to interrupt you.

No, no, no, not at all. So here, I mean, as you can see in June, July of last year, if you focus on look at the Asia to North Europe trade lane that dark red color, somewhere between 80% reliability. And then you saw this huge dip come December January of last year when there were a lot of the attacks going on in the Red Sea happening. So schedule reliability went way, way down and then started to improve again in -- or again a little bit around 50%. So this happened also India to Europe, similar kind of graphic and you just really start to see this huge dip and reliability come when the ship started transiting around the Cape of Good Hope. And then you have the green line, which is kind of an outlier here, Asia to the Middle East, a lot of companies, they're still not calling a lot of ports in the Middle East. So that reliability is way, way down.

Okay. Steph, thank you. Like outside factors and disruption, Scott's going to take us through some of these. And there are a lot. But I'll turn it over to him, and I think one of the ones -- I know I saw a couple of questions already in the Q&A box about the labor situation on the East Coast. And I hope some of the -- that will be answered during Scott's slides and presentation.

Okay. So just kind of tie in all this together, what we see right now is disruption, increased rates, tight markets. If we look at the markets around the world, they're positive, as we noted, they're up, as we noted. Are they extremely robust? We don't think so. They're average, if -- average of average. And there's plenty of capacity in the world to cover the increased demand at the moment. But the big disruptor right now, quite frankly, and I think everybody knows is the Red Sea disruption. We've also got the upcoming contract with the ILA on the East Coast of the United States. We have the traditional weather challenges in the Southeast of North America and South America. And then lastly, we also have the weather issues that generally are a problem in Asia at this time of the year. So the big disruptors are the Red Sea and the ILA. But that Red Sea disruption has really soaked up any of the new capacity that's out there, bringing vessel strings from generally 8 to 9 vessels per string to 11, 12, 14 vessels per string. So there's 2 or 3 more vessels in every string required, and that's just consumed all the capacity. So we'll go to the next slide. I don't I think control this. Okay. So let's talk about the labor. There's -- this is a picture Dennis Daggett, and he was speaking to his team in the ILA and the locals and talking about what they want and what they really want to go after this year. And there's 2 major issues with the ILA this year, and it is, of course, compensation and pushing back on technology. They don't want -- they think technology eliminates jobs and they're looking to maintain and grow the union as much as possible, let's go to the next. So again, as I mentioned, terminal automation and compensation packages. The West Coast Union did pretty well in their negotiations. The East Coast will probably use that as a starting point. So, last time we saw a strike or any kind of walk out was in -- we saw one day Wildcat strikes on the East Coast, we saw a brief walk out in Baltimore, but we haven't seen any really significant work disruption in years. Today, the ILA -- or actually at the end of the month, the 1st of August, the ILA notified all parties involved, they have to do a 60-day advanced notice that they don't plan to work after their contract ends. They notified the USMX, the management and also the FMC that they don't plan to work if their contract is not ratified by the end of the month of September. It's maybe a little bit of brinkmanship, but it is what it is. It's also a little bit of -- they just have to do that. So I don't know that we need to look into that as any kind of advanced warning. So as customers, we're advising our customers to look into multiple routes, shift to cargo to West Coast. Look, if you're coming into Europe, if you're coming from Europe and to Europe, look at the Canadian gateways, look at Mexican gateways as well, which are possible. Again, look at new ports of arrival, cross-stocking and distribution centers that distribute from the West Coast or other locations. Of course, pull orders forward as much as you can. And I think that reflects some of what we are seeing right now in demand. We're seeing orders being pulled forward, and it's increasing the market. And again, let your teams know about the deposit disruptions and lead times. And of course, forecast is critical. If you're going to be successful in navigating through this, you really need to help us and our partners, the carriers, understand what your demand looks like, and we -- that helps us plan as well and secure the space that's required. And if the forecast is bad, it replicates itself over and over again between us and the carriers, and the carriers themselves, in many cases, will account for the drop down or the fall down on a booking -- on the booking ratios and account for that. Actually, they'll take larger book someplace else. And of course, transition to air if possible or needed, okay.

Thanks, Scott. And I know we talked a lot about this Red Sea disruption. There was a similar disruption in the Panama Canal. But we're going to let Stephanie Mantz just kind of take you through this a little bit. And part of that reason is because Stephanie, in the last 6 months was deployed in Bahrain as U.S. Navy Reserve. So she has firsthand knowledge of what's going -- or some of what was going on over there at the time. So Steph, I'm going to hand it over to you.

Thanks, Mike. Yes, I think we talked about this a little bit too at the last webinar. And I know if you look in the news on a daily basis, there's vessels being attacked, and this is a major choke point and it should be -- there should be a free flow of international trade and international commerce and vessels continue to be attacked. And before this was restricted and it was always, quite frankly, a very dangerous area to go through, but continues to be very dangerous. And I think it was about 10% to 15% of global trade, went through the Red Sea area now that's being constricted. And the straight [indiscernible] up there, just off of Yemen, last month stood an average of 24 transits daily versus about 77 a year ago. So it's down about 1/3. And there was an open source report. You can look it up also by the Defense Intelligence Agency in July that cited since November of 2023, there have been a total of 87 incidents and 4 mariners who lost their lives. And just to put that in perspective, there's been 7 new attacks in July and about 16 attacks in June. So even though we're not seeing it in the news every day, it's still going on, on a daily basis. And it's still going to be a while before shipping companies decide to -- that it's safe to go around. And then on the right side, just a quick update on the Panama Canal. I know last year, because of the drought, we were following this a lot more closely, but the Canal, they released additional slots. So they're up to 35 slots now, to go through the NeoPanamax locks and the Panamax lock. So they're back to about normal operations, it's 36 transits a day. So they've had a lot more water now and had the appropriate drafts they need to go through, but it's something that they're looking -- the canal authority is looking at longer term, how to ensure this doesn't happen again and to mitigate some of the issues associated with the Canal last year and not having enough water.

Thanks, Steph. So again, back to disruptors, I'm going to hand it back to Scott because this is also, although not readily apparent today, it's beginning to show itself.

So just briefly on this subject. We've got a major shift in the end of fourth quarter and starting first quarter of 2025 with 2 very large carriers, global carriers, one being MSC, which is, as we mentioned, the largest carrier in the world. The second one being Maersk, which is the second largest carrier in the world and the third being Hapag-Lloyd, which is, I would say, a medium to large-sized carrier as well. So we're going to see MSC and Maersk go in their separate ways. And then we're going to see Hapag-Lloyd partner with Maersk and pull out of the Ocean Alliance. So there's going to be some shifting of vessels and disruption with port omissions as these carriers redeploy and adjust their terminals, their chassis locations, I think they're operating locations in each rotation for the ports and also the rotations of the vessels and where they go. So we think that this could cause some disruption in late fourth quarter and also first quarter of 2025. But that's on the horizon.

And part of what concerns us as well as you start looking at the percentage of market share, right, that some of these carriers are holding. Even as an independent as an example, MSC is going to control 20% of the market by themselves. So there is going to be impact from that. As these things begin to shift those operationally, Hapag-Lloyd begins to pull out of the current vessel sharing with the alliance that they're in and move their assets to coexist with the Maersk and it's not a vessel-sharing alliance. It's a slot sharing agreement. I think you're going to see, again, impact from a disruption perspective in the marketplace. So it's something we're certainly keeping an eye on. So from a Global Ocean perspective, as we kind of took you through what we were seeing in the marketplace, we continue to fall back on our value proposition, and this is why we have continued from a strategy perspective to have the Ocean strategy we have in place and have for quite some time now, which is a wide carrier footprint. If you look at -- I go back 1 slide, and you look at those vessel-sharing alliances, even in 2024, and we'll try to continue to keep ourselves balanced in 2025. We're somewhere in the vicinity of 30% to 32% on each alliance. And in addition to that, we have a minimum of 2 core carriers in each alliance. So we believe in a wide carrier footprint, from a value-added service perspective. Many of you know us for many years, you are existing customers. For those of you that don't know us, we have tremendous amount of value-added services. We have warehousing, we have cross-dock, we have air freight, we have customs brokerage. We can certainly be flexible. One of the things we're very proud of is we continue to have localized support. We do not believe in 1-800 customer service centers. We have boots on the ground. Right now, I think, well over 350 global offices over -- in the Americas alone, probably over 80 or 90 offices fully staffed, ready to help you during your needs in the Americas. We are a publicly traded company. You can just check out our financials. We are very financially stable. We are very conservative, okay? We take a conservative approach to risk. And so sometimes, although we'd be criticized in that, we stand firm in our assessment of what we see in the marketplace and how much risks we will put your supply chain at. We don't want to put your supply chain at risk. Our objective is always to move your goods and protect the supply chain as most efficiently as possible. And obviously, then from a compliance perspective, we are the largest U.S. customs broker here in the United States, and we have a customs brokerage perspective globally. So a lot of our value proposition continues to be this. If you look at these 8 elements, we stand firm on this and we have for many, many years. So before I, I guess, get into Q&A, I'd just asked if anybody, if any of the trade link personnel or Scott, do you have any closing comments you want to add?

No, I think we can do the Q&A. But just basically, we think that the disruptions and the roughness of the market is something that is - probably it's kind of new. It's been happening since 2021. But we do believe that this is going to continue as we go forward for the next couple of years. We're going to see ups and downs, more often, okay.

Blaine, Wayne, Steph, anymore from you guys from a trailing perspective, if I know we rely tremendously on your expertise in each of your trade lanes.

No. I do see a fair amount of questions in the Q&A box around rates and how bad congestion on the West Coast could get where there are strike it, it's not something we would want to speculate on, and it's been so long since East Coast ports -- since the ILA did go on strike, but I don't know we have a historical frame of reference. I will say that we do stay in close communication with ports and terminals. And that earlier this year, at the end of last year, Mike and Scott were down in Los Angeles and Long Beach meeting with the individual ports. And a lot of lessons were learned from the COVID era congestion of 2020, 2021 and the elasticity of the port, how much rail cargo they can move. And mean while volumes are higher year-on-year, they have been doing very well, and that's something we track as a company to keep an eye on. And so your local Expeditors representatives can keep you updated on what the port looks like. A lot of it will depend on how much of a shift in demand there really is, how much of the front-loading we've already seen in some of the numbers that's happened. And then, of course, what shippers try to do for trade lanes, where there are less options, right? India subcon is dominated by routings to the East Coast, there's limited West Coast capacity, it competes with the Asian markets. There is very limited capacity from the transatlantic trade in and out of the U.S. West Coast. And so there is a significant amount of volume that doesn't necessarily have a place to transition if the East Coast shuts down.

Now we have to remember, too, that half of the -- roughly, just rough numbers, half of the business that we loose in and out of the country moves through the East Coast, and there's many more ports versus the West Coast.

And remember, it's not only in the East Coast ports, it's the Gulf ports as well. That contract covers the Gulf as well as the East Coast. So, it is well above. It's about 57%, I think, that moves via East Coast of Gulf ports. So it could be a tremendous impact. There's a lot of questions in the chat box about whether the carriers will continue to accept bookings with the pending labor disruption of the ILA. To answer that question, they will continue to accept bookings because they don't know if the ILA is going to strike or not. The question becomes how much risk do you want to take from a customer perspective to book cargo a week before if there is no contract. I mean you're almost to the break point now, where you have to start considering some alternative routings. So it will be interesting to see. There was another question, how long could the ILA go on strike? I -- we don't have the answer to that question. I don't know how deep their pockets are, but -- and I don't know what the rules are in terms of how they'll pay their union workers during the strike period. But I would suspect that that's part of their positioning right now. And I'm fairly confident that they are confident that they have the ability to walk off the job for at least a short period of time. Our hope is that there is no strike. I mean obviously, I think everyone on the call would agree, we don't -- we're not looking for labor disruption for sure. There was another question about the Rail Union potential strike in Canada, and that is still in the hands of the Canadian government. So I don't know, yet.

I do, Mike. The Industrial Relations Board votes tomorrow on that to determine whether essential or not essential. And if they are deemed nonessential, then the strikes -- the union is going to have to notify the Board, it's given 72 hours notice, and then they can walk off. So tomorrow is the day when we learn whether or not the -- basically whether rail roads are going to have the ability to walk off or not.

There's a great question in the chat box and that is the Ocean carriers can make astronomical profits, if there is chaos in the marketplace. So what incentive did the carriers have to prevent a strike? I think a good answer to that question, and we're certainly not the asset owner, but I -- Scott, myself came -- both came from the asset side. I can tell you any ship that's laid up , so an average vessel that's laid up, if it's an 8,000 TEU vessel, the cost to lay it up for day is over $1 million a day if it's doing nothing. A tremendous amount of costs associated with a potential strike that would happen on the East Coast and Gulf ports and capacity that would be put to the sidelines or stuck immediately. And then you have the ripple effects afterwards, of trying to get that cargo cleared once the strike, once their settlement on the strike, a tremendous amount of disruption that's in the marketplace, just trying to clear that backlog of freight that could be impacted. So I don't think that the Ocean carriers want to have a walk out. I think irrespective of what happens to the rates for the alternate gateways, it's not enough to offset what could be a tremendous impact to their operating costs. There was another question. I know there's a lot of questions on the East Coast and West Coast and the strike. And I know the congestion on the West Coast, how bad could that get. Blaine hit on it before a little bit. Scott and I had the opportunity. We went down to the PSW and we've gone also into the P&W into the terminals themselves. We've met with the terminal operators, as well as the port authorities. And right now, they're very confident that they have the ability to handle excess volume should a labor disruption happen on the East Coast.

So it should be noted -- I'm sorry.

Yes, no, go ahead.

It should be noted just not -- I don't know if everybody here knows this, but a vessel that is intended to go to the East Coast, if they reroute the vessel to the West Coast coming from Asia, for instance, the West Coast Union will not work that vessel. So we'll see a diversion of cargo on West Coast vessels. And of course, that will create a stampede at the front end. And I think, as Mike mentioned, I think there's a lot of lessons learned from COVID and the carriers have adjusted their operations to take on and have a little bit more elasticity in their network.

A lot of questions about -- in the chatbox about an Election that's coming up in the United States. We don't offer a political commentary or opinion. So I would tell you, we're just not going to comment on that. We don't know. As much as I would like Margaret Brennan to invite me to face the nation, I still haven't gotten that call also. So if I do, I'll let you guys know. And then there's another couple of questions on what do we expect for next year in terms of rates? Still too early to tell. A lot of it depends on the disruptors in the marketplace. I think you can tell from our presentation, a lot of what drives rates up or down is the imbalance or balance of supply and demand and other disruptors. A lot of good questions. There was one question in there that about the U.S. courts, container ports and the pending orders for Chinese-made ship-to-shore cranes. And I don't -- the American Association of Port Authorities did report that 35 cranes will be delivered to the U.S. after the tariff takes effect this month. How much port operation charges will be increased due to these tariffs? I wouldn't even begin to speculate on that. I don't know. But it is a high percentage on the tariff side that's going to be put on top of these cranes if they are being built in China. Great questions today, wow. Well, I think, again, a lot of the questions were on the strike. I'm just going through real quickly to see...

There was a comment there. Terry Oneill asked about CMA routing a vessel through the Suez Canal. That very well could be and probably is a vessel that's carrying U.S. military. They do carry a lot of cargo for U.S. military, which would be escorted, but they are not going back to the Suez to run the commercial vessels. And it should be noted, too, that the insurance companies ensure these vessels, have told them, if you go into the Suez Canal, we are not insuring you. So that's a big -- aside from the crew that is their first worry, the financial impact would be massive. So...

Also those ships' like CMA, they have a Naval escort going through almost all the time. So they usually have the French Navy escort them , the Italian. There could have been a couple of MSC vessels going through and they had Italian frigates that were escorting them. So they almost always have a military escort.

There was a question in the chat box as well on the likelihood of the government getting involved, if there is a labor strike that just depends on how long the strike is typically, there'll be probably backroom pressure from the Biden administration on both sides that come to agreement even before -- we don't know if there's going to be a strike. So I want to make sure that we're very clear here. We're not predicting that there is going to be a strike at the moment. We're just giving you what we know from the public domain. But any time there is a labor disruption, particularly from a Longshoremen perspective, whether it be the U.S. West Coast or U.S. East Coast, there will be backroom pressure from the government to try to bring them back to the table if they walk away from the table and settle.

Yes. Mike, Joshua McMahan asked the question about carriers moving to port of discharge over IPI. I'll just take that quick question. Generally speaking, the carriers move about maybe 40% of their business to ports, East or West Coast in the United States or Europe to the ports. If we have a disruption in the marketplace, absolutely the carriers will be looking to probably take port cargo as opposed to inland cargo because they're going to want to turn those containers very quickly and get them back to Asia to load them up for the next vessel.

Okay. I think there's a good question in here about whether the Biden Administration and Department of Labor has the authority to intervene and force the ILA to work? That's a tricky subject. Under...

They don't have the ability to enter being and force them to work. The President could under the Taft-Hartley Act of 1947 inwoke them back to work. And this was last done by President George W. Bush in 2002 during the ILWU West Coast lockout. Because the U.S. has military assets deployed abroad and actively involved in conflict, it is something that could be done, though it wouldn't be an immediate get action.

I think we hit most of the questions. There are a couple in there. There was a question about an outlook on the Singapore U.S. trade lane. And I'll be quite honest, I don't have the detail on that, but we'll have somebody locally come back to you and get you some information, some data points on the Singapore to U.S. trade lane. We'll have somebody locally answer that question for you. And again, from a rate prediction perspective for next year, we have -- we're not going to try to even predict rates at the moment. I think right now, we're seeing there's a tremendous amount of disruption in the marketplace. And because of that, there's upward pressure on the rates. Are the rates continuing to escalate or go wildly upward? No, they're beginning to cool a little bit. And again, you saw our supply, slides on demand. Demand is not overly growing. It's growing year-over-year, but it's not growing in double digits. So time will tell. Samantha, I think we're going to try to close it out unless you have something more that we...

Thank you, Mike, I was just double checking myself to make sure that I think we had addressed most of the questions or at least sent messages to those who we need to get more information to. So I believe we are good unless anyone has anything. I do see there's a question regarding air freight capacity and that is highly something we can certainly reach out to you about as well. And there will be additional webinars later in the year, addressing other services such as air freight, but we can send you some information separately. Looking to see if we have anything else. No, I guess, again, we just always thank you all for joining these webinars. We do have a list of additional events coming up, the next one in the month of August for the Americas is a U.S. customs bonds and that's going to be going through what exactly is a customs bond and the different thinnings that you need to be aware of, such as stacking. So if you're interested in registering for that webinar, there will be a link on the landing page that you will receive after you complete the feedback survey. So for anyone who joined late, just remember, we will send you a feedback survey here in the next hour. And we just ask that you give your honest opinion about the content provided today and any feedback you have on how we can make these even more valuable for you. So we certainly appreciate all of your great questions and your ability to join today and hopefully, in future events.

And we appreciate...

Thank you all of our speakers.

Yes. Thank you very much.

Thank you all for joining us.

We really appreciate it.

Have a great day.